**U.S.
          SECURITIES AND EXCHANGE COMMISSION**
 **Washington,
          D.C. 20549**
  **Form
            10-QSB/A**
 First
            Amended
 
 Mark
        One
 x  QUARTERLY
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934
 
 For
        the period ended June 30, 2007
 
 o  TRANSITION
        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.**
                **(Name
                  of small business issuer in its charter)******
              ******Nevada**
              **88-0365453****(State
                  or other jurisdiction of incorporation****or
                  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)******
              ******Securities
                  registered pursuant to Section****12(b)
                  of the Act:**
              **Name
                  of each exchange on which****registered:****None******
              ******Securities
                  registered pursuant to Section 12(g) of the Act:****Common
                  Stock, $0.00025 par value****(Title
                  of Class)**
  Check
        whether the issuer is not required to file reports pursuant to Section 13
        or
        15(d) of the Exchange Act. o
  Indicate
        by checkmark whether the issuer: (1) has 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 Issuer Involved in Bankruptcy Proceedings During the Preceding Five
        Years**.
  N/A
  Indicate
        by checkmark whether the issuer has filed all documents and reports required
        to
        be filed by Section 12, 13 and 15(d) of the Securities Exchange Act of 1934
        after the distribution of securities under a plan confirmed by a
        court.  Yes o No o
  **Applicable
        Only to Corporate Registrants**
  Indicate
                  the number of shares outstanding of each of the issuer’s classes of common
                  stock, as of the most practicable date:
                Class
              Outstanding
                  as of August 14, 2007Common
                  Stock, $0.00025 par value
              38,766,270
  Transitional
        Small Business Disclosure Format (Check one): Yes o No x
 
 1
 
  INDEX
              PAGEPART
                I.  FINANCIAL INFORMATION
              3ITEM
                1.  INTERIM CONSOLIDATED FINANCIAL STATEMENTS
              3CONSOLIDATED
                  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
              20ITEM
                3. CONTROLS AND PROCEDURES
              25PART
                II. OTHER INFORMATION
              26ITEM
                1.  LEGAL PROCEEDINGS
              26ITEM
                2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
                PROCEEDS
              26ITEM
                3.  DEFAULTS UPON SENIOR SECURITIES
              26ITEM
                4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
                HOLDERS
              26ITEM
                5.  OTHER INFORMATION
              26ITEM
                6.  EXHIBITS
              26SIGNATURES
              27
 
 2











**LEXINGTON
      RESOURCES, INC.**








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








**JUNE
      30, 2007**


**(UNAUDITED)**









































































3





**LEXINGTON
      RESOURCES, INC.**





**CONSOLIDATED
      BALANCE SHEETS**





June
                30,
              2007
            
            
            December
                31,
              2006(Unaudited)
            
            
            (Audited)**ASSETS****CURRENT
                ASSETS**Cash
                and cash
                equivalents
            
            $
            108,963
            
            
            $
            86,241Accounts
                receivable, net of
                allowance for doubtful accounts of $177,367 (2006 -
                $177,367)
            
            
            1,380,077
            
            
            
            1,425,450Due
                from related parties (Note
                8)
            
            
            97,978
            
            
            
            73,916Prepaid
                expenses and
                other
            
            
            2,917
            
            
            
            2,917Current
                portion of deferred
                finance fees
            
            
            -
            
            
            
            39,8031,589,935
            
            
            
            1,628,327**ASSETS
                HELD FOR SALE** (Note 5)
            
            
            300,000
            
            
            
            2,767,225**PROPERTY
                AND EQUIPMENT** (Note 4)Oil
                and gas properties - full
                cost method of accountingProved,
                net of accumulated depletion $1,393,981 (2006 -
                $1,114,985)
            
            
            8,133,395
            
            
            
            8,408,510Unproved
            
            
            4,749,682
            
            
            
            5,049,85812,883,077
            
            
            
            13,458,368Other
                equipment, net of
                accumulated depreciation of $69,709 (2006 - $235,858)
            
            
            86,083
            
            
            
            578,72412,969,160
            
            
            
            14,037,092$
            14,859,095
            
            
            $
            18,432,644**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****CURRENT
                LIABILITIES**Accounts
                payable and accrued
                liabilities
            
            $
            8,097,626
            
            
            $
            8,404,178Due
                to related parties (Note
                8)
            
            
            204,599
            
            
            
            202,881Promissory
                note and other short
                term advances (Note 6)
            
            
            670,027
            
            
            
            640,274Current
                portion of convertible
                notes and accrued interest (Note 6)
            
            
            -
            
            
            
            615,824Contingent
                liability****(Notes 2 and 7)
            
            
            676,012
            
            
            
            -9,648,264
            
            
            
            9,863,157**LONG
                TERM DEBT**(Note 6)
            
            
            -
            
            
            
            1,295,961**DERIVATIVE
                LIABILITY**(Note 7)
            
            
            -
            
            
            
            1,538,8299,648,264
            
            
            
            12,697,947**CONTINGENCIES
                AND COMMITMENTS** (Notes 1, 4, 7 & 10)
            
            
            -
            
            
            
            -**STOCKHOLDERS’
                EQUITY**(Note 7)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, 2006 – 38,766,270)
            
            
            10,611
            
            
            
            10,611Additional
                paid-in
                capital
            
            
            30,510,613
            
            
            
            30,398,613Common
                stock purchase
                warrants
            
            
            6,181,340
            
            
            
            2,009,340Accumulated
                deficit
            
            
            (31,491,733
            )
            
            
            (26,683,867
            )5,210,831
            
            
            
            5,734,697$
            14,859,095
            
            
            $
            18,432,644








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
                  30,2007
              
              
              2006
              
              
              2007
              
              
              2006**REVENUES**Oil
                  and gas
                  revenue
              
              $
              195,572
              
              
              $
              90,303
              
              
              $
              351,737
              
              
              $
              257,510Drilling
                  and service
                  revenue
              
              
              6,832
              
              
              
              555,011
              
              
              
              59,538
              
              
              
              689,110202,404
              
              
              
              645,314
              
              
              
              411,275
              
              
              
              946,620**OPERATING
                  EXPENSES**Operating
                  costs and
                  taxes
              
              
              64,581
              
              
              
              58,184
              
              
              
              160,780
              
              
              
              118,282Rig,
                  well and pulling unit
                  expense
              
              
              17,679
              
              
              
              241,404
              
              
              
              56,125
              
              
              
              462,890Salaries,
                  wages and
                  related
              
              
              33,220
              
              
              
              320,563
              
              
              
              77,947
              
              
              
              476,943Depreciation,
                  depletion and
                  amortization
              
              
              175,513
              
              
              
              198,346
              
              
              
              372,537
              
              
              
              385,150General
                  and
                  administrative
              
              
              190,053
              
              
              
              473,451
              
              
              
              371,335
              
              
              
              739,329Investor
                  relations and
                  promotion
              
              
              -
              
              
              
              331,801
              
              
              
              37,500
              
              
              
              1,930,975481,046
              
              
              
              1,623,749
              
              
              
              1,076,224
              
              
              
              4,113,569**NET
                  LOSS FROM OPERATIONS**
              
              
              (278,642
              )
              
              
              (978,435
              )
              
              
              (664,949
              )
              
              
              (3,166,949
              )**INTEREST
                  AND FINANCE FEES**
              
              
              (14,959
              )
              
              
              (1,369,061
              )
              
              
              (334,505
              )
              
              
              (2,990,136
              )**GAIN
                  ON DISPOSAL OF OTHER EQUIPMENT**
              
              
              -
              
              
              
              -
              
              
              
              342,195
              
              
              
              -**IMPAIRMENT
                OF OTHER EQUIPMENT**
              
              
              (99,100
              )
              
              
              -
              
              
              
              (99,100
              )
              
              
              -**GAIN
                  ON DERIVATIVE LIABILITY** (Note 6)
              
              
              -
              
              
              
              2,309,500
              
              
              
              -
              
              
              
              2,309,500**LOSS
                  ON CONTINGENT LIABILITY**(Note 2)
              
              
              (338,006
              )
              
              
              -
              
              
              
              (448,225
              )
              
              
              -**NET
                  LOSS FOR THE YEAR**
              
              $
              (730,707
              )
              
              $
              (37,996
              )
              
              $
              (1,204,584
              )
              
              $
              (3,847,585
              )







**BASIC
                AND FULLY DILUTED**
              **NET
                LOSS PER SHARE**
            
            $
            (0.02
            )
            
            $
            (0.00
            )
            
            $
            (0.03
            )
            
            $
            (0.13
            )**WEIGHTED
                AVERAGE COMMON SHARES**
              **OUTSTANDING**
            
            
            38,766,270
            
            
            
            34,119,917
            
            
            
            38,766,270
            
            
            
            28,991,126







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
              ended
                June 30,2007
            
            
            2006**CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                loss for the
                period
            
            $
            (1,204,584
            )
            
            $
            (3,847,585
            )Adjustments
                to reconcile net
                loss to net cash used in operating activities:Gain
                on disposal of other
                equipment
            
            
            (342,195
            )
            
            
            -Impairment
                of other
                equipment
            
            
            99,100
            
            
            
            -Non–cash
                expenses
            
            
            37,500
            
            
            
            112,500Oil
                and gas
                depletion
            
            
            278,996
            
            
            
            94,941Depreciation
            
            
            93,541
            
            
            
            290,209Non-cash
                interest and finance
                fees
            
            
            146,809
            
            
            
            2,792,725Gain
                on derivative
                liability
            
            
            -
            
            
            
            (2,309,500
            )Loss
                on contingent
                liability
            
            
            448,225
            
            
            
            -Changes
                in working capital
                assets and liabilities:Accounts
                receivable
            
            
            45,373
            
            
            
            220,601Prepaid
                expenses and
                other
            
            
            -
            
            
            
            8,692Accounts
                payable
            
            
            (969,956
            )
            
            
            1,208,065Accrued
                liabilities
            
            
            7,380
            
            
            
            (63,360
            )**NET
                CASH FLOWS USED IN OPERATING ACTIVITIES**
            
            
            (1,359,811
            )
            
            
            (1,492,712
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES**Purchases
                of other
                equipment
            
            
            (120,000
            )
            
            
            (312,514
            )Proceeds
                on disposal of other
                equipment
            
            
            3,225,000
            
            
            
            -Oil
                and gas property disposals
                (additions)
            
            
            296,295
            
            
            
            (5,611,546
            )Cash
                acquired on acquisition of
                Oak Hills, net of transaction costs
            
            
            -
            
            
            
            119,544**NET
                CASH FLOWS PROVIDED BY (USED IN) INVESTING
                ACTIVITIES**
            
            
            3,401,295
            
            
            
            (5,804,516
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES**Advances
                to related
                parties
            
            
            (22,344
            )
            
            
            (77,524
            )Convertible
                note
                repayments
            
            
            (700,457
            )
            
            
            (645,690
            )Long
                term debt
                repayments
            
            
            (1,295,961
            )
            
            
            (222,423
            )Proceeds
                on sale of common
                stock
            
            
            -
            
            
            
            9,426,250**NET
                CASH FLOWS PROVIDED BY (USED IN) FINANCING
                ACTIVITIES**
            
            
            (2,018,762
            )
            
            
            8,480,613**INCREASE
                IN CASH AND CASH EQUIVALENTS**
            
            
            22,722
            
            
            
            1,183,385**CASH
                AND CASH EQUIVALENTS, BEGINNING OF PERIOD**
            
            
            86,241
            
            
            
            520,332**CASH
                AND CASH EQUIVALENTS, END OF PERIOD**
            
            $
            108,963
            
            
            $
            1,703,717








**SUPPLEMENTAL
      CASH FLOW INFORMATION**(Note 9).







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, 2007
 
 (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.





Commencing
      in the fourth quarter of 2006, management of the Company considered monetizing
      certain of the Company's assets and those of Oak Hills in order to decrease
      liabilities and overhead incurred by the Company in connection with previous
      capital expenditures and as a result of a lack of current debt and equity
      resources made available to the Company.  On January 2, 2007, the
      Board of Directors of the Company authorized and approved the execution by
      Oak
      Hills of an agreement dated December 29, 2006 with Innovative Energy Services
      for the sale of the Company’s drilling rig. In accordance with the Agreement,
      Innovative Energy Services paid to Oak Hills an aggregate amount of $3,100,000
      for the drilling rig and certain related equipment (Refer to Note
      5).





During
      the quarter ended June 30, 2007, Oasis Operating, LLC (“Oasis”), an Oklahoma
      limited liability company, became the new third party contract operator for
      the
      Company’s oil and gas assets and exploration properties as part of cost
      streamlining efforts effected to conserve cash resources.  To
      facilitate the operator transition, and to decrease liabilities, the Company
      approved the sale of the majority of its oil and gas related operating fixed
      assets to Oasis for $300,000.  A director of Oasis is related to a
      director of the Company.





**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 $8,058,329 at June 30, 2007, has incurred losses since inception
      of $31,491,733 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.





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.





**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 financial
      statements for the year ended December 31, 2006 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, 2007, are not necessarily indicative of the results that may
      be
      expected for the year ending December 31, 2007.





7
 
 **LEXINGTON
          RESOURCES, INC.**
 NOTES
          TO INTERIM CONSOLIDATED FINANCIAL
          STATEMENTS
 JUNE
          30, 2007
 
 (Unaudited)





**NOTE
        2:                      SIGNIFICANT
        ACCOUNTING POLICIES**





**(a)
      Change in accounting principle**




Effective
      January 1, 2007, the Company adopted the provisions of FASB Staff Position
      (“FSP”) No. EITF 00-19-2 *Accounting for Registration Payment
      Arrangements* (“EITF 00-19-2”), which provides more definitive guidance on
      accounting for registration arrangements including those described in more
      detail in Note 7 in connection with the Company’s 2006 private
      placement.





The
      Company originally accounted for the various components of the private placement
      transaction using the provisions of SFAS No. 133 *Accounting for Derivative
      Instruments and Hedging Activities*; EITF Issue No. 00-19 *Accounting for
      Derivative Financial instruments Indexed to, and Potentially Settled in a
      Company’s Own Stock*; EITF Issue No. 05-4 *The Effect of Liquidated
      Damages Clause on Freestanding Financial Instruments Subject to Issue No.
      00-19* and related amendments and guidance.





Under
      the
      original accounting treatment, the Company classified the shares of common
      stock
      issued and the common stock purchase warrants without registration damages
      as
      equity at their estimated fair values and classified the remainder of the
      proceeds, representing common stock registration damages and the common stock
      purchase warrants subject to registration damages, as a derivative
      liability.  This derivative liability was then subsequently adjusted
      to its estimated fair value with the corresponding gain or loss being charged
      to
      operations in the period.





Under
      the
      provisions of EITF 00-19-2, the Company is required to classify the financing
      component parts as equity, assets or liabilities, notwithstanding the
      registration damages and related payment arrangements.  If at
      inception of the related instruments, the damages and related payments are
      deemed likely, then the proceeds of the instrument are apportioned on a relative
      fair value basis inclusive of the estimated fair value of the damages and
      related payments.  Otherwise, the proceeds are apportioned between
      their component parts with the damages and related payments being recorded
      when
      they are determined to be likely through a charge to operations in the
      period.  The damages and related payments are recorded as a contingent
      liability which continues to be adjusted to its estimated fair value, through
      charges to operations, until the contingency is resolved.  EITF
      00-19-2 was effective for the Company’s first interim period commencing after
      December 15, 2006, being the quarter ended March 31, 2007.





The
      Company’s registration damages and related payment arrangements, which were
      entered into prior to the adoption of EITF 00-19-2 and were unresolved as of
      the
      date of adoption, are required to be accounted for as a change in accounting
      principle in accordance with the provisions of EITF 00-19-2, through a
      cumulative-effect adjustment to retained earnings (accumulated deficit) as
      may be required.  The applicable transition provisions and their
      impact are as follows:





·
            The
                instrument is to be evaluated on issuance notwithstanding the existence
                of
                the registration damages and related payment
                arrangements.


·
            Where
                this evaluation results in a different classification of items from
                the
                previously recorded derivative liability to equity, this adjustment
                is
                made based on the issuance date relative fair
                values.


·
            At
                issuance, the damages and related payments were not considered likely
                and
                accordingly, were not included in the original allocation of the
                proceeds.


·
            Upon
                adoption of EITF 00-19-2 effective January 1, 2007, the damages and
                related payments were considered likely and accordingly, were recorded
                through a charge to the opening accumulated
                deficit.





The
      results of adopting EITF 00-19-2 on certain components of stockholders’ equity
      are as follows:





Additional
                paid in capital
            
            
            Common
                stock purchase warrants
            
            
            Accumulated
                deficitAmounts
                as previously reported, December 31, 2006
            
            $
            30,398,613
            
            
            $
            2,009,340
            
            
            $
            (26,683,867
            )Reclassification
                of components on issuance
            
            
            74,500
            
            
            
            4,172,000
            
            
            
            -Reversal
                of previous derivative liability gain
            
            
            -
            
            
            
            -
            
            
            
            (2,288,000
            )Record
                EITF 00-19-2 contingent liability at adoption
            
            
            -
            
            
            
            -
            
            
            
            (1,315,282
            )Amounts
                subsequent to adoption, January 1, 2007
            
            $
            30,473,113
            
            
            $
            6,181,340
            
            
            $
            (30,287,149
            )





8
 
 **LEXINGTON
          RESOURCES, INC.**
 NOTES
          TO INTERIM CONSOLIDATED FINANCIAL
          STATEMENTS
 JUNE
          30, 2007
 
 (Unaudited)





**NOTE
        2:                      SIGNIFICANT
        ACCOUNTING POLICIES (continued)**





**(a)
      Change in accounting principle (continued)**




The
      contingent liability recorded under EITF 00-19-2 and the related changes during
      the period ended June 30, 2007 are as follows:





Estimated
              contingent
                liability
            
            
            Actual
                damages accrued and unpaid to date
            
            
            Contingent
                liability carrying valueBalance,
                January 1, 2007 upon adoption
            
            $
            1,315,282
            
            
            $
            (419,671
            )
            
            $
            895,611Record
                actual damages accrued during the period
            
            
            -
            
            
            
            (667,824
            )
            
            
            (667,824
            )Less:
                amount of damages paid during the period
            
            
            (75,960
            )
            
            
            75,960
            
            
            
            -Record
                loss on change in estimated fair value of
              contingent
                liability during the period
            
            
            448,225
            
            
            
            -
            
            
            
            448,225Balance,
                June 30, 2007
            
            $
            1,687,547
            
            
            $
            (1,011,535
            )
            
            $
            676,012





**(b)
      Recent Accounting Pronouncements**




In
      2006,
      the FASB issued Financial Interpretation No. 48 (“FIN 48”), *Accounting
      for Uncertainty in Income Taxes — an Interpretation of FASB Statement No
 109 Accounting for Income Taxes.*  FIN 48 clarifies the
      accounting for uncertainty in income taxes recognized in an enterprise’s
      financial statements in accordance with SFAS 109.  FIN 48 also
      prescribes a recognition threshold and measurement attribute for the financial
      statement recognition and measurement of a tax position taken or expected to
      be
      taken in a tax return.  FIN 48 provides guidance on de-recognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure and transition.  The Company adopted FIN 48 as of January
      1, 2007, as required.





There
      were no interest or general and administrative expenses accrued or recognized
      related to income taxes for the six months ended June 30, 2007.  The
      Company has not taken a tax position that would have a material effect on the
      financial statements or the effective tax rate for the six months ended June
      30,
      2007 or during the prior three years applicable under FIN 48.  It is
      determined not to be reasonably possible for the amounts of unrecognized tax
      benefits to significantly increase or decrease within 12 months of the adoption
      of FIN 48.  The Company is currently subject to a three year statute
      of limitations by major tax jurisdictions.








**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 Drilling
      and Operating International, Inc., and its wholly owned operating subsidiary,
      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.





9
 
 **LEXINGTON
          RESOURCES, INC.**
 NOTES
          TO INTERIM CONSOLIDATED FINANCIAL
          STATEMENTS
 JUNE
          30, 2007
 
 (Unaudited)





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





The
      fair
      value of the assets acquired and liabilities assumed effective January 23,
      2006
      were 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
            )$
            3,907,146





Consideration
                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 all periods subsequent to
      January 23, 2006.





The
      following unaudited pro forma information for the three month and six month
      periods ended June 30, 2006 presents the pro forma results of operations as
      if
      the acquisition had occurred as of January 1, 2006.  The pro forma
      information presented is not necessarily indicative of what would have occurred
      had the acquisition been made as of January 1, 2006, 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 Months Ended June 30,
            
            
            For
                the Six Months Ended June 30,2006
            
            
            2006Revenues
            
            $
            645,314
            
            
            $
            1,293,253Net
                loss
            
            $
            (37,996
            )
            
            $
            (3,823,513
            )Net
                loss per share – basic and diluted
            
            $
            (0.00
            )
            
            $
            (0.13
            )Weighted
                average shares outstanding
            
            
            34,119,917
            
            
            
            29,720,408





10
 
 **LEXINGTON
          RESOURCES, INC.**
 NOTES
          TO INTERIM CONSOLIDATED FINANCIAL
          STATEMENTS
 JUNE
          30, 2007
 
 (Unaudited)





**NOTE
        4:                      PROPERTY
        AND EQUIPMENT**





Property
      and equipment includes the following:


June
                30,
            
            
            December
                31,2007
            
            
            2006**Oil
                and gas properties:**Proved,
                subject to depletion
            
            $
            11,677,376
            
            
            $
            11,673,495Unproved,
                not subject to depletion
            
            
            4,749,682
            
            
            
            5,049,858Accumulated
                depletion
            
            
            (1,393,981
            )
            
            
            (1,114,985
            )Impairment
                provision
            
            
            (2,150,000
            )
            
            
            (2,150,000
            )Net
                oil and gas properties
            
            
            12,883,077
            
            
            
            13,458,368Other
                equipment
            
            
            163,525
            
            
            
            841,859Accumulated
                depreciation
            
            
            (69,709
            )
            
            
            (235,858
            )Impairment
                provision
            
            
            (7,733
            )
            
            
            (27,277
            )Net
                other property and equipment
            
            
            86,083
            
            
            
            578,724Property
                and equipment, net of accumulated depreciation  and
                depletion
            
            $
            12,969,160
            
            
            $
            14,037,092





For
      the
      period ended June 30, 2007, estimated future development costs totaling
      $3,686,000 were included in costs subject to amortization for the purposes
      of
      determining depletion for the period.





Total
      depletion expense per unit of production for the period ended June 30, 2007
      was
      $3.85 per mcf (2006 - $0.94).





The
      Company's oil and gas activities are currently conducted in the United
      States.  The Company has completed the following significant
      transactions related to its oil and gas activities:





**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.





**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 were to be developed on a 50/50 equal working interest basis. 
An affiliate to Dylan, named Avatar Energy, LLC, became the operator for the
      project.  During 2006, 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 do 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.





**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 would be developed on a 50/50 equal
      working interest basis.  The Company’s subsidiary, Oak Hills became the
      operator of the project.  The Company will pay approximately $1,225,500 for
      its 50% working interest in the new acreage through a combination of $575,000
      in
      cash (paid during 2006) and approximately $650,500 of carried drilling costs
      in
      the first Comanche Barnett Shale test well required to be drilled on or before
      September 2006.  The test well commenced drilling on September 1, 2006. It
      is estimated that the total amount owing for the acreage will be approximately
      $1,225,500, resulting in no additional amount to be paid after deducting the
      original payment of $575,000 and the carried drilling costs estimated to be
      $650,500. The Company is currently in negotiations and reconciliation of
      expenditures relating to the Joint Exploration Agreement in Comanche County,
      Texas.





11
 
 **LEXINGTON
          RESOURCES, INC.**
 NOTES
          TO INTERIM CONSOLIDATED FINANCIAL
          STATEMENTS
 JUNE
          30, 2007
 
 (Unaudited)





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





During
      2006, the Company’s leases relating to the H-9 Prospect acreage lapsed
      according to their terms resulting in an impairment to the carrying value of
      unamortized property of $331,963.  In accordance with the provisions
      of full cost accounting, the Company transferred this carrying value into its
      cost pool subject to amortization.  Also during 2006, certain other
      acreage leases were allowed to lapse, however, these expiries did not result
      in
      any property impairments.





On
      October 2, 2006, the Company entered into a convertible debt set-off agreement
      with Dylan (the “Convertible Debt Agreement”), relating to amounts due and owing
      to Dylan from fractures and completion of certain coal bed methane gas wells.
      Pursuant to the terms and provisions of the Convertible Debt Agreement: (i)
      Oak
      Hills sold to Ada Energy Services LLC (“AES”) certain of its assets, including
      two Wilson 600 duplex pumps for an aggregate consideration of $120,000 as a
      set-off for the debt due and owing to Dylan; (ii) Oak Hills had 120 days to
      pay
      the amount of $120,000 due and owing to Dylan to re-purchase the two Wilson
      pumps from AES for $120,000 plus the cost of any work done on them other than
      repairs made for damages caused by AES’ usage of the pumps; (iii) Oak Hills made
      a payment of $20,000 to Avatar Energy relating to the completion and fracture
      job on the Gray Well #1H-22 and the fracture job on the Dylan Well #1-23; and
      (iv) in the event Oak Hills does not re-purchase the Wilson pumps for $120,000
      within the 120 days, the sale of the pumps will constitute full and complete
      settlement of the $120,000 due and owing Dylan. On January 27, 2007, the Company
      extinguished its obligations under the convertible debt set-off agreement with
      Dylan by repaying $120,000 to Ada Energy Services and reclaiming its pledged
      collateral (two Wilson 600 duplex pumps).  Accordingly, as at December
      31, 2006, the Company off-set the amount owing to Dylan against the carrying
      value of the pumps with the residual carrying value being included in the Rig
      and related equipment impairment provision as described in Note 5. On January
      27, 2007, the Company sold its two Wilson 600 duplex pumps to Innovative Energy
      Services for $125,000.





During
      the quarter ended June 30, 2007, Oasis became the new third party contract
      operator for the Company’s oil and gas assets and exploration properties as part
      of cost streamlining efforts effected to conserve cash
      resources.   A director of Oasis is related to a director of Oak
      Hills.





**Sale
      of Undeveloped Acreage**




During
      the period, the Company sold approximately 719 acres of Barnett Shale targeted
      exploration leases located in Hood County, Texas for net proceeds of
      approximately $380,000.  Also during the period, the Company received
      $8,125 as compensation for forfeiting the right to participate in a new well
      on
      the Panther Creek prospect.





**Unproven
      Properties**




The
      following is a summary of the transactions involving the Company’s unproven
      properties not subject to depletion:





Acquisition
              Costs
            
            
            Development
              Costs
            
            
            TotalBalance,
                December 31, 2006
            
            $
            2,067,267
            
            
            $
            2,982,591
            
            
            $
            5,049,858Incurred
                during the period
            
            
            -
            
            
            
            88,060
            
            
            
            88,060Proceeds
                from disposals during the period
            
            
            -
            
            
            
            (388,236
            )
            
            
            (388,236
            )Balance,
                June 30, 2007
            
            $
            2,067,267
            
            
            $
            2,682,415
            
            
            $
            4,749,682








12
 
 **LEXINGTON
          RESOURCES, INC.**
 NOTES
          TO INTERIM CONSOLIDATED FINANCIAL
          STATEMENTS
 JUNE
          30, 2007
 
 (Unaudited)





**NOTE
        5:                      ASSETS
        HELD FOR SALE**





On
      January 2, 2007, the Company authorized and approved the execution by Oak Hills
      of an agreement dated December 29, 2006 with Innovative Energy Services
      pertaining to the sale of the Company’s drilling rig and related equipment. In
      accordance with the Agreement, Innovative Energy Services paid to Oak Hills
      a
      gross aggregate amount of $3,100,000 for the drilling rig and related
      equipment.  As at December 31, 2006, these assets were reclassified to
      assets held for sale at their estimated net recoverable amount of $2,767,225
      resulting in an impairment of the carrying value of these assets totaling
      $1,572,723 being recorded during 2006.  During the period, this
      Agreement was completed, and the net proceeds received effective January 5,
      2007
      with the net recoverable amount exceeding the original resulting in a gain
      on
      disposal of $342,195 being recorded during the period.





On
      June
      24, 2007, the Company approved the sale of certain oil and gas related operating
      fixed assets to Oasis for $300,000.  As at June 30, 2007, these assets
      were reclassified to assets held for sale at their estimated net recoverable
      amount of $300,000 resulting in an impairment of the carrying value of these
      assets totaling $99,100 being recorded during the period.  Amounts
      owing pursuant to this agreement will be offset against amounts subsequently
      owed by the Company to Oasis in connection with their ongoing operator
      activities.








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





During
      the period ended June 30, 2007, 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, 2007, $70,027 (December 31,
      2006 - $40,274) of accrued interest remains unpaid on this loan.





**Long
      term debt**




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.





On
      January 26, 2007, the $1,295,961 in promissory notes and accrued interest of
      $227,775 was repaid in full pursuant to the sale of equipment securing these
      notes.





**Secured
      convertible notes**




As
      at
      December 31, 2006, the Company had secured convertible debt principal
      outstanding of $700,457 less an unamortized discount of $107,006 resulting
      in a
      net carrying value of $593,451 which, including accrued interest of $22,373,
      was
      recorded as a current liability.  The convertible notes are due
      September 15, 2007 and bear interest at a rate of 8% per annum.  The
      repayment of the notes has been guaranteed by the Company supported by
      a collateral security agreement covering all the assets of the
      Company.  On January 26, 2007, the Company repaid all outstanding
      convertible promissory notes principal of $700,457, accrued interest of $32,105,
      and a 20% penalty repayment amount of $146,512 for an aggregate amount of
      $879,074 to the remaining convertible note holders who had a secured interest
      on
      the assets of the Company.





13
 
 **LEXINGTON
          RESOURCES, INC.**
 NOTES
          TO INTERIM CONSOLIDATED FINANCIAL
          STATEMENTS
 JUNE
          30, 2007
 
 (Unaudited)





**NOTE
        7:                      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 –period ended June 30, 2007**




The
      Company did not issue any shares of common stock during the period ended June
      30, 2007.





**Liquidated
      damages related to common stock and warrants issued to investors in the 2006
      private placement**




During
      2006, 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.  Of the total Units sold, 7,450,000 are
      subject to potential damages relating to the registration
      requirement.  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.  This
      registration statement was not declared effective before financial penalties
      were due pursuant to registration timing.  During the period the
      Company paid $75,960 in penalties leaving $1,011,535 accrued and unpaid as
      at
      June 30, 2007 (December 31, 2006 - $419,671) which have been included in
      accounts payable and accrued liabilities.  The Company continues to
      incur 1.5% of $7,450,000 raised per month of delay until the Registration
      Statement is declared effective.





The
      Company originally accounted for the various components of the private placement
      transaction using the provisions of SFAS No. 133 *Accounting for Derivative
      Instruments and Hedging Activities*; EITF Issue No. 00-19 *Accounting for
      Derivative Financial instruments Indexed to, and Potentially Settled in a
      Company’s Own Stock*; EITF Issue No. 05-4 *The Effect of Liquidated
      Damages Clause on Freestanding Financial Instruments Subject to Issue
      No. 00-19* and related amendments and guidance.





Effective
      January 1, 2007, the Company adopted the provisions of FASB Staff Position
      (“FSP”) No. EITF 00-19-2 *Accounting for Registration Payment
      Arrangements* (“EITF 00-19-2”), which provides more definitive guidance on
      accounting for registration arrangements including those described above in
      connection with the Company’s 2006 private placement.  The impact of
      adopting EITF 00-19-2 is described in more detail in Note 2.





The
      following table summarizes the initial allocation of the proceeds from the
      private placement:





Gross
                proceeds
            
            $
            7,650,000Fair
                value of warrants subject to registration damages
            
            
            (4,172,000
            )Estimated
                fair value of liquidated damages on common shares and
                warrants
            
            
            (74,500
            )Share
                issuance costs
            
            
            (411,250
            )Proceeds
                allocated to equity components
            
            $
            2,992,250Allocated
                as follows:Common
                shares
            
            $
            2,880,250Warrants
                not subject to registration damages
            
            
            112,000$
            2,992,250








14
 
 **LEXINGTON
          RESOURCES, INC.**
 NOTES
          TO INTERIM CONSOLIDATED FINANCIAL
          STATEMENTS
 JUNE
          30, 2007
 
 (Unaudited)





**NOTE
        7:                      STOCKHOLDERS'
        EQUITY (continued)**





**Private
      placement warrants**




The
      fair
      value of the Warrants at inception was estimated to be $4,284,000 and has been
      allocated between warrants subject to damages (derivative liability) and
      warrants not subject to damages (equity) as outlined above.  The fair
      value of the warrants at inception 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 4.81%, dividend yield of 0% and expected
      volatility of 77%.





At
      inception, the Company determined that the warrants and related liquidated
      damages provisions associated with the common stock issuable upon exercise
      of
      the warrants did not meet the criteria for equity accounting under EITF
      00-19.  Further, the Company determined that the liquidated damages
      provision related to the common stock issued is an embedded derivative under
      SFAS No. 133.





As
      at
      issuance of the shares and warrants, the fair value of the warrants subject
      to
      damages was estimated to be $4,172,000 using the Black-Scholes option-pricing
      model as described above.  The fair value of the liquidated damages on
      the common stock and warrants at issuance was estimated to be
      $74,500.  This estimate was based on the probability of
      non-registration over time and the damages related thereto.  The total
      fair value of the combined warrants and liquidated damages was $4,246,500 at
      issuance of the shares and warrants and was recorded as a derivative liability
      which will be revalued each quarter until the liquidated damages provisions
      expire.  Changes in the fair value estimate for the period from
      inception to December 31, 2006 were recorded in the consolidated statement
      of
      operations.





As
      at
      December 31, 2006, the fair value of the warrants was estimated to be $36,500
      using the Black-Scholes option-pricing model with the following assumptions:
      expected warrant life of 0.83 years, risk-free interest rate of 5.0%, dividend
      yield of 0% and expected volatility of 89%.  As at December 31, 2006,
      the fair value of the liquidated damages on the common stock and warrants was
      estimated to be $1,922,000 and accordingly, the combined derivative liability
      had a carrying value of $1,958,500.  During 2006, the company recorded
      a gain of $2,288,000 on the change in the carrying value of the derivative
      liability resulting primarily from a decline in the price of the Company’s
      common stock of approximately 82%.





The
      carrying value of the derivative liability as at December 31, 2006 is summarized
      as follows:





Derivative
                liability:Fair
                value of warrants subject to registration damages
            
            $
            4,172,000Estimated
                fair value of liquidated damages on common shares and
                warrants
            
            
            74,500Balance
                as at issuance of the shares and warrants
            
            
            4,246,500Change
                in fair value for the year ended December 31, 2006
            
            
            (2,288,000
            )Less:
                actual damages accrued to December 31, 2006
            
            
            (419,671
            )Derivative
                liability, December 31, 2006
            
            $
            1,538,829





Allocated
                as follows:Fair
                value of warrants subject to registration damages
            
            $
            36,500Estimated
                fair value of liquidated damages on common shares and
                warrants
            
            
            1,922,000Less:
                actual damages accrued to December 31, 2006
            
            
            (419,671
            )$
            1,538,829





15
 
 **LEXINGTON
          RESOURCES, INC.**
 NOTES
          TO INTERIM CONSOLIDATED FINANCIAL
          STATEMENTS
 JUNE
          30, 2007
 
 (Unaudited)





**NOTE
        7:                      STOCKHOLDERS'
        EQUITY (continued)**





**Share
      Purchase Warrants**




A
      summary
      of the Company’s stock purchase warrants and related activity is presented
      below:





Number
                of Warrants
            
            
            Weighted
                average exercise price
              per
                share
            
            
            Weighted
                average remaining contractual life (in years)$Balance
                at December 31, 2006
            
            
            11,399,000
            
            
            
            1.21
            
            
            
            1.11Issued
                during the period
            
            
            -
            
            
            
            -Exercised
                during the period
            
            
            -
            
            
            
            -Expired
                during the period
            
            
            -
            
            
            
            -Balance
                at June 30, 2007
            
            
            11,399,000
            
            
            
            1.21
            
            
            
            0.72





The
      Series A and Series B warrants were originally issued as part of the secured
      convertible note unit offering at exercise prices of $1.50 per share and $1.25
      per share, respectively were subject to exercise price changes under certain
      conditions relating to a subsequent financing.  As a result of the
      private placement completed during 2006, the Series A and Series B warrants
      were
      all repriced to $1.00 per share.  During 2006, 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.





During
      2006 the Company reclassified from common stock purchase warrants to additional
      paid in capital, $130,358 on the exercise of warrants and $1,397,438 on the
      expiration of warrants.





**Stock
      Options**




The
      Company has stock options outstanding to certain employees, officers, directors
      and consultants of the Company and its subsidiaries.  The Company’s
      Stock Option Plan (the “Plan”), most recently amended and approved by the board
      of directors on August 19, 2005, was effective August 7, 2003 for the purpose
      of
      advancing the interests of the Company and its stockholders.  The Plan
      allows for the granting of options to key employees, officers, directors and
      consultants of the Company for terms not to exceed 10 years and at prices and
      vesting conditions to be determined by the board of directors.  The
      Plan also allows for the granting of Incentive Stock Options that must be
      granted at no less than the grant date market price of the Company’s common
      stock.





The
      Plan
      allows for a total of 7,500,000 options outstanding of which 1,285,000 were
      outstanding as at June 30, 2007 and December 31, 2006 resulting in options
      available for grant of 6,215,000.  To date, all options granted under
      the Plan have been immediately vested and exercisable, and accordingly, there
      is
      no unrecognized stock based compensation expense as at June 30, 2007 or December
      31, 2006.





As
      at
      June 30, 2007 and December 31, 2006, the Company had no stock options
      outstanding for which the exercise price was lower than the market value of
      the
      Company’s common stock.





The
      total
      estimated intrinsic value of options exercised during the period ended June
      30,
      2007 was $NIL (year ended December 31, 2006 - $19,100).  No stock
      options were granted during the period ended June 30, 2007 or the year ended
      December 31, 2006.





A
      summary
      of the Company’s stock options and related activity is presented
      below:





Number
                of options
            Weighted
                average exercise price
              per
                share
            Weighted
                average remaining contractual life (in years)Outstanding
                at December 31, 2006
            1,285,000
            $1.72
            3.16Granted
                during the period
            -
            -Cancelled
                during the period
            -
            -Exercised
                during the period
            -
            -Outstanding
                at June 30, 2007
            1,285,000
            1.72
            2.66








16
 
 **LEXINGTON
          RESOURCES, INC.**
 NOTES
          TO INTERIM CONSOLIDATED FINANCIAL
          STATEMENTS
 JUNE
          30, 2007
 
 (Unaudited)





**NOTE
        7:                      STOCKHOLDERS'
        EQUITY (continued)**





A
      summary
      of information about stock options as at June 30, 2007 is as
      follows:





Exercise
                Price
            Number
                of options outstanding and exercisable
            Weighted
                average remaining contractual life (in years)$0.167
            50,000
            1.39$1.00
            5,000
            1.60$1.25
            850,000
            3.14$3.00
            380,000
            1.781,285,000








**NOTE
        8:                      RELATED
        PARTY TRANSACTIONS**





Related
      party transactions not otherwise disclosed elsewhere are listed as
      follows:





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 ended June 30, 2007,
      the
      Company incurred $30,000 (2006 - $60,000) in fees to IMT.





During
      the period ended June 30, 2007, the Company incurred (a) $15,000 to its officers
      for management fees (2006 - $90,000), (b) $NIL to an officer and director for
      legal and other expense reimbursements (2006 - $15,000) and (c) $5,000 in fees
      to a director (2006 - $25,000).  As at June 30, 2007, the Company owes
      $204,599 (December 31, 2006 - $202,881) to these related parties.





During
      the period ended June 30, 2007, the Company incurred $45,000 (2006 - $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 $24,500 (2006 - $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.
      This director also receives a 10% carried working interest of the Company's
      interest in all wells successfully drilled by the Company and its
      properties, 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.  During the periods ended June 30, 2007 and 2006, no
      compensation was recorded in connection with the costs of this carried working
      interest.  As at June 30, 2007, a total of $97,978 (December 31, 2006
      - $73,916) is owed to the Company from this director and / or affiliates of
      this
      director for costs incurred in connection with certain well
      interests.





During
      the quarter ended June 30, 2007, Oasis became the new third party contract
      operator for the Company’s oil and gas assets and exploration properties as part
      of cost streamlining efforts effected to conserve cash resources.  To
      facilitate the operator transition, and to decrease liabilities, the Company
      approved the sale of the majority of its oil and gas related operating fixed
      assets to Oasis for $300,000.  A director of Oasis is related to a
      director of the Company.





On
      June
      24, 2007, the Company approved the sale of certain oil and gas related operating
      fixed assets to Oasis for $300,000.  As at June 30, 2007, these assets
      were reclassified to assets held for sale at their estimated net recoverable
      amount of $300,000 resulting in an impairment of the carrying value of these
      assets totaling $99,100 being recorded during the period.  Amounts
      owing pursuant to this agreement will be offset against amounts subsequently
      owed by the Company to Oasis in connection with their ongoing operator
      activities.





Refer
      to
      Notes 3, 4 and 5.








17
 
 **LEXINGTON
          RESOURCES, INC.**
 NOTES
          TO INTERIM CONSOLIDATED FINANCIAL
          STATEMENTS
 JUNE
          30, 2007
 
 (Unaudited)





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





For
                the Six Months Ended June 30,2007
            
            
            2006Cash
                paid during the period for:Interest
                and debt payout
                penalties
            
            $
            482,352
            
            
            $
            199,825Income
                taxes
            
            $
            -
            
            
            $
            -








**NOTE
        10:                      LITIGATION**





To
      date
      the Company has received twenty-one law suits from creditors of the Company
      for
      the payment of services and goods totaling approximately $2,056,039 with
      $418,072 of the amount forming summary judgments or partial summary judgments
      against the Company.  The Company also currently has a total of four
      well liens for the payment of services and goods totaling approximately
      $116,622, and seventeen demand letters for the payment of services and goods
      totaling approximately $443,482 pursuant to expenditures incurred in the
      development of oil and gas assets on the Company’s leasehold
      interests.  All amounts owing in connection with these law suits, well
      liens and demand letters have been accrued, as applicable, as of June 30, 2007
      and December 31, 2006.








**NOTE
            11:                      SUBSEQUENT
            EVENT**
  On
            July
            3, 2007, we received a Wells Notice from the United States Securities
            and
            Exchange Commission (“SEC”).  The Wells Notice advised us that the SEC
            Staff intended to recommend that the SEC bring a civil action against
            us
            alleging that we violated Sections 5(a) and 5(c) of the Securities Act
            of 1933,
            as amended (the “Act”). The SEC Staff advised that the alleged violations of
            Sections 5(a) and 5(c) of the Act relate to the issuance of shares of
            the
            Company's common stock that were registered under Forms S-8 to certain
            individuals who allegedly were not eligible to receive shares registered
            on Form
            S-8.  The Wells Notice advised that the SEC Staff may seek a permanent
            injunction against future violations, disgorgement plus prejudgment interest,
            and
            civil
            monetary penalties.
 
 The
            SEC's
            Staff, in accordance with Rule 5(c) of the Commission's Rules of Informal
            and
            Other Procedures, 17 C.F.R. §
            202.5(c),
            afforded the Company the opportunity to make a “Wells Submission” regarding the
            SEC Staff's intended recommendations. On August 8, 2007, we submitted
            a Wells
            Submission to the Commission setting forth the reasons why no enforcement
            proceeding should be authorized by the SEC. Although there can be no
            assurance
            as to the ultimate outcome, we believe we have meritorious legal and
            factual
            defenses in this matter. We cannot predict the outcome of this matter,
            and an
            adverse resolution of this matter could have a material adverse effect
            on our
            business, financial condition and/or results of operations.
 
 On
            July 3, 2007, Grant
            Atkins, the Chief Executive Officer of the Company also received a Wells
            Notice.
            The Wells Notice advised Mr. Atkins that the SEC Staff intends to recommend
            that
            the SEC bring a civil action against him alleging that he also violated
            Sections
            5(a) and 5(c) of the Act in connection with the issuance of the Company's
            shares
            of common stock that were registered under Forms S-8 certain to individuals
            allegedly who were not eligible to receive shares registered on Form
            S-8.The SEC Staff indicated that it may recommend that the SEC seek
            disgorgement plus prejudgment interest, an order prohibiting Mr. Atkins
            from
            participating in any offering of penny stock, civil monetary penalties,
            and a
            permanent injunction.  On August 6, 2007, Mr. Atkins submitted a Wells
            Submission to the Commission setting forth the reasons why he should
            not be charged with violations of the federal securities laws in connection
            with
            this investigation. We cannot predict the outcome of the potential claims
            against Mr Atkins, and an adverse resolution could have a material adverse
            effect on the Company's business and operations.







18





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.



















































































































19





**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 via a
      third party contract operator.





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. Oak Hills Drilling and Operating International Inc. is the
      private parent company to Oak Hills.




**Oil
      and Gas Properties**





As
      of the
      date of this Quarterly Report, we have an aggregate of approximately 5,138
      gross
      developed acres, 3,186 net undeveloped acres and 4,798 gross undeveloped acres,
      2,524 net developed acres pursuant to leases and/or concessions. Our material
      mineral properties, which are briefly summarized below, are as follows. In
      all
      developed acreage, Paluca Petroleum, Inc. receives a 10% carried interest of
      our
      working interest pursuant to a management agreement with one of our
      directors.




·
            **Wagnon
                Lease in Pittsburg County, Oklahoma**. We have a 53.95% working
                interest and a 40.4625% net revenue interest in 590.2 gross acres.
                As of
                the date of this Quarterly Report, the Kellster 1-2, Kyndal 2-2,
                Bryce 3-2
                and Caleigh 4-2 wells are all in
                production.




·
            **Coal
                Creek Prospect in Hughes and Pittsburg Counties, Oklahoma**. We
                have a 47.5% working interest and a minimum 37.525% net revenue interest
                in 1,024 net mineral acres as of December 31, 2006. The Lex 1-34
                and
                Brumbaugh 1-10 wells are in production, in which we have a 43.5%
                working
                interest and 34.4% NRI and 18.88% working interest and 14.92% NRI,
                respectively. The Ellis 1-15 well, in which we have a 44% working
                interest, is not completed. Paluca Petroleum, Inc. receives a 10%
                carried
                interest of our working interest pursuant to a farm-out
                agreement.




·
            **Panther
                Creek Prospect in****Hughes County, Oklahoma**. The
                Poe 1-29 well is a non-operated producing interest of Lexington,
                in which
                our 165 net mineral acres equates to a 25.78% working interest and
                20.95%
                net revenue interest.




·
            **South
                Lamar Prospect in Hughes County, Oklahoma**. We have a 45% working
                interest in 955 net mineral acres. The Peyton 1-25 (35.99% NRI) and
                the
                Nicole 1-23 (34.23% NRI) are completed and are both flowing gas,
                and the
                Dylan Peyton 1-24H (36.21% NRI) is in the completion
                stage.




·
            **H-9
                Prospect in Hughes County, Oklahoma.**We have a 50% leasehold
                interest and a 39.625% net revenue interest in 712 net mineral acres.
                The
                Gates 1-19 and 2-19, which were drilled by Orion Exploration, are
                completed and in production. We participate 50/50 with Dylan Peyton
                LLC in
                an 11.33% working interest and a 8.98% net revenue interest in those
                wells. The Gray 1-22 has been drilled with Dylan Peyton LLC and we
                have a
                41.16% working interest and 32.62% net revenue interest. As of the
                date of
                this Quarterly Report, the well is flowing but requires
                fracturing.




·
            **Middle
                Creek Prospect in Hughes County, Oklahoma**. There are two minimal
                producing gas wells, the Betsey 1-23 and the Fix 1-14, that existed
                at the
                time of purchase in which we have a 45% working interest and a 31.5%
                net
                revenue interest in 320 net mineral acres. As of the date of this
                Quarterly Report, there has been no new development on the
                property.




·
            **Barnett
                Pathway Prospect – Undeveloped acreage**.  In Jack
                County, Texas, we have a 100% working interest and 70% net revenue
                interest in 1,115 net mineral acres. The interest in Jack County
                is in the
                Barnett Shale
                and includes deep rights.  In Hood County, Texas, we have an
                additional 459 acres in which we have a 100% working interest and
                a 72.5%
                net revenue interest.  On February 26, 2007, we sold our
                interest in its Hood County, Texas leases to Initial Energy Services,
                LLC
                of Texas.







20




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




·
            **Barnett
                Pathway Prospect - Developed acreage**.  The Martin 1H
                well in Parker County, Texas, has completed the drilling phase and
                fracturing and is now in production. We have a 90% working interest
                and a
                63% net revenue interest in this well. In Palo Pinto County, Texas,
                we
                have a 90% working interest and 63% net revenue interest in 1,211
                net
                mineral acres.  There are no depth limitations in our interest
                in Palo Pinto County.  The Gilbert #1H has been drilled in Palo
                Pinto County and is shut in pending resolution of water infiltration
                and
                the setup of compressor equipment to aid gas flows into a small diameter
                higher pressure pipeline. A Marble Falls zone above the Barnett Shale
                target represents an alternative or commingled production opportunity
                for
                the Gilbert #1H.We
                also have a non-operating 9% working interest and a 6.3% net revenue
                interest in the Paradise Park 1H well which was acquired through
                our
                drilling contract work. As of the date of this Quarterly Report,
                the well
                has been fractured, stimulated and fitted with production equipment
                and
                compressor and is in production. Total developed gross acreage is
                1,152
                net mineral acres.




·
            **Geneva
                Prospect****in Tarrant County, Texas**. We have a 90%
                working interest and a 63% net revenue interest in 312 acres. As
                of the
                date of this Quarterly Report, the Oliver Unit 1H well is shut in
                pending
                resolution of water infiltration.




·
            **Comanche
                County Prospect in Comanche County, Texas**. On March 3, 2006,
                effective January 31, 2006, we entered into an exploration agreement
                with
                Dylan-Peyton, LLC to jointly develop approximately 5,670 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 $1,225,500
                for our 50% working interest in the new acreage through a combination
                of
                $575,000 in cash (paid during the period) and approximately $650,500
                of
                carried drilling costs in the first Comanche Barnett Shale test well
                required to be drilled on or before September 1, 2006.  The test well
                commenced drilling on September 1, 2006 and we are currently evaluating
                the final costs associated with drilling in order to determine the
                total
                amounts owing. We are currently in negotiations and reconciliation
                of
                expenditures relating to the Joint Exploration Agreement in Comanche
                County, Texas.




**New
      Oil and Gas Operator Appointed/Sale of Assets**





During
      the quarter ended June 30, 2007, Oasis Operating, LLC (“Oasis”) became our new
      third-party contractor for our oil and gas assets and exploration properties
      as
      part of cost streamlining efforts effected to conserve cash resources. On June
      24, 2007, we approved the sale of certain oil and gas related operating fixed
      assets to Oasis for $300,000. Amounts owing pursuant to this agreement will
      be
      offset against amounts subsequently owed by us to Oasis in connection with
      Oasis’ ongoing operator activities. A director of Oasis is related to a director
      of Oak Hills.





**RESULTS
      OF OPERATIONS**





**Six-Month
      Period Ended June 30, 2007 Compared to Six-Month Period Ended June 30,
      2006.**





Our
      net
      loss for the six-month period ended June 30, 2007 was approximately ($1,204,584)
      compared to ($3,847,585) for the six-month period ended June 30, 2006 (a
      decrease of $2,643,001).





During
        the six-month period ended June 30, 2007, we generated $411,275 in gross
        revenue
        compared to $946,620 in gross revenue generated during the six-month period
        ended June 30, 2006 (a decrease of $535,345), resulting primarily from oil
        and
        gas revenue of $351,737 and $59,538 in well drilling and services revenue
        generated by our subsidiary, Oak Hills. Drilling and service revenue of $59,538
        declined from $689,110 during the same period in 2006 resulting from the
        sale of
        our drilling rig. Oil and gas revenue of $351,737 increased from $257,510
        during
        the same period in 2006 resulting from increased volume of gas sold. Prices
        from
        natural gas averaged $4.85 per mcf (net of marketing and transportation costs)
        during the six month period ended June 30, 2007 compared to $4.75 per mcf
        for
        the six-month period ended June 30, 2006. Volume of gas sold for the six-month
        period ended June 30, 2007 was approximately 72,495
        mcf, an increase from approximately 54,244 mcf from the six-month
        period ended June 30, 2006. The volume of gas sold resulted from new wells
        coming into production, however, the volume of gas sold was moderated by
        a
        decline in production from older wells and an increase in average production
        costs.





21


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




During
        the six-month period ended June 30, 2007, we incurred operating expenses
        in the
        aggregate amount of $1,076,224 compared to $4,113,569 incurred during the
        six-month period ended June 30, 2006 (a decrease of $3,037,345). The operating
        expenses incurred during the six-month period ended June 30, 2007 consisted
        of:
        (i) operating costs and taxes of $160,780 (2006: $118,282); (ii) depreciation,
        depletion and amortization of $372,537 (2006: $385,150); (iii) general and
        administrative of $371,335 (2006: $739,329); (iv) investor relations and
        promotion of $37,500 (2006: $1,930,975); (v) drilling rig, well and pulling
        unit
        expense of $56,125 (2006: $462,890); and (vi) salaries, wages and related
        of
        $77,947 (2006: $476,943). The decrease in operating expenses incurred
        during the six-month period ended June 30, 2007 compared to the six-month
        period
        June 30, 2006 resulted primarily from the decrease in operating expenditures
        including rig, well and pulling unit expense relating to our subsidiary,
        Oak
        Hills, and the sale of the drilling rig previously owned by Oak Hills, a
        decrease in overall general administration expenses resulting from the decrease
        in scale and scope of well drilling operations, and a substantial decrease
        in
        investor relations and promotion relating to investor awareness
        programs.





Of
        the
        $1,076,224 incurred as operating expenses during the six-month period ended
        June
        30, 2007, 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,
        2007. 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. The
        contract with IMT has been renewed annually.





Of
        the
        $1,076,224 incurred as operating expenses during the six-month period ended
        June
        30, 2007: (i) an aggregate of $15,000 was incurred to our officers/directors
        for
        management fees; and (ii) an aggregate of $5,000 was incurred to one of our
        directors for fees. Furthermore, an additional $45,000 was incurred to Mr.
        Humphreys, who is also the sole officer and director of Oak Hills, as
        compensation during the six-month period ended June 30, 2007. In addition,
        Oak
        Hills incurred $24,500 to Mr. Humphreys and a relative of this director for
        rent
        on our field offices in Oklahoma. As at June 30, 2007, $97,978 is owed to
        us
        from Mr. Humphreys and/or affiliates of Mr. Humphreys for costs incurred
        in
        connection with certain well interests. Subsequent to June 30, 2007, we have
        received $-0- of this amount due and owing. 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 our total interest in all wells drilled
        by us
        on our properties provided that funds for this participation are paid prior
        to
        the commencement of drilling of said wells. During the six-month period ended
        June 30, 2007, compensation was recorded in connection with the costs of
        this
        carried working interest totaling $-0-.  This director also received a 10%
        carried working interest of the Company's interest in all wells
        successfully drilled by the Company and its properties.





Our
        net
        loss from operations during the six-month period ended June 30, 2007 also
        includes: (i) $334,505 (2006: $2,990,136) related to interest and finance
        fees;
        (ii) a loss of $448,225 (2006: $-0-) related to a contingent liability; (iii)
        a
        gain of $342,195 (2006: $-0-) related to the disposal of other equipment;
        (iv)
        impairment of other equipment of $99,100 (2006: $-0-); and (v) a gain of
        $-0- (2006: $2,309,500) related to a derivative liability. Together with
        operating expenses, this results in a net loss of ($1,204,584). The decrease
        in
        net loss during the six-month period ended June 30, 2007 compared to the
        six-month period ended June 30, 2006 is attributable primarily to) the decrease
        in operating expenditures relating to our subsidiary, Oak Hills, a decrease
        in
        the scale and scope of well drilling operations and related capital expenditure,
        a decrease in overall general administration, and a decrease in investor
        relations and promotion relating to investor awareness programs. Our net
        loss
        during the six-month period ended June 30, 2007 was ($1,204,584) or ($0.03)
        per
        share compared to a net loss of ($3,847,585) or ($0.13) per share for the
        six-month period ended June 30, 2006. The weighted average number of shares
        outstanding was 38,766,270 for the six-month period ended June 30, 2007
        compared to 28,991,126 for the six-month period ended June 30,
        2006.







22




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




**Three-Month
      Period Ended June 30, 2007 Compared to Three-Month Period Ended June 30,
      2006.**




Our
      net
      loss for the three-month period ended June 30, 2007 was approximately ($730,707)
      compared to ($37,996) for the three-month period ended June 30, 2006 (an
      increase of $692,711).





During
      the three-month period ended June 30, 2007, we generated $202,404 in gross
      revenue compared to $645,314 in gross revenue generated during the three-month
      period ended June 30, 2006 (a decrease of $442,910), resulting primarily from
      oil and gas revenue of $195,572 and $6,832 in well drilling and services revenue
      generated by our subsidiary, Oak Hills. Drilling which service revenue
      declined from $555,011 during the same period in 2006 resulting from the sale
      of
      our drilling rig. Oil and gas revenue increased from $90,303 during the same
      period in 2006 resulting from increased volume of gas sold.





During
        the three-month period ended June 30, 2007, we incurred operating expenses
        in
        the aggregate amount of $481,046 compared to $1,623,749 incurred during the
        three-month period ended June 30, 2006 (a decrease of $1,142,703). The operating
        expenses incurred during the three-month period ended June 30, 2007 consisted
        of: (i) operating costs and taxes of $64,581 (2006: $58,184); (ii) depreciation,
        depletion and amortization of $175,513 (2006: $198,346); (iii) general and
        administrative of $190,053 (2006: $473,451); (iv) investor relations and
        promotion of $-0- (2006: $331,801); (v) drilling rig, well and pulling unit
        expense of $17,679 (2006: $241,404); and (vi) salaries, wages and related
        of
        $33,220 (2006: $320,563). The decrease in operating expenses incurred during
        the
        three-month period ended June 30, 2007 compared to the three-month period
        June
        30, 2006 resulted primarily from the decrease in operating expenditures
        including rig, well and pulling unit expense relating to our subsidiary,
        Oak
        Hills, and the sale of the drilling rig previously owned by Oak Hills, a
        decrease in overall general administration expenses resulting from the decrease
        in scale and scope of well drilling operations, and a substantial decrease
        in
        investor relations and promotion relating to investor awareness
        programs.





Our
        net
        loss from operations during the three-month period ended June 30, 2007 also
        includes: (i) $14,959 (2006: $1,369,061) related to interest and finance
        fees;
        (ii) a loss of $338,006 (2006: $-0-) related to a contingent liability; (iii)
        a
        gain of $-0- (2006: $2,309,500) related to a derivative liability; and (iv)
        impairment of other equipment of $99,100 (2006: $-0-). Together with
        operating expenses, this results in a net loss of ($730,707). Although operating
        expenses decreased during the three-month period ended June 30, 2007, the
        increase in net loss during the three-month period ended June 30, 2007 compared
        to the three-month period ended June 30, 2006 is attributable primarily to
        the
        recognition of the gain on the derivative liability of $2,309,500 during
        the
        three-month period ended June 30, 2006 compared to $-0- during the same period
        in 2007.





**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.





As
      of
      June 30, 2007, our current assets were $1,589,935 and our current liabilities
      were $9,648,264, resulting in a working capital deficit of $8,058,329. As of
      June 30, 2007, current assets were comprised of: (i) $108,963 in cash and cash
      equivalents; (ii) $1,380,077 in accounts receivable, net of allowance for
      doubtful accounts of $177,367; (iii) $97,978 in amounts due from related
      parties; and (iv) $2,917 in prepaid expenses and other. As of June 30,
      2007, our current liabilities were comprised of: (i) $8,097,626 in accounts
      payable and accrued liabilities; (ii) $670,027 in promissory note and other
      short term advances; (iii) $204,599 in amounts due to related parties; and
      (iv)
      $676,012 in contingent liability. See “ - Material Commitments.”





As
      of
      June 30, 2007, our total assets were $14,859,095 comprised of: (i) $1,589,935
      in
      current assets; (ii) $8,133,395 in carrying value of proved oil and gas
      properties (net of accumulated depletion of $1,393,981); (iii) $4,749,682 in
      carrying value of unproved oil and gas properties; (iv) $86,083 in other
      equipment (net of accumulated depreciation of $69,709); and (v) $300,000 in
      assets held for sale. The decrease in total assets during the six-month period
      ended June 30, 2007 from fiscal year ended December 31, 2006 was primarily
      due
      to a decrease in assets held for sale of $2,767,225 recorded during fiscal
      year
      ended December 31, 2006 resulting from classification of the drilling rig at
      its
      estimated net recoverable amount and the decrease in carrying value of proved
      and unproved oil and gas properties from well drilling and leasehold related
      capital expenditures.





As
      of
      June 30, 2007, our total liabilities were $9,648,264 comprised
      of $9,648,264 in current liabilities. The decrease in total
      liabilities during the six-month period ended June 30, 2007 from fiscal year
      ended December 31, 2006 was primarily due to a decrease in derivative liability
      of $1,538,829 and a decrease in long term debt of $1,295,961.





23





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





Stockholders’
      equity decreased from $5,734,697 at December 31, 2006 to $5,210,831 at June
      30, 2007.




We
      have
      not generated positive cash flows from operating activities. For the six-month
      period ended June 30, 2007, net cash flow used in operating activities was
      ($1,359,811) compared to net cash flow used in operating activities of
      ($1,492,712) for the six-month period ended June 30, 2006. Net cash flow used
      in
      operating activities during the six-month period ended June 30, 2007 consisted
      primarily of a net loss of ($1,204,584) adjusted by $146,809 relating to
      non-cash interest and finance fee expenses, ($342,195) relating to gain on
      disposal of other equipment, $278,996 relating to oil and gas depletion, $93,541
      in depreciation, $146,809 in non-cash interest and finance fees, $37,500 in
      non-cash expenses, and $448,225 in loss on contingent liability.





During
      the six-month period ended June 30, 2007, net cash flow provided by investing
      activities was $3,401,295 compared to net cash flow used in investing activities
      of ($5,804,516) for the six-month period ended June 30, 2006. Net cash flow
      provided by investing activities during the six-month period ended June 30,
      2007
      was primarily the result of $3,225,000 in proceeds on disposal of the drilling
      rig and $296,295 in disposal of oil and gas properties adjusted by ($120,000)
      in
      purchases of other equipment.





During
      the six-month period ended June 30, 2007, net cash flow used in financing
      activities was ($2,018,762) compared to net cash flow from financing activities
      of $8,480,613 for the six-month period ended June 30, 2006. Net cash flow used
      in financing activities during the six-month period ended June 30, 2007
      pertained primarily to ($1,295,961) in long-term debt repayments, ($700,457)
      in
      convertible note repayments, and ($22,344) in advances to related
      parties.





**PLAN
      OF OPERATION**




During
      fiscal year ended December 31, 2006, 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; with each Unit
      being
      comprised of one common share and one non-transferable common stock purchase
      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 1933 Securities Act. 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 the 2006 Registration Statement under the Securities
      Act
      of 1933, as amended (the “Securities Act”) to register the 8,415,000 common
      shares issued and 7,650,000 common shares underlying the Warrants. The 2006
      Registration Statement was not declared effective before financial penalties
      were due pursuant to registration timing. During the six-month period ended
      June
      30, 2007, we have paid $75,960 in penalties leaving $1,011,535 accrued and
      unpaid as at June 30, 2007. As of the date of this Quarterly Report, we
      continue to incur 1.5% of $7,450,000 raised per month of delay until the 2006
      Registration Statement is declared effective by the Securities and Exchange
      Commission.




Existing
      working capital, further advances and possible debt instruments, warrant
      exercises, further private placements, monetization of existing assets, and
      anticipated cash flow are expected to be adequate to fund our operations over
      the next two 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 will delay 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 utilize our best efforts to settle current finance accounts payables
      and liabilities with further issuances of securities, debt and or advances,
      monetization of existing assets, and revenues from operations. We will need
      to
      raise additional capital and increase revenues to meet both short term and
      long-term operating requirements.







24





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




The
      reports of the independent registered public accounting firms that accompany
      our
      December 31, 2006 and December 31, 2005 consolidated financial statements
      contain 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**




**Promissory
      Note**




During
      2007, 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, 2007, there is $70,027 of accrued and unpaid interest on this
      loan.




**2006
      Registration Statement Penalties**




On
      July
      3, 2006, we filed the 2006 Registration Statement to register the 8,415,000
      common shares issued and 7,650,000 common shares underlying the Warrants. The
      2006 Registration Statement was not declared effective before financial
      penalties were due pursuant to registration timing. Penalties accrued and unpaid
      to June 30, 2007 aggregate $1,011,535. As of the date of this Quarterly Report,
      we continue to incur 1.5% of $7,450,000 raised per month of delay until the
      registration statement is declared effective by the Securities and Exchange
      Commission.




**Accounts
      Payable Related Legal Proceedings**




**See
      PART II. OTHER INFORMATION, ITEM 1. LEGAL PROCEEDINGS**





**ITEM
      3. CONTROLS AND PROCEDURES**





Our
      management is responsible for establishing and maintaining a system of
      disclosure controls andprocedures (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.
      Disclosurecontrols andprocedures include,
      without limitation,controls andprocedures
      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 interim Chief
      Financial Officer, of the effectiveness of the design and operation of our
      disclosure controls andprocedures as of
      the end
      of the period covered by this Quarterly Report. Based on that evaluation, our
      management concluded that our disclosurecontrols andprocedures
      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 internalcontrols 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 six-month period ended June 30, 2007, that
      materially affected, or were reasonably likely to materially affect, our
      internalcontrols over financial reporting.





25





**PART
      II. OTHER INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS**





During
      the fourth quarter of 2006 and to the date of this Quarterly Report, we have
      received twenty-one law suits from our creditors for the payment of services
      and
      goods totaling approximately $2,056,039 with $418,072 of the amount forming
      summary judgments or partial summary judgments against us. We also currently
      have a total of four well liens for the payment of services and goods totaling
      approximately $116,622 and seventeen demand letters for the payment of services
      and goods totaling approximately $443,482 pursuant to expenditures incurred
      in
      the development of oil and gas assets on our leasehold interests. All amounts
      owing in connection with these law suits, mediation requests, well liens and
      demand letters have been accrued, as applicable, as of June 30,
      2007.




On
            July
            3, 2007, we received a Wells Notice from the United States Securities
            and
            Exchange Commission (“SEC”).  The Wells Notice advised us that the SEC
            Staff intended to recommend that the SEC bring a civil action against
            us
            alleging that we violated Sections 5(a) and 5(c) of the Securities Act
            of 1933,
            as amended (the “Act”). The SEC Staff advised that the alleged violations of
            Sections 5(a) and 5(c) of the Act relate to the issuance of shares of
            the
            Company's common stock that were registered under Forms S-8 to certain
            individuals who allegedly were not eligible to receive shares registered
            on Form
            S-8.  The Wells Notice advised that the SEC Staff may seek a permanent
            injunction against future violations, disgorgement plus prejudgment interest,
            and
            civil
            monetary penalties.
 
 The
            SEC's
            Staff, in accordance with Rule 5(c) of the Commission's Rules of Informal
            and
            Other Procedures, 17 C.F.R. §
            202.5(c),
            afforded the Company the opportunity to make a “Wells Submission” regarding the
            SEC Staff's intended recommendations. On August 8, 2007, we submitted
            a Wells
            Submission to the Commission setting forth the reasons why no enforcement
            proceeding should be authorized by the SEC. Although there can be no
            assurance
            as to the ultimate outcome, we believe we have meritorious legal and
            factual
            defenses in this matter. We cannot predict the outcome of this matter,
            and an
            adverse resolution of this matter could have a material adverse effect
            on our
            business, financial condition and/or results of operations.
 
 On
            July 3, 2007, Grant
            Atkins, the Chief Executive Officer of the Company also received a Wells
            Notice.
            The Wells Notice advised Mr. Atkins that the SEC Staff intends to recommend
            that
            the SEC bring a civil action against him alleging that he also violated
            Sections
            5(a) and 5(c) of the Act in connection with the issuance of the Company's
            shares
            of common stock that were registered under Forms S-8 certain to individuals
            allegedly who were not eligible to receive shares registered on Form
            S-8.The SEC Staff indicated that it may recommend that the SEC seek
            disgorgement plus prejudgment interest, an order prohibiting Mr. Atkins
            from
            participating in any offering of penny stock, civil monetary penalties,
            and a
            permanent injunction.  On August 6, 2007, Mr. Atkins submitted a Wells
            Submission to the Commission setting forth the reasons why he should
            not be charged with violations of the federal securities laws in connection
            with
            this investigation. We cannot predict the outcome of the potential claims
            against Mr Atkins, and an adverse resolution could have a material adverse
            effect on the Company's business and operations.






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





No
      report
      required.





**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**





**Resignation
      of Director**





Effective
      on July 23, 2007, our Board of Directors accepted the resignation of Norman
      J R
      MacKinnon as a director, our Chief Financial Officer and a member of our audit
      committee.





Effective
      on May 2, 2007, our Board of Directors accepted the resignation of Mr. Gino
      Cicci as a director.





**ITEM
      6. EXHIBITS**




31.1
            Certification
              of Chief Executive Officer pursuant to Securities Exchange
              Act of 1934 Rule 13a-14(a) or 15d-14(a).31.2
            Certification
              of Chief Financial Officer pursuant to Securities Exchange
              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.







26





**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.Dated:
                  August
                  23, 2007
              By:
              /s/ Grant
                AtkinsGrant
                AtkinsPresident
                andChief
                Executive Officer


Dated:
                  August 23, 2007
              By:
              /s/ Grant
                AtkinsGrant
                AtkinsChief
                FinancialOfficer




27