**U.S.
      SECURITIES AND EXCHANGE COMMISSION**





**Washington,
      D.C. 20549**





**FORM
      10-QSB**








(Mark
      One)


xQUARTERLY
      REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF
      1934





For
      the
      quarterly period ended June 30, 2006





oTRANSITION
      REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934





For
      the
      transition period from _______ to _______





Commission
      file number 0-25455





**LEXINGTON
      RESOURCES, INC.**


(Exact
      name of small business issuer as specified in its charter)




NEVADA
              88-0365453(State
                  or other jurisdiction ofincorporation
                  of organization)
              (I.R.S.
                  Employer Identification
                  No.)












7473
      West
      Lake Mead Road


Las
      Vegas, Nevada 89128


(Address
      of Principal Executive Offices)





(702)
      382-5139


(Issuer's
      telephone number)





n/a


(Former
      name, former address and former fiscal year, if
      changed since last report)





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




Yes
x  No
o





Indicate
      by checkmark whether the registrant is a shell company (as defined in Rule
      12b-2
      of the Exchange Act).




Yes
o No
x









Applicable
      only to issuers involved in bankruptcy proceedings during the preceding five
      years.




N/A


1





Check
      whether the Registrant filed all documents required to be filed by Section
      12,
      13 and 15(d) of the Exchange Act after the distribution of securities under
      a
      plan confirmed by a court.




Yes
o No
o


Applicable
      only to corporate issuers





State
      the
      number of shares outstanding of each of the issuer's classes of common equity,
      as of the latest practicable date:







Class
              
              Outstanding
                  as of August 10, 2006Common
                  Stock, $.00025 par
                  value
              
              38,766,270










Transitional
      Small Business Disclosure Format (check one)





Yes
o No
x








2





**LEXINGTON
      RESOURCES, INC.**


**INTERIM
      CONSOLIDATED**  **FINANCIAL
      STATEMENTS**




**JUNE
      30, 2006**


**(UNAUDITED)**





PagePART
                I.
              FINANCIAL
                INFORMATION
              4ITEM
                1.
              INTERIM
                CONSOLIDATED FINANCIAL STATEMENTS
              4CONSOLIDATED
                BALANCE SHEETS
              4INTERIM
                CONSOLIDATED STATEMENTS OF OPERATIONS
              5INTERIM
                CONSOLIDATED STATEMENTS OF CASH FLOWS
              6NOTES
                TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
              7ITEM
                2.
              MANAGEMENT'S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION
              13ITEM
                3.
              CONTROLS
                AND PROCEDURES
              22PART
                II.
              OTHER
                INFORMATION
              23ITEM
                1.
              LEGAL
                PROCEEDINGS
              23ITEM
                2.
              UNREGISTERED
                  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
              23ITEM
                3.
              DEFAULTS
                UPON SENIOR SECURITIES
              25ITEM
                4.
              SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
              25ITEM
                5.
              OTHER
                INFORMATION
              25ITEM
                6.
              EXHIBITS
              26SIGNATURES
              26


3


**PART
        1. FINANCIAL INFORMATION**
 
 **ITEM
        1. FINANCIAL STATEMENTS**


**LEXINGTON
      RESOURCES, INC.**


**CONSOLIDATED
      BALANCE SHEETS**


June
                30,
              2006
            
            
            December
                31,
              2005(Unaudited)**ASSETS****CURRENT
                ASSETS**Cash
                and cash equivalents
            
            $
            1,703,717
            
            $
            520,332Accounts
                receivable
            
            
            765,454
            
            
            184,546Due
                from related parties (Note 7)
            
            
            92,696
            
            
            -Prepaid
                expenses and other
            
            
            11,757
            
            
            -Current
                portion of deferred finance fees (Note 5)
            
            
            65,675
            
            
            401,7152,639,299
            
            
            1,106,593**DEFERRED
                FINANCE FEES**(Note
                5)
            
            
            14,035
            
            
            267,810**PROPERTY
                AND EQUIPMENT**(Note 4)Oil
                and gas properties - full cost method of accountingProved,
                net of accumulated depletion $515,878 (2005 - $420,937)
            
            
            2,206,507
            
            
            2,329,448Unproved
            
            
            9,639,570
            
            
            4,000,02411,846,077
            
            
            6,329,472Other
                equipment, net of accumulated depreciation of $291,537 (2005 -
                $1,328)
            
            
            5,253,208
            
            
            2,16717,099,285
            
            
            6,331,639$
            19,752,619
            
            $
            7,706,042**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****CURRENT
                LIABILITIES**Accounts
                payable and accrued liabilities
            
            $
            2,987,166
            
            $
            936,265Promissory
                note and other short term advances (Note 5)
            
            
            610,192
            
            
            601,973Current
                portion of convertible notes and accrued interest (Note 5)
            
            
            521,306
            
            
            1,940,7814,118,664
            
            
            3,479,019**CONVERTIBLE
                NOTES**(Note
                5)
            
            
            87,033
            
            
            1,220,965**LONG
                TERM DEBT**(Note
                5)
            
            
            1,295,961
            
            
            -5,501,658
            
            
            4,699,984**CONTINGENCIES
                AND COMMITMENTS**(Notes 1, 4, 5 & 7)**STOCKHOLDERS’
                EQUITY**(Note
                6)Common
                stock $.00025 par value: 200,000,000 shares authorizedPreferred
                stock, $.001 par value: 75,000,000 shares authorizedIssued
                and outstanding:38,766,270
                common shares (December 31, 2005 - 18,627,523)
            
            
            10,611
            
            
            5,575Additionalpaid-in
                capital
            
            
            28,925,675
            
            
            16,297,665Common
                stock purchase warrants
            
            
            7,578,778
            
            
            2,809,836Accumulated
                deficit
            
            
            (22,264,103
            )
            
            (16,107,018
            )14,250,961
            
            
            3,006,058$
            19,752,619
            
            $
            7,706,042


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


4


**LEXINGTON
      RESOURCES, INC.**





**INTERIM
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**(Unaudited)**





For
                the three month period ended
            For
                the six month period endedJune
                30,
            June
                30,2006
            
            
            2005
            
            
            2006
            
            
            2005**REVENUES**Oil
                and gas revenue
            
            $
            90,303
            
            $
            263,203
            
            $
            257,510
            
            $
            393,263Drilling
                and service revenue
            
            
            555,011
            
            
            -
            
            
            689,110
            
            
            -645,314
            
            
            263,203
            
            
            946,620
            
            
            393,263**OPERATING
                EXPENSES**Operating
                costs and taxes
            
            
            58,184
            
            
            63,396
            
            
            118,282
            
            
            121,461Rig,
                well and pulling unit expense
            
            
            241,404
            
            
            -
            
            
            462,890
            
            
            -Salaries,
                wages and related
            
            
            320,563
            
            
            -
            
            
            476,943
            
            
            -Depreciation,
                depletion and amortization
            
            
            198,346
            
            
            84,973
            
            
            385,150
            
            
            139,880General
                and administrative
            
            
            473,451
            
            
            268,430
            
            
            739,329
            
            
            568,951Consulting
                - stock-based
            
            
            -
            
            
            -
            
            
            -
            
            
            775,753Investor
                relations and promotion
            
            
            331,801
            
            
            10,772
            
            
            1,930,975
            
            
            601,7201,623,749
            
            
            427,571
            
            
            4,113,569
            
            
            2,207,765**NET
                LOSS FROM OPERATIONS**
            
            
            (978,435
            )
            
            (164,368
            )
            
            (3,166,949
            )
            
            (1,814,502
            )**INTEREST
                AND FINANCE FEES**(Note 5)
            
            
            (1,369,061
            )
            
            (8,750
            )
            
            (2,990,136
            )
            
            (8,750
            )**NET
                LOSS FOR THE PERIOD**
            
            $
            (2,347,496
            )
            $
            (173,118
            )
            $
            (6,157,085
            )
            $
            (1,823,252
            )





**BASIC
                AND FULLY DILUTED**
              **NET
                LOSS PER SHARE**
            
            $
            (0.07
            )
            $
            (0.01
            )
            $
            (0.21
            )
            $
            (0.11
            )**WEIGHTED
                AVERAGE COMMON SHARES**
              **OUTSTANDING**
            
            
            34,119,917
            
            
            17,365,104
            
            
            28,991,126
            
            
            17,227,525





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





5


**LEXINGTON
      RESOURCES, INC.**





**INTERIM
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(Unaudited)**





For
                the six month period endedJune
                30,2006
            
            
            2005**CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                loss for the period
            
            $
            (6,157,085
            )
            $
            (1,823,252
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Stock-based
                compensation
            
            
            -
            
            
            775,753Non-cash
                expenses
            
            
            112,500
            
            
            146,429Oil
                and gas depletion
            
            
            94,941
            
            
            139,880Depreciation
            
            
            290,209
            
            
            332Non-cash
                interest and finance fees (Note 5)
            
            
            2,792,725
            
            
            -Changes
                in working capital assets and liabilities:Accounts
                receivable
            
            
            220,601
            
            
            (104,029
            )Prepaid
                expenses and other
            
            
            8,692
            
            
            -Accounts
                payable and accrued
                liabilities
            
            
            1,144,705
            
            
            (79,429
            )**NET
                CASH FLOWS USED IN OPERATING ACTIVITIES**
            
            
            (1,492,712
            )
            
            (944,316
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES**Purchase
                of equipment
            
            
            (312,514
            )
            
            -Additions
                to oil and gas properties
            
            
            (5,611,546
            )
            
            (785,146
            )Cash
                acquired on acquisition of Oak Hills, net of transaction
                costs
            
            
            119,544
            
            
            -**NET
                CASH FLOWS USED IN INVESTING ACTIVITIES**
            
            
            (5,804,516
            )
            
            (785,146
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES**Drilling
                obligation payments
            
            
            -
            
            
            (171,086
            )Advances
                to related parties
            
            
            (77,524
            )
            
            -Convertible
                note repayments
            
            
            (645,690
            )
            
            -Long
                term debt repayments
            
            
            (222,423
            )
            
            -Promissory
                notes and other short term advances
            
            
            -
            
            
            1,086,545Proceeds
                on sale of common stock
            
            
            9,426,250
            
            
            512,630**NET
                CASH FLOWS PROVIDED BY FINANCING ACTIVITIES**
            
            
            8,480,613
            
            
            1,428,089**INCREASE
                (DECREASE) IN CASH AND CASH EQUIVALENTS**
            
            
            1,183,385
            
            
            (301,373
            )**CASH
                AND CASH EQUIVALENTS, BEGINNING OF PERIOD**
            
            
            520,332
            
            
            326,293**CASH
                AND CASH EQUIVALENTS, END OF PERIOD**
            
            $
            1,703,717
            
            $
            24,920


**SUPPLEMENTAL
      CASH FLOW INFORMATION** (Note
      8).





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


6
 
 **LEXINGTON
        RESOURCES, INC.**
 **NOTES
        TO **INTERIM
        CONSOLIDATED****FINANCIAL
        STATEMENTS**** **JUNE
          30, 2006**
 **(UNAUDITED)**





**NOTE
      1:****NATURE
      OF CONTINUED OPERATIONS AND BASIS OF PRESENTATION**





Lexington
      Resources, Inc., a Nevada corporation, and its wholly owned subsidiary Lexington
      Oil & Gas Ltd. Co., an Oklahoma Limited Liability Corporation (“Lexington”),
      were organized for the purposes of the acquisition and development of oil and
      natural gas properties in the United States, concentrating on unconventional
      gas
      production initiatives that include coal bed methane gas acquisitions and
      developments in the Arkoma Basin in the State of Oklahoma as well as Barnett
      Shale targeted acquisitions and developments in the Dallas Fort Worth Basin
      in
      the State of Texas.





On
      January 23, 2006, the Company acquired 100% of the shares of Oak Hills Drilling
      and Operating International, Inc., and its wholly owned operating subsidiary,
      Oak Hills Drilling and Operating LLC (“Oak Hills”). The purpose of the
      acquisition of Oak Hills was to enable the Company to improve scheduling of
      property development, to decrease costs associated with drilling and completing
      wells, and to increase the Company's control over its oil and gas leasehold
      developments by utilizing Oak Hills’ in house drilling and completion teams for
      its property exploration initiatives and gas well development
      programs.





**Going
      Concern**


The
      consolidated financial statements have been prepared on the basis of a going
      concern which contemplates the realization of assets and the satisfaction of
      liabilities in the normal course of business. The Company has a working capital
      deficiency of $1,479,365 at June 30, 2006, has incurred losses since inception
      of $22,264,103 and further losses are anticipated in the development of its
      oil
      and gas properties raising substantial doubt as to the Company’s ability to
      continue as a going concern. The ability of the Company to continue as a going
      concern is dependent on raising additional capital to fund ongoing losses and
      property development and ultimately on generating future profitable operations.
      The Company will continue to fund operations with advances and debt instruments,
      as well as further equity placements.





During
      the period the Company completed a private placement of units at $1.00 per
      unit
      for gross proceeds of $7,650,000 as described in Note 6.





**Unaudited
      Interim Financial Statements**


The
      accompanying unaudited interim consolidated financial statements have been
      prepared in accordance with generally accepted accounting principles for interim
      financial information and with the instructions to Form 10-QSB of Regulation
      S-B. They do not include all information and footnotes required by United States
      generally accepted accounting principles for complete financial statements.
      However, except as disclosed herein, there have been no material changes in
      the
      information disclosed in the notes to the consolidated financial statements
      for
      the year ended December 31, 2005 included in the Company's Annual Report on
      Form
      10-KSB filed with the Securities and Exchange Commission. The interim unaudited
      consolidated financial statements should be read in conjunction with those
      financial statements included in the Form 10-KSB. In the opinion of management,
      all adjustments considered necessary for a fair presentation, consisting solely
      of normal recurring adjustments, have been made. Operating results for the
      six
      months ended June 30, 2006, are not necessarily indicative of the results that
      may be expected for the year ending December 31, 2006.








**NOTE
      2:****STOCK-BASED
      COMPENSATION**





On
      January 1, 2006, the Company adopted the fair value recognition provisions
      of
      Financial Accounting Standards Board (“FASB”) Statement No. 123(R), *Share-Based
      Payment,* (“SFAS
      123R”). Prior to January 1, 2006, the Company accounted for share-based payments
      under the recognition and measurement provisions of APB Opinion No. 25, *Accounting
      for Stock Issued to Employees* (“APB
      25”), and related Interpretations, as permitted by FASB Statement No. 123, *Accounting
      for Stock-Based Compensation* (“SFAS
      123”). In accordance with APB 25, no compensation cost was required to be
      recognized for options granted that had an exercise price equal to the market
      value of the underlying common stock on the date of grant.





The
      Company adopted SFAS 123R using the modified-prospective-transition method.
      Under this method, compensation cost recognized for the six months ended June
      30, 2006 includes: a) compensation cost for all share-based payments granted
      prior to, but not yet vested as of December 31, 2005, based on the grant-date
      fair value estimated in accordance with the original provisions of SFAS 123,
      and
      b) compensation cost for all share-based payments granted subsequent to December
      31, 2005, based on the grant-date fair value estimated in accordance with the
      provisions of SFAS 123R. In addition, deferred stock compensation related to
      non-vested options is required to be eliminated against additional paid-in
      capital upon adoption of SFAS 123R. The results for the prior periods have
      not
      been restated.


7
 
 **LEXINGTON
        RESOURCES, INC.**
 **NOTES
        TO **INTERIM
        CONSOLIDATED****FINANCIAL
        STATEMENTS**** **JUNE
          30, 2006**
 **(UNAUDITED)**


**NOTE
      2:****STOCK-BASED
      COMPENSATION (continued)**





All
      previously granted stock options had fully vested as at December 31, 2005 and
      during the period ended June 30, 2006, the Company did not grant any new stock
      options or modify any previously existing stock options. Accordingly, the
      Company’s results of operations for the period ended June 30, 2006 were no
      different than if the Company had not adopted SFAS 123R. As a result, no pro
      forma disclosure of the impact of adopting SFAS 123R has been
      provided.





During
      the period ended June 30, 2005, all stock options granted were to consultants
      and accounted for in accordance with the provisions of SFAS 123. Accordingly,
      no
      pro forma disclosure of the impact of not having adopted SFAS 123 has been
      provided.








**NOTE
      3:****ACQUISITION
      OF OAK HILLS DRILLING AND OPERATING INTERNATIONAL,
      INC.**





On
      January 23, 2006, the Company acquired 100% of the shares of Oak Hills. The
      companies were acquired from the existing shareholders for an aggregate of
      6,000,000 restricted shares of the Company’s common stock. The assets of Oak
      Hills were independently valued at approximately $5.85 million and management
      of
      the Company determined a net tangible fair value of approximately $3.82 million
      as the basis for the total number of common shares issued at a price per share
      of $0.637. As of the acquisition date, Oak Hills had secured promissory notes
      totaling $1.28 million owed to certain of the Oak Hills vendors. The $1.28
      million in promissory notes accrue interest at 9% per annum, and require no
      payments of interest or principal until the end of a two year term ending
      January 22, 2008.





The
      purpose of the acquisition of Oak Hills was to enable the Company to improve
      scheduling of property development, to decrease costs associated with drilling
      and completing wells, and to increase the Company's control over its oil and
      gas
      leasehold developments by utilizing Oak Hills’ in house drilling and completion
      teams for its property exploration initiatives and gas well development
      programs.





Prior
      to
      the acquisition of Oak Hills, there were 18,627,523 shares of common stock
      of
      the Company outstanding. Accordingly, the pre-acquisition shareholders of the
      Company owned approximately 76% of the post-acquisition issued and outstanding
      shares of the Company’s common stock. As a result this business combination has
      been accounted for using the purchase method with the Company being the
      acquirer.





The
      fair
      value of the assets acquired and liabilities assumed effective January 23,
      2006
      are as follows;





Current
                assets
            
            $
            1,024,458Property,
                plant and equipment
            
            
            5,228,736Current
                liabilities
            
            
            (842,836
            )Due
                to related parties
            
            
            (1,280,789
            )Long
                term debt
            
            
            (222,423
            )$
            3,907,146Consideration
                paid-
                6,000,000 common shares at $0.6374 per share
            
            $
            3,824,190-
                transaction costs
            
            
            82,956$
            3,907,146





The
      results of operations and cash flows presented include those of the Company
      for
      all periods presented and those of Oak Hills for the period from January 23,
      2006 to June 30, 2006.





8
 
 **LEXINGTON
        RESOURCES, INC.**
 **NOTES
        TO **INTERIM
        CONSOLIDATED****FINANCIAL
        STATEMENTS**** **JUNE
          30, 2006**
 **(UNAUDITED)**


**NOTE
      3:****ACQUISITION
      OF OAK HILLS (continued)**





The
      following unaudited pro forma information for the three and six month periods
      ended June 30, 2006 and 2005 presents the pro forma results of operations as
      if
      the acquisition had occurred as of January 1, 2006 and January 1, 2005
      respectively. The pro forma information presented is not necessarily indicative
      of what would have occurred had the acquisition been made as of January 1,
      2006
      and 2005, nor is it necessarily indicative of future results of operations.
      The
      following pro forma amounts give effect to appropriate adjustments for an
      increase in depreciation, additional intercompany profit elimination and an
      increase in weighted average shares outstanding.




For
                the three month period ended
            For
                the six month period endedJune
                30,
            June
                30,2006
            
            
            2005
            
            
            2006
            
            
            2005Revenues
            
            $
            645,314
            
            $
            1,194,859
            
            $
            1,293,253
            
            $
            1,430,643Net
                income (loss)
            
            $
            (2,347,496
            )
            $
            (184,024
            )
            $
            (6,133,013
            )
            $
            (2,135,694
            )Net
                income (loss) per share - basic and diluted
            
            $
            (0.07
            )
            $
            (0.01
            )
            $
            (0.21
            )
            $
            (0.09
            )Weighted
                average shares outstanding
            
            
            34,119,917
            
            
            23,365,104
            
            
            29,720,408
            
            
            23,227,525





**NOTE
      4:****PROPERTY
      AND EQUIPMENT**





Property
      and equipment includes the following:


June
                30,
            
            
            December
                31,2006
            
            
            2005**Oil
                and gas properties:**Proved,
                subject to depletion
            
            $
            2,722,385
            
            $
            2,750,385Unproved,
                not
                subject to depletion
            
            
            9,639,570
            
            
            4,000,024Accumulated
                depletion
            
            
            (515,878
            )
            
            (420,937
            )Net
                oil and gas properties
            
            
            11,846,077
            
            
            6,329,472Other
                equipment
            
            
            5,544,745
            
            
            3,495Accumulated
                depreciation
            
            
            (291,537
            )
            
            (1,328
            )Net
                other property and equipment
            
            
            5,253,208
            
            
            2,167Property
                and equipment, net of accumulated depreciation and
                depletion
            
            $
            17,099,285
            
            $
            6,331,639





The
      Company's oil and gas activities are currently conducted in the United States.
      During the period ended June 30, 2006, the Company completed the following
      transactions related to its oil and gas activities:





**Joint
      Exploration Agreement - Arkoma Basin, Oklahoma**


On
      March
      3, 2006, effective January 31, 2006, the Company entered into an exploration
      agreement with Dylan Peyton, LLC (“Dylan”) of Dallas, Texas to jointly develop
      Lexington’s Arkoma Basin leases located in Hughes and MacIntosh Counties in the
      State of Oklahoma (the “Arkoma Basin Exploration Agreement”). The properties
      will be developed on a 50/50 equal working interest basis. An affiliate to
      Dylan, named Avatar Energy, LLC, will become the operator for the project
      supplying at least one drilling rig to the project. The Company has assigned
      50%
      of its undeveloped leasehold interests in Oklahoma in exchange for cash proceeds
      of $575,000 which equates to approximately 50% of the Company’s originally
      incurred leasing costs. Assignments to 50% of the Company’s undeveloped
      leasehold interests in Coal Creek, South Lamar, Middle Creek, and H-9 Prospects
      have been effected to Dylan. Well bores and acreage relating to previously
      drilled and completed wells by the Company will not form part of any assignments
      under the Arkoma Basin Exploration Agreement. Proceeds from this disposal were
      recorded as a reduction of the capitalized costs without recognition of a gain
      or loss as the disposal did not result in a change of 20 percent or more in
      the
      Company’s depletion rate.  9
 
 **LEXINGTON
          RESOURCES, INC.**
 **NOTES
          TO **INTERIM
          CONSOLIDATED****FINANCIAL
          STATEMENTS**** **JUNE
            30, 2006**
 **(UNAUDITED)**


**NOTE
      4:****PROPERTY
      AND EQUIPMENT (continued)**





**Joint
      Exploration Agreement - Comanche County, Texas**


On
      March
      3, 2006, effective January 31, 2006, the Company entered into an exploration
      agreement with Dylan to jointly develop approximately 5,000 acres of Barnett
      Shale and shallow gas targets in Comanche County, Texas (the “Comanche County
      Exploration Agreement”). The property will be developed on a 50/50 equal working
      interest basis. The Company’s subsidiary, Oak Hills will become the operator of
      the project. The Company will pay approximately $1,250,000 for its 50% working
      interest in the new acreage through a combination of $575,000 in cash (paid
      during the period) and approximately $675,000 of carried drilling costs in
      the
      first Comanche Barnett Shale test well required to be drilled on or before
      September 2006. The parties are currently negotiating an extension of the time
      to drill the test well in order to complete further seismic analysis.





**Acquisition
      of Oak Hills Drilling and Operating International, Inc.**


On
      January 23, 2006, the Company completed the acquisition of Oak Hills as
      described in Note 3.








**NOTE
      5:****LONG
      TERM DEBT, SHORT TERM DEBT AND OTHER ADVANCES**





During
      the period ended June 30, 2006, the Company had the following activity in
      connection with long term debt, short term debt and other advances:





**Promissory
      note**


On
      December 20, 2005 the Company obtained an unsecured loan by way of promissory
      note from a shareholder of the Company totaling $600,000. The term of the loan
      is for two years with interest calculated at 10% per annum. Interest is to
      be
      paid on a quarterly basis with the principal to be repaid on or before the
      two
      year loan period. As of June 30, 2006, $10,192 (December 31, 2005 - $1,973)
      of
      accrued interest remains unpaid on this loan. The Company intends to repay
      this
      loan during 2006 and accordingly it has been classified as a current
      liability.





**Long
      term debt**


As
      at the
      date of the Oak Hills acquisition, Oak Hills had outstanding notes payable
      to
      financial institutions totaling $222,423 secured by certain assets of Oak Hills
      with interest rates ranging from 6.25% to 11.5% and maturing through October
      2010. Subsequent to the acquisition of Oak Hills, the balance of these loans
      have been repaid and the security has been released.





As
      at the
      date of the Oak Hills acquisition, Oak Hills had outstanding promissory notes
      totaling $1,295,961 which accrue interest at 9% per annum, and require no
      payments of interest or principal until the end of a two year term ending
      January 22, 2008. These promissory notes are owed to certain former shareholders
      of Oak Hills, being vendors in the Oak Hills acquisition described in Note
      3 and
      are secured against the assets of Oak Hills. During the period ended June 30,
      2006, the Company accrued $47,932 of interest on these loans resulting in
      $167,339 of accrued interest owing which has been included in accounts
      payable.





**Secured
      convertible notes**


As
      at
      December 31, 2005, the Company had secured convertible debt principal
      outstanding of $4,854,314 less an unamortized discount of $1,801,901 resulting
      in a net carrying value of $3,052,413 of which $1,831,448 plus accrued interest
      of $109,333 was recorded as a current liability. During the period ended June
      30, 2006, the Company paid a total of $178,126 of interest, repaid a total
      of
      $645,690 of principal, converted a total of $3,390,122 of principal and $33,625
      of interest into common shares of the Company at a price of $1.00 per share
      under the provisions of the Convertible Note agreements. Also during the period,
      the Company recorded non-cash finance fees totaling $1,587,610 relating to
      the
      amortization of the discount on both converted and unconverted notes and
      $589,815 relating to the amortization of deferred issuance costs. As at June
      30,
      2006, the Company had convertible debt principal outstanding of $820,114 less
      an
      unamortized discount of $214,291 resulting in a net carrying value of $605,823
      of which $518,790 plus accrued interest of $2,516 was recorded as a current
      liability. (Refer to Note 6).





**Other
      short term advances**


During
      the first quarter of 2006, the Company received an advance from a shareholder
      of
      the Company of $500,000. This amount was unsecured, non-interest bearing and
      without specific terms of repayment. During the period, this amount was applied
      towards subscriptions in connection with the Company’s private placement. (Refer
      to Note 6).


10
 
 **LEXINGTON
        RESOURCES, INC.**
 **NOTES
        TO **INTERIM
        CONSOLIDATED****FINANCIAL
        STATEMENTS**** **JUNE
          30, 2006**
 **(UNAUDITED)**


**NOTE
      6:****STOCKHOLDERS'
      EQUITY**





The
      authorized capital of the Company consists of 200,000,000 voting common shares
      with $0.00025 par value, and 75,000,000 non-voting preferred shares with $0.001
      par value.





**Common
      Stock Issuances -Six months ended June 30, 2006**





The
      Company entered into a one year consulting contract with a third party
      contractor, to provide financial and investor public relations and related
      matters in Germany. In connection with this agreement the Company issued 400,000
      restricted shares of the Company’s common stock with a fair value of $300,000
      and agreed to pay approximately $353,000 (EUR $293,000) over the term of the
      agreement. The $300,000 was initially recorded as a deferred compensation equity
      item of which $112,500 was expensed during the period.




During
        the period 1,150,000 stock options were re-assigned from International Market
        Trend, Inc. (“IMT”) to two consultants of IMT in connection with business
        development services provided by IMT and the consultants to the Company.
        The
        options are exercisable at $1.25 per share for a term of 5 years.


A
      total
      of 1,650,000 shares of common stock were issued on the exercise of options
      (500,000 at $1.00 per share and 1,150,000 at $1.25 per share) for cash proceeds
      of $1,937,500. All shares issued were previously registered on Form
      S-8.





A
      total
      of 250,000 shares of common stock were issued on the exercise of Series B
      warrants at $1.00 per share for cash proceeds of $250,000. The Series A and
      Series B warrants were originally issued as part of the secured convertible
      note
      unit offering and the shares of common stock underlying the warrants were
      registered by way of a Registration Statement on Form SB-2. The Series A and
      Series B warrants were originally issued at exercise prices of $1.50 per share
      and $1.25 per share, respectively. Under the original terms of the warrants,
      the
      exercise prices were subject to change under certain conditions relating to
      a
      subsequent financing. As a result of the private placement completed during
      the
      period, the Series A and Series B warrants were all repriced to $1.00 per share.
      During the period, the Company recorded a non-cash finance cost of $615,300
      being the estimated fair value increase in the warrants resulting from the
      price
      reduction described above.





The
      Company issued 6,000,000 restricted shares of common stock in connection with
      the acquisition of Oak Hills as described in Note 3.





The
      Company issued 3,423,747 shares of common stock on conversion of certain
      convertible note principal and interest amounts as described in Note
      5.





During
      the period, the Company completed a private placement pursuant to which the
      Company issued an aggregate of 7,650,000 units ("Unit") of the Company’s
      securities at a subscription price of U.S. $1.00 per Unit for total gross
      proceeds of $7,650,000; with each Unit being comprised of one common share
      and
      one non-transferable common stock purchase warrant ("Warrant"). Each resulting
      Warrant entitles the subscriber to purchase an additional common share (“Warrant
      Share”) of the Company at a price of $1.25 per share for the period commencing
      upon the date of issuance of the Units by the Company and ending on the day
      which is the earlier of (i) 18 months from the date of issuance of the Units
      and
      (ii) 12 months from the effective date of the Company’s proposed registration
      statement. Both the Warrant Shares and the common shares issued pursuant to
      the
      private placement offering are to be proposed for registration under the United
      States Securities Act of 1933, as amended. The Company paid finders fees of
      5%
      of the gross cash proceeds received under the private placement offering and
      10%
      restricted common shares on the gross units issued, with such restricted shares
      carrying piggy back registration rights. Effective July 3, 2006, the Company
      filed a Form SB-2 Registration Statement under the United States Securities
      Act
      of 1933, as amended, to register the 8,415,000 common shares issued and
      7,650,000 common shares underlying the common stock purchase warrants.





The
      fair
      value of the Warrants was estimated to be $4,284,000 and has been recorded
      as a
      separate component of stockholders’ equity. The fair value of the warrants was
      estimated using the Black-Scholes option-pricing model with the following
      assumptions: expected warrant life of 1.33 years, risk-free interest rate of
      4.07%, dividend yield of 0% and expected volatility of 77%.


11
 
 **LEXINGTON
        RESOURCES, INC.**
 **NOTES
        TO **INTERIM
        CONSOLIDATED****FINANCIAL
        STATEMENTS**** **JUNE
          30, 2006**
 **(UNAUDITED)**


**NOTE
      7:****RELATED
      PARTY TRANSACTIONS**





The
      Company previously entered into a one year contract with IMT on November 10,
      2003, a private company that performs a wide range of management,
      administrative, financial, and business development services to the Company.
      The
      contract has been renewed annually. During the period, the Company incurred
      $60,000 in fees to IMT.





During
      the period ended June 30, 2006 the Company incurred (a) $90,000 to its officers
      for management fees, (b) $15,000 to an officer and director for expense
      reimbursements and (c) $25,000 in fees to a director.





During
      the period, the Company incurred $45,000 in fees to the sole officer and
      director of Oak Hills who is also a director of the Company. In addition, Oak
      Hills incurred $21,000 to this director and a relative of this director for
      rent
      on the Company’s field offices in Oklahoma. This director has previously been
      assigned a 10% carried working interest in each well successfully drilled on
      the
      Wagnon lease, as partial compensation for his involvement in obtaining and
      facilitating the execution of the Farm-Out Agreement and to compensate for
      his
      services relating to operation and completion of wells to be located on the
      Wagnon lease, and has also been provided the right to purchase up to an
      additional 5% working interest of the Company’s total interest in all wells
      drilled by the Company on its properties provided that funds for this
      participation are paid prior to the commencement of drilling of said wells.
      As
      at June 30, 3006, a total of $84,680 is owed to the Company from this director
      and / or affiliates of this director for costs incurred in connection with
      certain well interests.





On
      January 1, 2005, the Company appointed Oak Hills as its elected operator for
      wells on its Wagnon Lease, and for further drilling to be conducted by the
      Company. During the period the Company acquired Oak Hills who continues to
      act
      as operator.





Refer
      to
      Notes 3 and 4.








**NOTE
      8:****SUPPLEMENTAL
      DISCLOSURE WITH RESPECT TO CASH FLOWS**





Six
                months ended June 30,2006
            
            
            2005Cash
                paid during the period for:Interest
            
            $
            199,825
            
            $
            8,750Income
                taxes
            
            $
            -
            
            $
            -








12




Statements
      made in this Form 10-QSB that are not historical or current facts are
      "forward-looking statements" made pursuant to the safe harbor provisions of
      Section 27A of the Securities Act of 1933 (the "Act") and Section 21E of the
      Securities Exchange Act of 1934. These statements often can be identified by
      the
      use of terms such as "may," "will," "expect," "believe," "anticipate,"
      "estimate," "approximate" or "continue," or the negative thereof. We intend
      that
      such forward-looking statements be subject to the safe harbors for such
      statements. We wish to caution readers not to place undue reliance on any such
      forward-looking statements, which speak only as of the date made. Any
      forward-looking statements represent management's best judgment as to what
      may
      occur in the future. However, forward-looking statements are subject to risks,
      uncertainties and important factors beyond our control that could cause actual
      results and events to differ materially from historical results of operations
      and events and those presently anticipated or projected. We disclaim any
      obligation subsequently to revise any forward-looking statements to reflect
      events or circumstances after the date of such statement or to reflect the
      occurrence of anticipated or unanticipated events. Please note that throughout
      this Quarterly Report, and unless otherwise noted, the words “we”, “our” or the
“Company” refer to Lexington Resources, Inc.





**ITEM
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
      OPERATION**





**GENERAL**





Lexington
      Resources, Inc. is a corporation organized under the laws of the State of
      Nevada. We currently trade on the OTC Bulletin Board under the symbol "LXRS"
      and
      on the Frankfurt and Berlin Stock Exchanges under the symbol “LXR”; WKN: AØBKLP.
      Our oil and gas operations are conducted through our wholly owned subsidiary,
      Lexington Oil and Gas Ltd. Co., an Oklahoma limited liability company.





Two
      additional wholly-owned subsidiaries, Oak Hills Drilling and Operating
      International, Inc., a Nevada company, and Oak Hills Drilling and Operating
      LLC,
      an Oklahoma limited liability company (“Oak Hills”), were acquired in the first
      quarter of 2006. We acquired all the outstanding shares of Oak Hills Drilling
      and Operating International Inc. which is the parent company to Oak Hills that
      provides comprehensive well drilling, completion, and maintenance services.





We
      have
      evolved into an integrated drilling and production company by acquiring our
      contract operator Oak Hills. This enables us to more comprehensively control
      our
      development process and more easily schedule the rate of drilling and production
      initiatives. We acquired Oak Hills as a 100% owned subsidiary. We now benefit
      from both service industry revenues and gas revenues from exploration and
      production while being able to drill and complete wells on our own schedule
      with
      higher quality control.





**Acquisition
      of Oak Hills**





On
      January 23, 2006, we entered into a definitive share exchange agreement (the
      “Oak Hills Share Exchange Agreement”) with Oak Hills International, Inc., Oak
      Hills, and each of the shareholders of Oak Hills International, Inc. (the “Oak
      Hills International Shareholders”), pursuant to which the Oak Hills
      International Shareholders agreed to sell to us the total issued and outstanding
      shares of Oak Hills International, Inc. and its wholly owned subsidiary, Oak
      Hills, in consideration of the issuance by us to the Oak Hills International
      Shareholders of an aggregate of 6,000,000 shares of our restricted common stock
      at a price of approximately $0.64 per share.





13


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION OR PLAN OF OPERATION - continued




Oak
      Hills
      is currently our designated oil and gas operator for our well interests in
      the
      Barnett Shale, Texas Project leases. Oak Hills was originally created to drill,
      complete, and operate wells according to our exploration and development program
      when we had difficultly obtaining access to drilling rig service providers
      during the latter half of fiscal year 2004. Effective January 1, 2005, Oak
      Hills
      became our designated operator for the drilling and completion of Company
      operated well interests. On January 23, 2006, we acquired Oak Hills and Oak
      Hills Drilling and Operating International Inc. We believe that by having Oak
      Hills drill our prospects, we will decrease our drilling costs on a consolidated
      basis and increase our control over our oil and gas leasehold developments
      enabling us to evolve into a vertically integrated junior oil and gas company
      with the capacity to take oil and gas development initiatives from land
      acquisition through drilling and to completion and production.





**Joint
      Exploration Agreement - Arkoma Basin, Oklahoma**





On
      March
      3, 2006, effective January 31, 2006, we entered into an exploration agreement
      with Dylan Peyton LLC (“Dylan”) to jointly develop Lexington’s Arkoma Basin
      leases located in Hughes and MacIntosh Counties in the State of Oklahoma (the
      “Arkoma Basin Exploration Agreement”). The properties will be developed on a
      50/50 equal working interest basis. An affiliate to Dylan Peyton, Avatar Energy,
      LLC, will become the operator for the project supplying at least one drilling
      rig to the project. We have assigned 50% of our undeveloped leasehold interests
      in Oklahoma in exchange for cash proceeds of $575,000 which equates to
      approximately 50% of our originally incurred leasing costs. Assignments to
      50%
      of our undeveloped leasehold interests in Coal Creek, South Lamar, Middle Creek,
      and H-9 Prospects have been effected to Dylan Peyton. Well bores and acreage
      relating to previously drilled and completed wells by us do not form part of
      any
      assignments under the Arkoma Basin Exploration Agreement.





Under
      the
      exploration joint venture between us and Dylan, our operating subsidiary, Oak
      Hills, will be utilized for well completion and service, as well as geological
      and engineering work associated with the joint exploration. The joint
      exploration provides the ability for us to drill continuously and simultaneously
      on our leases in both the Arkoma Basin, Oklahoma through Avatar Energy, LLC,
      and
      the Barnett Shale in Texas through Oak Hills.





**Joint
      Exploration Agreement - Comanche County, Texas**





On
      March
      3, 2006, effective January 31, 2006, we entered into an exploration agreement
      with Dylan to jointly acquire and develop approximately 5,000 acres of Barnett
      Shale and shallow gas targets in Comanche County, Texas (the “Comanche County
      Exploration Agreement”). The property will be developed on a 50/50 equal working
      interest basis. Our subsidiary, Oak Hills, will become the operator of the
      project. We will pay approximately $1,250,000 for our 50% working interest
      in
      the new acreage through a combination of $575,000 in cash (paid during the
      period) and approximately $675,000 of carried drilling costs in the first
      Comanche Barnett Shale test well expected to be drilled on or before September
      2006. We are currently negotiating an extension of the time to drill the initial
      test well in order to complete further seismic analysis.








14


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION OR PLAN OF OPERATION - continued


**Well
      Drilling and Prospect Development**





**Arkoma
      Basin, Oklahoma**





**South
      Lamar Prospect, Hughes County, OK - Peyton 1-25 vertical well, Dylan  1-24H
      horizontal coal bed menthane well, Nicole 1-23H horizontal coal bed menthane
      wells.** As
      at the
      date of this Quarterly Report, we, through Dylan and Avatar Energy, LLC, have
      undertaken drilling and development of three wells located on our South Lamar
      prospect. One vertical well (Peyton 1-25) and two horizontal wells (Nicole
      1-23H
      and Dylan 1-24H) targeting a Coal Bed Methane (“CBM”) gas target are in stages
      of completion, and production.





As
      of the
      date of this Quarterly Report, we have completed the drilling and completion
      of
      the Peyton 1-25 well. The Peyton 1-25 encountered multiple possible gas bearing
      sand zones and was fracture treated and completed. The well is currently in
      production from one of the gas bearing zones and reported initial production
      of
      250 MCFG/day with held back production. Since the well is now in production,
      we
      will assign a 5.0% working interest to Douglas Humphreys, one of our directors,
      or his designate pursuant to a management consulting agreement between us and
      Mr. Humphreys.





As
      of the
      date of this Quarterly Report, two further wells, the Nicole 1-23H and
      Dylan  1-24H horizontal coal bed methane wells are in completion and/or
      fracture treatment stages on our South Lamar Prospect.





**H-9
      Prospect - Hughes County, OK - Gray 1-22H horizontal coal bed methane well.** As
      at the
      date of this Quarterly Report, we, through Dylan and Avatar Energy, LLC, began
      drilling and development of a further horizontal coal bed methane well located
      on our H-9 Prospect.





**Non-Operated
      Interest Hughes County, OK - Gates 1-19 horizontal coal bed methane well.** We
      and
      our Arkoma Basin CBM exploration-drilling partner Dylan elected to
      participate equally in an 11.25% working interest and 8.91% net revenue interest
      “Gates 1-19” horizontal CBM well drilled by Orion Exploration in McIntosh
      County, Oklahoma. Together with Dylan, we have 72 acres of the 640 acre
      section  drilled by Orion Exploration. The acreage forms part of our 5,170
      gross acre H-9 Prospect. The well has been drilled and completed with initial
      daily production of up to 1.4 MMCF. Since the well is now in production, we
      will
      assign a 0.5625% carried working interest to Mr. Humphreys or his designate
      pursuant to a management consulting agreement between us and Mr.
      Humphreys.





**Non-Operated
      Interest Hughes County, OK - Gates 2-19 horizontal coal bed methane
      well.** Following from the successful Gates 1-19 horizontal CBM gas well recently
      completed by Orion Exploration, LLC, we have elected to participate in the
      Gates
      2-19 horizontal CBM proven undeveloped well on the same leasehold acreage.
      We
      and our Arkoma Basin CBM exploration-drilling partner Dylan participate equally
      in the 11.25% non-operated working interest and 8.91% net revenue interest
      in
      the Gates 19 series of wells to be drilled by Orion Exploration, LLC in McIntosh
      County, Oklahoma.

















15


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION OR PLAN OF OPERATION - continued





**Barnett
      Shale, Texas**





**Oliver
      Lease, Tarrant County, TX - Oliver Unit #1H well.** During
      first quarter of 2006, Oak Hills completed the drilling portion of a horizontal
      Barnett Shale gas well named the Oliver Unit #1H. The well was subsequently
      fracture stimulated and completed and is producing. Oak Hills has effected
      well
      cleanout, mechanical work, and the well was prepared for final production
      including tank battery, metering, pipeline, gas processing, and marketing.
      Formation water has been determined as present and has limited the well’s
      production capability; further testing logs will be required to determine
      procedures that may enhance current production. Initial production has decreased
      and ranges from approximately 150-300 MCFG/day. We have a 100% working interest
      and a 70% net revenue interest in this well. Since the well is now in
      production, we will assign a 10% working interest to Mr. Humphreys or his
      designate pursuant to a management consulting agreement between us and Mr.
      Humphreys.




**Martin
      Cantrell Lease, Parker County, TX.** Oak
      Hills
      has drilled a horizontal Barnett Shale gas well on our Martin Cantrell lease
      (the “Martin #1H”), in which we own a 100% working interest and 72.5% net
      revenue interest. We have obtained seismic data from a Devon Energy related
      company that was required to identify possible faulting in the area of the
      lease
      to minimize drilling risk and for engineering of the new horizontal well bore.
      As of the date of this Quarterly Report, we have completed drilling, and
      fracture stimulation, and are preparing for production including tank battery,
      metering, pipeline, gas processing and marketing.





**Gilbert
      Lease Development, Palo Pinto County, TX.** We **** previously
      completed a 3D seismic program on the 1,211 contiguous acre Gilbert lease
      located in Palo Pinto County, Texas with TimeSlice Technology Inc. of Texas.
      After analysis, engineering, and planning, Oak Hills has drilled a horizontal
      Barnett Shale gas well on our Gilbert Lease and has conducted fracture
      stimulation. The well is being prepared for production including tank battery,
      metering, pipeline, gas processing and marketing. Subject to successful well
      completion, our 100% working interest in the Gilbert lease can support up to
      10
      horizontal gas wells on 120 acre spacing. In addition, shallow gas production
      in
      the area from the Strawn formation may also be identified as a secondary gas
      producing target.





**Non-Operated
      Interest, Parker County, TX: Paradise Park #1H well.** Oak
      Hills
      acted as drilling contractor to Ray Richey Management Company, Inc. for the
      drilling of the horizontal Barnett Shale gas well named Paradise Park #1H.
      As a
      result, we were able to obtain a 10% working interest in the well and drilling
      contract service income at the rate of $14,500 per day, in addition to
      mobilization and demobilization fees. The well has been drilled and will proceed
      through fracture stimulation and completion phases of development.





**Third
      Party Contract Drilling.** Oak
      Hills has contracted its rig as a third party drilling contractor for the
      development of a salt water disposal well to obtain services related income
      pending further Company lease preparation and funding.




















16


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION OR PLAN OF OPERATION - continued





**RESULTS
      OF OPERATION**





**Six-Month
      Period Ended June 30, 2006 Compared to Six-Month Period Ended June 30, 2005**




Our
      net
      loss for the six-month period ended June 30, 2006 was ($6,157,085) compared
      to a
      net loss of ($1,823,252) during the six-month period ended June 30, 2005 (an
      increase of $4,333,833).





During
      the six-month period ended June 30, 2006, we generated $946,620 in gross revenue
      compared to $393,263 in gross revenue generated during the six-month period
      ended June 30, 2005 (an increase of $553,357 or 140.7%), resulting primarily
      from drilling services revenue in the amount of $689,110 from Oak Hills
      providing third party drilling services and, to a smaller degree, the sale
      of
      gas in the amount of $257,510 produced from our well interests.





During
      the six-month period ended June 30, 2006, we incurred operating expenses in
      the
      aggregate amount of $4,113,569 compared to $2,207,765 incurred during the
      six-month period ended June 30, 2005 (an increase of $1,905,804 or 86.3%).
      The
      operating expenses incurred during the six-month period ended June 30, 2006
      consisted of: (i) operating costs and taxes of $118,282 (2005: $121,461); (ii)
      rig, well and pulling unit expense of $462,890 (2005: $-0-); (iii) salaries,
      wages and related costs of $476,943 (2005: $-0-); (iv) depreciation, depletion
      and amortization expenses of $385,150 (2005: $139,880); (v) general and
      administrative expenses of $739,329 (2005: $568,951); (vi) investor relations
      and promotion expenses of $1,930,975 (2005: $601,720); and consulting
      stock-based compensation relating to the fair value of stock options granted
      to
      consultants of $-0- (2005: $775,753). The increase in operating expenses
      incurred during the six-month period ended June 30, 2006 compared to the
      six-month period ended June 30, 2005 resulted primarily from the increase in
      investor relations and promotion relating to investor awareness programs. The
      increase in operating expenses also resulted from the acquisition of Oak Hills
      and related business operations and infrastructure including: (i) rig, well
      and
      pulling unit expense; and (ii) salaries, wages and related expenses and
      (iii)depreciation. In addition, the acquisition of Oak Hills resulted in an
      increase to other equipment and accordingly an increase in depreciation during
      the period.





Of
      the
      $4,113,569 incurred as operating expenses during the six-month period ended
      June
      30, 2006, an aggregate of $60,000 was incurred in fees payable to International
      Market Trend (“IMT”) for amounts due and owing for operational, administrative
      and consulting services rendered during the six-month period ended June 30,
      2006. On November 10, 2003, we entered into a consulting agreement with IMT
      (the
“Consulting Agreement”), whereby IMT performs a wide range of management,
      administrative, financial, and business development services for us. On August
      19, 2005, we granted to IMT an aggregate of 1,150,000 Stock Options exercisable
      at $1.25 per share for a period of five years. On March 1, 2006, the Stock
      Options were re-assigned from IMT to two consultants of IMT in connection with
      business development services provided by IMT and the consultants to us. The
      stock options are exercisable at $1.25 per share for a term of five years.

















17


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION OR PLAN OF OPERATION - continued





Of
      the
      $4,113,569 incurred as operating expenses during the six-month period ended
      June
      30, 2006: (i) an aggregate of $90,000 was incurred to our officers for
      management fees; (ii) $15,000 was incurred to an officer/director for expense
      reimbursement; and (iii) $25,000 was incurred in fees to a director.
      Furthermore, $45,000 was incurred as additional compensation expense to one
      of
      our directors, Mr. Humphreys, who is also the sole officer and director of
      Oak
      Hills, during the six-month period ended June 30, 2006. In addition, Oak Hills
      incurred $21,000 to Mr. Humphreys for rent on our field offices in Oklahoma.





Our
      net
      loss from operations during the six-month period ended June 30, 2006 also
      includes $2,990,136 related to interest and finance fees, resulting in a net
      loss of $6,157,085. Included in interest and finance fees are non-cash amounts
      totaling $2,792,725 relating to the amortization of a convertible debt discount,
      deferred finance costs, and the fair value resulting from the repricing of
      certain warrants. As discussed above, the increase in net loss during the
      six-month period ended June 30, 2006 compared to the six-month period ended
      June
      30, 2005 is attributable primarily to the interest and finance fees incurred
      and
      to the increase in investor relations and promotion expenses, the depreciation,
      depletion and amortization expenses, rig, well and pulling unit expenses, and
      salaries, wages and related expenses. Our net loss during the six-month period
      ended June 30, 2006 was ($6,157,085) or ($0.21) per share compared to a net
      loss
      of ($1,823,252) or ($0.11) during the six-month period ended June 30, 2005.
      The
      weighted average number of shares outstanding was 28,991,126 for the six-month
      period ended June 30, 2006 compared to 17,227,525 for the six-month period
      ended
      June 30, 2005.





**Three-Month
      Period Ended June 30, 2006 Compared to Three-Month Period Ended June 30, 2005**




Our
      net
      loss for the three-month period ended June 30, 2006 was  ($2,347,496)
      compared to a net loss of ($173,118) during the three-month period ended June
      30, 2005 (an increase of $2,174,378).





During
      the three-month period ended June 30, 2006, we generated $645,314 in gross
      revenue compared to $263,203 in gross revenue generated during the three-month
      period ended June 30, 2005 (an increase of $382,111 or 145.2%), resulting
      primarily from drilling and well services revenue in the amount of $555,011
      from
      Oak Hills providing third party drilling and well services and, to a smaller
      degree, the sale of gas in the amount of $90,303 produced from Company well
      interests.





During
      the three-month period ended June 30, 2006, we incurred operating expenses
      in
      the aggregate amount of $1,623,749 compared to $427,571 incurred during the
      three-month period ended June 30, 2005 (an increase of $1,196,178 or 279.8%).
      The operating expenses incurred during the three-month period ended June 30,
      2006 consisted of: (i) operating costs and taxes of $58,184 (2005: $63,396);
      (ii) rig, well and pulling unit expense of $241,404 (2005: $-0-); (iii)
      salaries, wages and related costs of $320,563 (2005: $-0-); (iv) depreciation,
      depletion and amortization expenses of $198,346 (2005: $84,973); (v) general
      and
      administrative expenses of $473,451 (2005: $268,430); and (vi) investor
      relations and promotion expenses of $331,801 (2005: $10,772). The increase
      in
      operating expenses incurred during the three-month period ended June 30, 2006
      compared to the three-month period ended June 30, 2005 resulted primarily from
      the increase in investor relations and promotion relating to investor awareness
      programs as well as the increased activity resulting from the acquisition of
      Oak
      Hills. The increase in operating expenses also resulted from an increase in:
      (i)
      rig, well and pulling unit expense; (ii) depreciation, depletion and
      amortization expense resulting from an increase in other equipment in connection
      with the acquisition of Oak Hills; and (iii) salaries, wages and related
      expenses.





18


ITEM
      2.
      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION
      - continued





Our
      net
      loss from operations during the three-month period ended June 30, 2006 also
      included $1,369,061 related to interest and finance fees, resulting in a net
      loss of $2,347,496. Included in interest and finance fees are non-cash amounts
      totaling $1,298,674 relating to the amortization of a convertible debt discount,
      deferred finance costs, and the fair value resulting from the repricing of
      certain warrants. As discussed above, the increase in net loss during the
      three-month period ended June 30, 2006 compared to the three-month period ended
      June 30, 2005 is attributable primarily to the interest and finance fees
      incurred and the increase in investor relations and promotion expenses, the
      depreciation, depletion and amortization expenses/rig, well and pulling unit
      expenses, and the salaries, wages and related expenses. Our net loss during
      the
      three-month period ended June 30, 2006 was ($2,347,496) or ($0.07) per share
      compared to a net loss of ($173,118) or ($0.01) during the three-month period
      ended June 30, 2005. The weighted average number of shares outstanding was
      34,119,917 for the three-month period ended June 30, 2006 compared to 17,365,104
      for the three-month period ended June 30, 2005.





**LIQUIDITY
      AND CAPITAL RESOURCES**





Our
      financial statements have been prepared assuming that we will continue as a
      going concern and, accordingly, do not include adjustments relating to the
      recoverability and realization of assets and classification of liabilities
      that
      might be necessary should we be unable to continue in operation.





**Six-Month
      Period Ended June 30, 2006**





As
      of
      June 30, 2006, our current assets were $2,639,299 and our current liabilities
      were $4,118,664, which resulted in a working capital deficit of $1,479,365.
      As
      of June 30, 2006, our total assets were $19,752,619 consisting of: (i)
      $1,703,717 in cash and cash equivalents; (ii) $765,454 in accounts receivable;
      (iii) $92,696 due from related parties; (iv) $11,757 in prepaid expenses and
      other; (v) $79,710 in deferred charges; (vi) $2,206,507 carrying value of proved
      oil and gas properties (net of accumulated depletion); (vii) $9,639,570 carrying
      value of unproved oil and gas properties; and (viii) $5,253,208 in other
      equipment (net of accumulated depreciation). The increase in total assets during
      the six-month period ended June 30, 2006 from fiscal year ended December 31,
      2005 was primarily due to the increase in carrying value of unproved oil and
      gas
      properties, the increase in other equipment resulting primarily from the
      acquisition of Oak Hills, and the increase in cash and cash equivalents and
      accounts receivable.





As
      of
      June 30, 2006, our total liabilities were $5,501,658 consisting of: (i)
      $2,987,166 in accounts payable and accrued liabilities; (ii) $1,295,961 in
      long
      term debt; (iii) $610,192 in promissory note and other short term advances;
      and
      (iv) $608,339 in convertible notes and related accrued interest. The increase
      in
      total liabilities during the six-month period ended June 30, 2006 from fiscal
      year ended December 31, 2005 was primarily due to the increase in accounts
      payable and accrued liabilities and in long term debt resulting primarily from
      the acquisition of Oak Hills.





Stockholders'
      equity increased from $3,006,058 as of December 31, 2005 to $14,250,961 as
      of
      June 30, 2006.





19


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION OR PLAN OF OPERATION - continued





We
      have
      not generated positive cash flows from operating activities. For the six-month
      period ended June 30, 2006, net cash flows used in operating activities was
      ($1,492,712) compared to net cash flows used in operating activities for the
      six-month period ended June 30, 2005 of ($944,316). Net cash flows used in
      operating activities for the six-month period ended June 30, 2006 consisted
      primarily of a net loss of ($6,157,085) adjusted by $2,792,725 relating to
      non-cash interest and finance fee expenses and by $1,208,065 relating to
      accounts payable.





Net
      cash
      flow used in investing activities was ($5,804,516) for the six-month period
      ended June 30, 2006 compared to net cash flows used in investing activities
      for
      the six-month period ended June 30, 2005 of ($785,146). Net cash flow used
      in
      investing activities during the six-month period ended June 30, 2006 was
      primarily a result of acquisition and exploration costs related to our oil
      and
      gas properties.





Net
      cash
      flows from financing activities was $8,480,613 for the six-month period ended
      June 30, 2006 compared to net cash flows from financing activities for the
      six-month period ended June 30, 2005 of $1,428,089. Net cash flows from
      financing activities for the six-month period ended June 30, 2006 pertained
      primarily to $9,426,250 received as proceeds from the sale of our common stock.





We
      expect
      that working capital requirements will continue to be funded through a
      combination of securities. Our working capital requirements are expected to
      increase in line with the growth of our business.





**PLAN
      OF OPERATION AND FUNDING**





During
      the period, we completed a private placement pursuant to which we issued an
      aggregate of 7,650,000 units ("Unit") of the Company’s securities at a
      subscription price of U.S. $1.00 per Unit for total gross proceeds of
      $7,650,000; with each Unit being comprised of one common share and one
      non-transferable common stock purchase warrant ("Warrant"). Each resulting
      Warrant entitles the subscriber to purchase an additional share of our common
      stock (“Warrant Share”) at a price of $1.25 per share for the period commencing
      upon the date of issuance of the Units and ending on the day which is the
      earlier of (i) 18 months from the date of issuance of the Units and (ii) 12
      months from the effective date of our proposed registration statement. Both
      the
      Warrant Shares and the common shares issued pursuant to the private placement
      offering are to be proposed for registration under the United States Securities
      Act of 1933, as amended. We paid finders fees of 5% of the gross cash proceeds
      received under the private placement offering and 10% restricted common shares
      on the gross units issued, with such restricted shares carrying piggy back
      registration rights. Effective July 3, 2006, we filed a Form SB-2 Registration
      Statement under the United States Securities Act of 1933, as amended, to
      register the 8,415,000 common shares issued and 7,650,000 common shares
      underlying the Warrants.





Existing
      working capital, further advances and possible debt instruments, anticipated
      warrant exercises, further private placements, and anticipated cash flow are
      expected to be adequate to fund our operations over the next six months. We
      have
      no lines of credit or other bank financing arrangements. Generally,
      we have financed operations to date through the proceeds of the private
      placement of equity and debt securities. In connection with our business plan,
      management anticipates additional increases in operating expenses and capital
      expenditures relating to: (i) oil and gas operating properties; (ii) drilling
      initiatives; and (iii) property acquisitions. We intend to finance these
      expenses with further issuances of securities, debt and or advances, and
      revenues from operations. Thereafter, we expect we will need to raise additional
      capital and increase revenues to meet long-term operating
      requirements.





20


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION OR PLAN OF OPERATION - continued




Additional
      issuances of equity or convertible debt securities will result in dilution
      to
      our current shareholders. Further, such securities might have rights,
      preferences or privileges senior to our common stock. Additional financing
      may
      not be available upon acceptable terms, or at all. If adequate funds are not
      available or are not available on acceptable terms, we may not be able to take
      advantage of prospective new business endeavors or opportunities, which could
      significantly and materially restrict our business operations.





The
      report of the independent registered public accounting firm that accompanies
      our
      December 31, 2005 and December 31, 2004 consolidated financial statements
      contains an explanatory paragraph expressing substantial doubt about our ability
      to continue as a going concern. The consolidated financial statements have
      been
      prepared "assuming that we will continue as a going concern," which contemplates
      that we will realize our assets and satisfy our liabilities and commitments
      in
      the ordinary course of business.





**MATERIAL
      COMMITMENTS**





**Convertible
      Notes**





During
      2006, a material commitment for us relates to the repayment to convertible
      debenture holders of the outstanding amounts of principal and interest accruing
      at 8% per annum on an aggregate face value of $820,114 in Convertible Notes.
      At
      fiscal year ended December 31, 2005, the outstanding amount of the Convertible
      Notes was $4,854,314. During the six-month period ended June 30, 2006, we paid
      an aggregate of $178,126 in interest, repaid an aggregate of $645,690 in
      principal, converted an aggregate of $3,390,122 of principal and $33,625 of
      interest into shares of our common stock at a conversion price of $1.00 per
      share under the provisions of the Convertible Notes. See “Part II. Item 2.
      Recent Sales of Unregistered Securities.





As
      at
      June 30, 2006, the remaining amount due and owing under the Convertible Notes
      totaling $820,114 is payable in fourteen monthly principal and interest payments
      in either cash or shares of our common stock at the rate of $1.00 per share
      (the
“Fixed Conversion Price”) beginning on or about December 17, 2005 if our share
      price is trading above $1.00 per share at the date of payment. Commencing on
      the
      fourth month anniversary of the closing date of the issue of the Convertible
      Notes (September 16, 2005 and October 11, 2005), and on the first day or each
      month thereafter, the Convertible Notes must be repaid in cash in amount equal
      to 5% of the principal amount of the Notes together with all accrued interest
      due and payable up to the repayment date. If our shares are trading at less
      than
      $1.00 per share at the date of repayment, then we may repay outstanding monthly
      principal and interest in either cash or shares in our capital at a different
      rate than the Fixed Conversion Price. If the volume weighted average share
      price
      (the "VWAP") of the five trading days prior to a monthly payment date is less
      than the Fixed Conversion Price, then we may pay the monthly amount in cash
      or
      registered shares of our common stock at 75% of the VWAP for the five trading
      days prior to the monthly payment date. As of the date of this Quarterly Report,
      required monthly payments of principal and interest are approximately $55,000
      monthly. The holders of the Convertible Notes have a secured first interest
      in
      our assets. As of the date of this quarterly report, an outstanding principal
      balance of $721,914 remains due to the holders of the Convertible
      Notes.





21


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION OR PLAN OF OPERATION - continued




**Promissory
      Note**





During
      2006, a material commitment for us relates to an unsecured promissory note
      from
      one of our shareholders aggregating $600,000 (the “Promissory Note”). The
      provisions of the Promissory Note are:(i) two-year term with interest at the
      rate of 10% per annum; and (ii) interest to be paid on a quarterly basis with
      the principal to be repaid on or before the due date of the Promissory Note.
      As
      at June 30, 2006, there is $10,192 of accrued and unpaid interest on this loan.
      We intend to repay this loan during 2006.





**Oak
      Hills Debt**





During
      2006, a material commitment for us on behalf of Oak Hills relates to outstanding
      promissory notes totaling $1,295,261, which accrues interest at 9% per annum,
      and require no payments of interest or principal until the end of a two-year
      term ending January 22, 2008. The promissory notes are owed to certain former
      shareholders of Oak Hills and are secured against the assets of Oak Hills.
      During the six-month period ended June 30, 2006, we accrued $47,932 of interest
      on these loans resulting in $167,339 in accumulated accrued interest due and
      owing.





**ITEM
      3. CONTROLS AND PROCEDURES**





Our
      management is responsible for establishing and maintaining a system of
      disclosure controls
      and procedures
      (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is
      designed to ensure that information required to be disclosed by us in the
      reports that we file or submit under the Exchange Act is recorded, processed,
      summarized and reported, within the time periods specified in the Commission’s
      rules and forms. Disclosure controls
      and procedures
      include, without limitation, controls
      and procedures
      designed to ensure that information required to be disclosed by an issuer in
      the
      reports that it files or submits under the Exchange Act is accumulated and
      communicated to the issuer’s management, including its principal executive
      officer or officers and principal financial officer or officers, or persons
      performing similar functions, as appropriate to allow timely decisions regarding
      required disclosure.





In
      accordance with Exchange Act Rules 13a-15 and 15d-15, an evaluation was
      completed under the supervision and with the participation of our management,
      including Mr. Grant Atkins, our Chief Executive Officer, and Mr. Vaughn Barbon,
      our Principal Financial Officer, of the effectiveness of the design and
      operation of our disclosure controls
      and procedures
      as of the end of the period covered by this Quarterly Report. Based on that
      evaluation, our management including the Chief Executive Officer and Principal
      Financial Officer, concluded that our disclosure controls
      and procedures
      are effective, to provide reasonable assurance that information required to
      be
      disclosed in our reports filed or submitted under the Exchange Act is recorded,
      processed, summarized, and reported within the time periods specified in the
      Commission’s rules and forms. There have been no changes to our internal controls
      over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under
      the
      Securities Exchange Act of 1934) that occurred during our three-month quarterly
      period ended June 30, 2006, that materially affected, or were reasonably likely
      to materially affect, our internal controls
      over financial reporting.





22











**PART
      II. OTHER INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS**





Management
      is not aware of any legal proceedings contemplated by any governmental authority
      or any other party involving us or our properties. As of the date of this
      Quarterly Report, no director, officer or affiliate is (i) a party adverse
      to us
      in any legal proceeding, or (ii) has an adverse interest to us in any legal
      proceedings. Management is not aware of any other legal proceedings pending
      or
      that have been threatened against us or our properties.





**ITEM
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS**





**PRIVATE
      PLACEMENT OFFERING**





During
      the period, we completed a private placement pursuant to which we issued an
      aggregate of 7,650,000 Units at a subscription price of U.S. $1.00 per Unit
      for
      total gross proceeds of $7,650,000. Each Unit is comprised of one common share
      and one non-transferable common stock purchase warrant ("Warrant"). Each
      resulting Warrant entitles the subscriber to purchase an additional share of
      our
      common stock (“Warrant Share”) at a price of $1.25 per share for the period
      commencing upon the date of issuance of the Units and ending on the day which
      is
      the earlier of (i) 18 months from the date of issuance of the Units and (ii)
      12
      months from the effective date of our proposed registration statement. Both
      the
      Warrant Shares and the common shares issued pursuant to the private placement
      offering are to be proposed for registration under the United States Securities
      Act of 1933, as amended. We paid a finders fees of 5% of the gross cash proceeds
      received under the private placement offering and 10% restricted common shares
      on the gross units issued, with such restricted shares carrying piggy back
      registration rights.




The
      per
      share price of the offering was arbitrarily determined by our Board of Directors
      based upon analysis of certain factors including, but not limited to, stage
      of
      development, industry status, investment climate, perceived investment risks,
      our assets, and net estimated worth. We issued Units to investors who were
      either a U.S. resident- or a non-U.S. resident. The investors executed
      subscription agreements and acknowledged that the securities to be issued have
      not been registered under the Securities Act, that they understood the economic
      risk of an investment in the securities, and that they had the opportunity
      to
      ask questions of and receive answers from our management concerning any and
      all
      matters related to acquisition of the securities.





Effective
      July 3, 2006, we filed a Form SB-2 registration statement under the Securities
      Act to register 8,415,000 shares of common stock issued and the 7,650,000 shares
      of common stock underlying the Warrants.




**CONVERSION
      OF NOTES**





During
      the six-month period ended June 30, 2006,, we issued an aggregate of 3,423,747
      shares of our common stock in connection with the conversion of the Convertible
      Notes. An aggregate of $3,390,122 in principal and $33,625 in interest in the
      Convertible Notes was converted into 3,423,747 shares of our common stock at
      a
      conversion price of $1.00 per share. We issued the shares of common stock in
      reliance upon Section 4(2) of the Securities Act.





23


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE
      OF
      PROCEEDS - continued







**EXERCISE
      OF SERIES B WARRANTS**





During
      the six-month period ended June 30, 2006, we have issued an aggregate of 250,000
      shares of our common stock in connection with the exercise of Series B Warrants
      at $1.00 per Series B Warrant for aggregate proceeds of $250,000. The Series
      B
      Warrants were originally issued as part of a secured convertible note unit
      offering and the shares of common stock underlying the warrants were registered
      under the Securities Act pursuant to a registration statement on Form
      SB-2.




**STOCK
      OPTIONS**





During
      the six-month period ended June 30, 2006, we issued an aggregate of 1,650,000
      shares of our common stock pursuant to the exercise of a total of 1,650,000
      Stock Options, of which 500,000 were exercised at $1.00 per share and 1,150,000
      at $1.25 per share, for aggregate proceeds of $1,937,500. The shares of common
      stock were subject to S-8 registration statements.





**OAK
      HILLS SHARE EXCHANGE AGREEMENT**





On
      January 23, 2006, we issued an aggregate of 6,000,000 shares of our restricted
      common stock to the shareholders of Oak Hills International, Inc. at a price
      of
      approximately $0.637645 per share in accordance with the terms and provisions
      of
      the Oak Hills Share Exchange Agreement. The per share consideration was
      calculated by reference to the of the assets of Oak Hills obtained from the
      independent third party valuation, and management’s further calculation of net
      tangible value inclusive of all other balance sheet assets, current, and
      long-term liabilities of the acquired companies resulting in the shares issued
      as consideration, with such shares issued at a 6.3% discount to the trading
      value of our stock as at December 22-23, 2005, the transaction valuation date.
      The shares were issued pursuant to an exemption from registration under Section
      4(2) of the 1933 Securities Act. In addition, we also negotiated favorable
      terms
      on long term debt that formed part of the acquisition deferring payment of
      interest and principal for a period of two years. Oak Hills has outstanding
      promissory notes totaling $1,295,261, which accrue interest at 9% per annum
      and
      require no payments of interest or principal until the end of a two year term
      ending January 22, 2008.




**EURXCHANGE
      CONSULTING LTD.**





On
      February 15, 2006, we issued an aggregate of 400,000 shares of our restricted
      common stock in accordance with the terms and provisions of a consulting
      agreement (the “Consulting Agreement”), with EurXchange Consulting Ltd., a
      Canadian corporation (“EurXchange”). Pursuant to the terms and provisions of the
      EurXchange Consulting Agreement: (i) EurXchange agreed to render to us
      consulting services including, but not limited to, translations of webpage,
      business plan and new releases into German, establishment of communication
      during European business hours, chat line coordination, web portal presence
      through Wallstreet Online, production and distribution of a MIDAS research
      report and a penny stock report, presentation of roadshows, production of
      certain mailers, and establishment of a Stock Hotline telephone line; (ii)
      we
      agreed to pay to EurXchange a cash retainer in the aggregate amount of 293,000
      EUR, with the first installment of 153,000 EUR due on date of execution of
      the
      EurXchange Consulting Agreement and the second and third installment of 70,000
      EUR payable on April 15, 2006 and May 15, 2006, respectively; and (iii) we
      agreed to issue to EurXchange an aggregate of 400,000 shares of our restricted
      common stock. The shares were issued pursuant to an exemption from registration
      under Section 4(2) of the 1933 Securities Act.





24


**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**





No
      report
      required.





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




No
      report
      required.




**ITEM
      5. OTHER INFORMATION**





**Change
      in Auditors**




On
      April
      13, 2006, our Board of Directors approved and authorized the termination of
      the
      services of Dale Matheson Carr-Hilton LaBonte Chartered Accountants (“DMCL”) as
      our principal independent accountant. The termination of the services of DMCL
      was a result of communication between us and DMCL and the subsequent decision
      by
      our Board of Directors that it would be in our best interests to effect a change
      in auditors in order to address the needs of a small business development
      company with growing operations located in Oklahoma and Texas. During our two
      most recent fiscal years and any subsequent interim period preceding the
      resignation of DMCL, there were no disagreements with DMCL which were not
      resolved on any matter concerning accounting principles or practices, financial
      statement disclosure, or auditing scope or procedure, which disagreements,
      if
      not resolved to the satisfaction of DMCL, would have caused DMCL to make
      reference to the subject matter of the disagreements in connection with its
      reports. The report of DMCL for fiscal years ended December 31, 2005 and 2004
      indicated the following:





“The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As discussed in Note 1 to the financial
      statements, to date the Company has reported significant losses since inception
      from operations and requires additional funds to meet its obligations and fund
      the costs of its operations. These factors raise substantial doubt about the
      Company's ability to continue as a going concern. Management's plans in this
      regard are described in Note 1. The financial statements do not include any
      adjustments that might result from the outcome of this
      uncertainty.”





Except
      as
      described in the immediately preceding paragraph, the report of DMCL did not
      contain an adverse opinion or a disclaimer of opinion, and was not qualified
      or
      modified as to uncertainty, audit scope, or accounting principles.





On
      April
      13, 2006, our Board of Directors approved and authorized the engagement of
      the
      services of Whitley Penn LLP (“WP”), as our principal independent registered
      public accounting firm. The address and telephone/facsimile numbers for WP
      are
      as follows: 5420 LBJ Freeway, Suite 1440, Dallas, Texas 75240, telephone no.
      972.392.6600 and facsimile no. 972.392.6601.





We
      did
      not previously contact WP prior to its engagement regarding application of
      accounting principles to a specific completed or contemplated transaction,
      or
      the type of audit opinion that might be rendered on our financial statements,
      and nether written nor oral advice was sought by us from WP prior to its
      engagement regarding an important factor considered by us in reaching a decision
      as to the accounting, auditing or financial reporting issue.





25


ITEM 5. OTHER INFORMATION - continued




**Appointment
      of Director**





On
      June
      6, 2006, our Board of Directors, pursuant to written consent, unanimously
      approved the appointment of Mr. Gino Cicci as a member of the Company’s Board of
      Directors, effective as of June 12, 2006, to serve until his successor is duly
      elected and shall qualify.





During
      the past five years, Mr. Cicci has been active within the oil and gas industry
      and has been engaged in providing consulting services to us pursuant to
      contractual arrangements between us and IMT. In past years, he has been
      associated with junior companies that have drilled for oil and gas in the
      Province of Alberta and the State of Texas. He has also been engaged with
      companies that have explored various regions in Canada and the United States
      for
      precious metals, primarily in the Provinces of Ontario, Quebec and British
      Columbia, and in the States of Nevada, Arizona and Idaho. We believe that Mr.
      Cicci’s broad experience and knowledge of junior markets will be an asset to us
      during our various phases of growth.





**ITEM
      6. EXHIBITS**





31.1
            Certification
                of Chief Executive Officer pursuant to SecuritiesExchange
                Act of 1934 Rule 13a-14(a) or
                15d-14(a).





31.2
            Certification
                of Chief Financial Officer pursuant to SecuritiesExchange
                Act of 1934 Rule 13a-14(a) or
                15d-14(a).





32.1
            Certifications
                pursuant to Securities Exchange Act of 1934 Rule 13a-14(b)
                or 15d-14(b) and 18 U.S.C. Section 1350, as adopted pursuant toSection
                906 of the Sarbanes-Oxley Act of 2002.




**SIGNATURES**





In
      accordance with the requirements of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto
      duly authorized.




LEXINGTON
              RESOURCES, INC.Date: August
              11, 2006
            By:
            /s/ Grant
              AtkinsGrant
              AtkinsTitle:
              President and Chief
              Executive Officer


Date: August
              11, 2006
            By:
            /s/ Vaughn
              BarbonVaughn
              BarbonTitle:
              Chief Financial Officer




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