**U.S.
                SECURITIES AND EXCHANGE COMMISSION**
              **Washington,
                D.C. 20549**
              **Form
                10-QSB**





Mark
      One


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





For
      the period ended March 31, 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, $0.000025 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   Noo




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


1





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 June 14, 2007Common
                Stock, $0.00025 par value
            38,766,270




Transitional
      Small Business Disclosure Format (Check one): Yes oNo
x


























































































































2




INDEX
            PAGEPART
              I.  FINANCIAL INFORMATION
            4ITEM
              1.  INTERIM CONSOLIDATED FINANCIAL STATEMENTS
            4CONSOLIDATED
              BALANCE SHEETS
            5CONSOLIDATED
              STATEMENTS OF OPERATIONS
            6CONSOLIDATED
              STATEMENTS OF CASH FLOWS
            7NOTES
              TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
            8ITEM
              2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
              OR PLAN OF OPERATION
            20ITEM
              3. CONTROLS AND PROCEDURES
            25PART
              II. OTHER INFORMATION
            25ITEM
              1.  LEGAL PROCEEDINGS
            25ITEM
              2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE
              OF PROCEEDS
            25ITEM
              3.  DEFAULTS UPON SENIOR SECURITIES
            26ITEM
              4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
              HOLDERS
            26ITEM
              5.  OTHER INFORMATION
            26ITEM
              6.  EXHIBITS
            26SIGNATURES
            26






3


**PART
      1. FINANCIAL INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS**







**LEXINGTON
        RESOURCES, INC.**
 
 
 **INTERIM
        CONSOLIDATED****FINANCIAL STATEMENTS**
 
 
 **MARCH
        31, 2007**
 **(UNAUDITED)**
 
   
                     4
  **LEXINGTON
        RESOURCES, INC.**
 
 **CONSOLIDATED
        BALANCE SHEETS**
 
 March
                  31,
                2007
              
              
              December
                  31,
                2006(Unaudited)
              
              
              (Audited)**ASSETS****CURRENT
                  ASSETS**Cash
                  and cash
                  equivalents
              
              $
              273,131
              
              
              $
              86,241Accounts
                  receivable, net of
                  allowance for doubtful accounts of $177,367 (2006 -
                  $177,367)
              
              
              1,350,784
              
              
              
              1,425,450Due
                  from related parties (Note
                  8)
              
              
              97,978
              
              
              
              73,916Prepaid
                  expenses and
                  other
              
              
              2,917
              
              
              
              2,917Current
                  portion of deferred
                  finance fees
              
              
              -
              
              
              
              39,8031,724,810
              
              
              
              1,628,327**ASSETS
                  HELD FOR SALE** (Note 5)
              
              
              -
              
              
              
              2,767,225**PROPERTY
                  AND EQUIPMENT** (Note 4)Oil
                  and gas properties - full
                  cost method of accountingProved,
                  net of accumulated depletion $1,265,187 (2006 -
                  $1,114,985)
              
              
              8,262,189
              
              
              
              8,408,510Unproved
              
              
              4,773,447
              
              
              
              5,049,85813,035,636
              
              
              
              13,458,368Other
                  equipment, net of
                  accumulated depreciation of $282,680 (2006 - $235,858)
              
              
              531,902
              
              
              
              578,72413,567,538
              
              
              
              14,037,092$
              15,292,348
              
              
              $
              18,432,644**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****CURRENT
                  LIABILITIES**Accounts
                  payable and accrued
                  liabilities
              
              $
              7,894,185
              
              
              $
              8,404,178Due
                  to related parties (Note
                  8)
              
              
              205,180
              
              
              
              202,881Promissory
                  note and other short
                  term advances (Note 6)
              
              
              655,068
              
              
              
              640,274Current
                  portion of convertible
                  notes and accrued interest (Note 6)
              
              
              -
              
              
              
              615,824Contingent
                  liability (Notes 2 and 7)
              
              
              672,337
              
              
              
              -9,426,770
              
              
              
              9,863,157**LONG
                  TERM DEBT**(Note 6)
              
              
              -
              
              
              
              1,295,961**DERIVATIVE
                  LIABILITY**(Note 7)
              
              
              -
              
              
              
              1,538,8299,426,770
              
              
              
              12,697,947**CONTINGENCIES
                  AND COMMITMENTS** (Notes 1, 4, 6 & 8)
              
              
              -
              
              
              
              -**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
              
              
              (30,836,986
              )
              
              
              (26,683,867
              )5,865,578
              
              
              
              5,734,697$
              15,292,348
              
              
              $
              18,432,644
 
 
 The
        accompanying notes are an integral part of these interim consolidated financial
        statements.
  5
  **LEXINGTON
        RESOURCES, INC.**
 
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **(Unaudited)**
 
 For
                  the three month period
                ended
                  March 31,2007
              
              
              2006**REVENUES**Oil
                  and gas
                  revenue
              
              $
              156,165
              
              
              $
              167,207Drilling
                  and service
                  revenue
              
              
              52,706
              
              
              
              134,099208,871
              
              
              
              301,306**OPERATING
                  EXPENSES**Operating
                  costs and
                  taxes
              
              
              96,199
              
              
              
              60,098Rig,
                  well and pulling unit
                  expense
              
              
              38,446
              
              
              
              221,486Salaries,
                  wages and
                  related
              
              
              44,727
              
              
              
              156,380Depreciation,
                  depletion and
                  amortization
              
              
              197,024
              
              
              
              186,804General
                  and
                  administrative
              
              
              181,282
              
              
              
              265,878Investor
                  relations and
                  promotion
              
              
              37,500
              
              
              
              1,599,174595,178
              
              
              
              2,489,820**NET
                  LOSS FROM OPERATIONS**
              
              
              (386,307
              )
              
              
              (2,188,514
              )**INTEREST
                  AND FINANCE FEES**
              
              
              (395,506
              )
              
              
              (1,621,075
              )**GAIN
                  ON DISPOSAL OF OTHER EQUIPMENT**
              
              
              342,195
              
              
              
              -**LOSS
                  ON CONTINGENT LIABILITY**(Note 2)
              
              
              (110,219
              )
              
              
              -**NET
                  LOSS FOR THE PERIOD**
              
              $
              (549,837
              )
              
              $
              (3,809,589
              )
 
 
 
 **BASIC
                  AND FULLY DILUTED NET LOSS PER SHARE**
              
              $
              (0.01
              )
              
              $
              (0.16
              )**WEIGHTED
                  AVERAGE COMMON SHARES OUTSTANDING**
              
              
              38,766,270
              
              
              
              23,954,794
 
 
 The
        accompanying notes are an integral part of these interim consolidated financial
        statements.
  6
  **LEXINGTON
        RESOURCES, INC.**
 
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **(Unaudited)**
 
 For
                  the three month period
                ended
                  March 31,2007
              
              
              2006**CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  loss for the
                  period
              
              $
              (549,837
              )
              
              $
              (3,809,589
              )Adjustments
                  to reconcile net
                  loss to net cash used in operating activities:Gain
                  on disposal of other
                  equipment
              
              
              (342,195
              )
              
              
              -Non–cash
                  expenses
              
              
              37,500
              
              
              
              37,500Oil
                  and gas
                  depletion
              
              
              150,202
              
              
              
              70,223Depreciation
              
              
              46,822
              
              
              
              116,581Non-cash
                  interest and finance
                  fees
              
              
              146,809
              
              
              
              1,494,051Loss
                  on contingent
                  liability
              
              
              110,219
              
              
              
              -Changes
                  in working capital
                  assets and liabilities:Accounts
                  receivable
              
              
              74,666
              
              
              
              402,341Prepaid
                  expenses and
                  other
              
              
              -
              
              
              
              8,692Accounts
                    payable and accrued liabilities
              
              
              (846,645
              )
              
              
              770,717**NET
                  CASH FLOWS USED IN OPERATING ACTIVITIES**
              
              
              (1,172,459
              )
              
              
              (909,484
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Purchases
                  of other
                  equipment
              
              
              (120,000
              )
              
              
              (3,625
              )Proceeds
                  on disposal of other
                  equipment
              
              
              3,225,000
              
              
              
              -Oil
                  and gas property disposals
                  (additions)
              
              
              272,530
              
              
              
              (1,537,715
              )Cash
                  acquired on acquisition of
                  Oak Hills, net of transaction costs
              
              
              -
              
              
              
              119,544**NET
                  CASH FLOWS PROVIDED BY (USED IN) INVESTING
                  ACTIVITIES**
              
              
              3,377,530
              
              
              
              (1,421,796
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Advances
                  to related
                  parties
              
              
              (21,763
              )
              
              
              (20,698
              )Convertible
                  note
                  repayments
              
              
              (700,457
              )
              
              
              (581,836
              )Promissory
                  notes
              
              
              -
              
              
              
              500,000Long
                  term debt
                  repayments
              
              
              (1,295,961
              )
              
              
              (13,410
              )Proceeds
                  on sale of common
                  stock
              
              
              -
              
              
              
              1,937,500**NET
                  CASH FLOWS PROVIDED BY (USED IN) FINANCING
                  ACTIVITIES**
              
              
              (2,018,181
              )
              
              
              1,821,556**INCREASE
                  (DECREASE) IN CASH AND CASH EQUIVALENTS**
              
              
              186,890
              
              
              
              (509,724
              )**CASH
                  AND CASH EQUIVALENTS, BEGINNING OF PERIOD**
              
              
              86,241
              
              
              
              520,332**CASH
                  AND CASH EQUIVALENTS, END OF PERIOD**
              
              $
              273,131
              
              
              $
              10,608
 
 
 **SUPPLEMENTAL
        CASH FLOW INFORMATION**(Note 9).
 
 
 The
        accompanying notes are an integral part of these interim consolidated financial
        statements.
  
  7
 **LEXINGTON
              RESOURCES, INC.**
 **NOTES
              TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
                31, 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).
 
 **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 $7,701,960 at March 31, 2007, has incurred losses since inception
        of $30,836,986 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 three months
        ended March 31, 2007, are not necessarily indicative of the results that
        may be
        expected for the year ending December 31, 2007.
  8
 
 **LEXINGTON
          RESOURCES, INC.**
 **NOTES
          TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 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 is 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 (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
                  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
              )
  9
 
 **LEXINGTON
          RESOURCES, INC.**
 **NOTES
          TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 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 March 31, 2007 are as follows:
 
 Estimated
                contingent
                  liability
              
              
              Actual
                  damages accrued to date
              
              
              Contingent
                  liability carrying valueBalance,
                  January 1, 2007 upon adoption
              
              $
              1,315,282
              
              
              $
              (419,671
              )
              
              $
              895,611Record
                  actual damages accrued during the period
              
              
              -
              
              
              
              (333,493
              )
              
              
              (333,493
              )Record
                  loss on change in estimated fair value of
                contingent
                  liability during the period
              
              
              110,219
              
              
              
              -
              
              
              
              110,219Balance,
                  March 31, 2007
              
              $
              1,425,501
              
              
              $
              (753,164
              )
              
              $
              672,337
 
 **(b)
        Recent Accounting Pronouncements**
 In
        2006,
        the FASB issued 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 three months ended March 31,
        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
        three months ended March 31, 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.
  10
 
 **LEXINGTON
          RESOURCES, INC.**
 **NOTES
          TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2007**
 **(Unaudited)**
  **NOTE
          3:                      ACQUISITION
          OF OAK HILLS (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 period ended
        March
        31, 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, 200, 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 March 31,2006Revenues
              
              $
              647,939Net
                  loss
              
              $
              (3,785,917
              )Net
                  loss per share – basic and diluted
              
              $
              (0.15
              )Weighted
                  average shares outstanding
              
              
              25,421,460
  11
 
 **LEXINGTON
          RESOURCES, INC.**
 **NOTES
          TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2007**
 **(Unaudited)**
  **NOTE
          4:                      PROPERTY
          AND EQUIPMENT**
 
 Property
        and equipment includes the following:
 March
                  31,
              
              
              December
                  31,2007
              
              
              2006**Oil
                  and gas properties:**Proved,
                  subject to depletion
              
              $
              11,677,376
              
              
              $
              11,673,495Unproved,
                  not subject to depletion
              
              
              4,773,447
              
              
              
              5,049,858Accumulated
                  depletion
              
              
              (1,265,187
              )
              
              
              (1,114,985
              )Impairment
                  provision
              
              
              (2,150,000
              )
              
              
              (2,150,000
              )Net
                  oil and gas properties
              
              
              13,035,636
              
              
              
              13,458,368Other
                  equipment
              
              
              841,859
              
              
              
              841,859Accumulated
                  depreciation
              
              
              (282,680
              )
              
              
              (235,858
              )Impairment
                  provision
              
              
              (27,277
              )
              
              
              (27,277
              )Net
                  other property and equipment
              
              
              531,902
              
              
              
              578,724Property
                  and equipment, net of accumulated depreciation  and
                  depletion
              
              $
              13,567,538
              
              
              $
              14,037,092
 
 For
        the
        period ended March 31, 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 March 31, 2007
        was
        $3.85 per mcf (2006 - $0.95).
 
 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 will be developed on a 50/50 equal working interest basis.  An
        affiliate to Dylan, named Avatar Energy, LLC, will become the operator for
        the
        project.  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 will be developed on a 50/50 equal working
        interest basis.  The Company’s subsidiary, Oak Hills will become the
        operator of the project.  The Company will pay approximately $1,225,500 for
        its 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 2006.  The test well commenced drilling on September 1,
        2006 and the Company is currently evaluating the final costs associated with
        drilling in order to determine the total amounts owing. 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.
  12
 
 **LEXINGTON
          RESOURCES, INC.**
 **NOTES
          TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2007**
 **(Unaudited)**
  **NOTE
          4:                      PROPERTY
          AND EQUIPMENT (continued)**
 
 During
        2006, the Company’s leases relating 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 the year, 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.
 
 **Sale
        of Undeveloped Acreage**
 
 On
        February 26, 2007, the Company sold approximately 499 acres of Barnett Shale
        targeted exploration leases located in Hood County, Texas resulting in net
        proceeds of approximately $365,000.
 
 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
              
              
              -
              
              
              
              (364,471
              )
              
              
              (364,471
              )Balance,
                  March 31, 2007
              
              $
              2,067,267
              
              
              $
              2,706,180
              
              
              $
              4,773,447
 
 
 **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 dig 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.
 
  13
 
 **LEXINGTON
          RESOURCES, INC.**
 **NOTES
          TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2007**
 **(Unaudited)**
  **NOTE
          6:                      LONG
          TERM DEBT, SHORT TERM DEBT AND OTHER ADVANCES**
 
 During
        the period ended March 31, 2007, 2006, the Company had the following activity
        in
        connection with long term debt, short term debt and other advances:
 
 **Promissory
        note**
 On
        December 20, 2005, the Company obtained an unsecured loan by way of promissory
        note from a shareholder of the Company totaling $600,000. The term of the
        loan
        is for two years with interest calculated at 10% per annum.  Interest
        is to be paid on a quarterly basis with the principal to be repaid on or
        before
        the two year loan period.  As of March 31, 2007, $55,068 (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 Lexington supported by a
        collateral security agreement covering all the assets of
        Lexington.  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 Lexington.
 
 
 **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 March 31, 2007**
 The
        Company did not issue any shares of common stock during the period ended
        March
        31, 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.  Penalties accrued and
        unpaid to March 31, 2007 total $753,164 (December 31, 2006 - $419,671) and
        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.
  14
 
 **LEXINGTON
          RESOURCES, INC.**
 **NOTES
          TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2007**
 **(Unaudited)**
  **NOTE
        7:                      STOCKHOLDERS'
        EQUITY (continued)**
 
 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
 
 **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 was 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%.
 
  15
 
 **LEXINGTON
          RESOURCES, INC.**
 **NOTES
          TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2007**
 **(Unaudited)**
  **NOTE
          7:                      STOCKHOLDERS'
          EQUITY (continued)**
 
 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
 
 **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 March 31, 2007
              
              
              11,399,000
              
              
              
              1.21
              
              
              
              0.86
 
 **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 grant date market price of the Company’s common
        stock.
  16
 
 **LEXINGTON
          RESOURCES, INC.**
 **NOTES
          TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2007**
 **(Unaudited)**
  **NOTE
          7:                      STOCKHOLDERS'
          EQUITY (continued)**
 
 The
        Plan
        allows for a total of 7,500,000 options outstanding of which 1,285,000 were
        outstanding as at March 31, 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 March 31, 2007 or
        December 31, 2006.
 
 As
        at
        March 31, 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 March
        31,
        2007 was $NIL (year ended December 31, 2006 - $19,100).  No stock
        options were granted during the period ended March 31, 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 March 31, 2007
              
              
              1,285,000
              
              
              $
              1.72
              
              
              
              2.91
 
 A
        summary
        of information about stock options as at March 31, 2007 is as
        follows:
 
 Exercise
                  Price
              
              
              Number
                  of options outstanding and exercisable
              
              
              Weighted
                  average remaining contractual life (in years)$
              0.167
              
              
              
              50,000
              
              
              
              1.63$
              1.00
              
              
              
              5,000
              
              
              
              1.84$
              1.25
              
              
              
              850,000
              
              
              
              3.39$
              3.00
              
              
              
              380,000
              
              
              
              2.031,285,000
 
  17
 
 **LEXINGTON
          RESOURCES, INC.**
 **NOTES
          TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS**
 **MARCH
            31, 2007**
 **(Unaudited)**
  **NOTE
          8:                      RELATED
          PARTY TRANSACTIONS**
 
 The
        Company previously entered into a one year contract with IMT on November
        10,
        2003, a private company that performs a wide range of management,
        administrative, financial, and business development services to the Company.
        The
        contract has been renewed annually. During the period ended March 31, 2007,
        the
        Company incurred $30,000 (2006 - $20,000) in fees to IMT.
 
 During
        the period ended March 31, 2007, the Company incurred (a) $15,000 to its
        officers for management fees (2006 - $45,000), (b) $NIL to an officer and
        director for legal and other expense reimbursements (2006 - $15,000) and
        (c)
        $4,000 in fees to a director (2006 - $15,000).  As at March 31, 2007,
        the Company owes $205,180 (December 31, 2006 - $202,881) to these related
        parties.
 
 During
        the period ended March 31, 2007, the Company incurred $22,500 (2006 - $22,500)
        in fees to the sole officer and director of Oak Hills who is also a director
        of
        the Company.  In addition, Oak Hills incurred $10,500 (2006 - $11,500)
        to this director and a relative of this director for rent on the Company’s field
        offices in Oklahoma.  This director has previously been assigned a 10%
        carried working interest in each well successfully drilled on the Wagnon
        lease,
        as partial compensation for his involvement in obtaining and facilitating
        the
        execution of the Farm-Out Agreement and to compensate for his services relating
        to operation and completion of wells to be located on the Wagnon lease, and
        has
        also been provided the right to purchase up to an additional 5% working interest
        of the Company’s total interest in all wells drilled by the Company on its
        properties provided that funds for this participation are paid prior to the
        commencement of drilling of said wells.  During the periods ended
        March 31, 2007 and 2006, no development activities were conducted on the
        related
        properties and accordingly, no compensation was recorded in connection with
        the
        costs of this carried working interest.  As at March 31, 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.
 
 Refer
        to
        Notes 3 and 4.
 
 
 **NOTE
          9:                      SUPPLEMENTAL
          DISCLOSURE WITH RESPECT TO CASH FLOWS**
 
 For
                  the three Months Ended March 31,2007
              
              
              2006Cash
                  paid during the period for:Interest
                  and debt payout
                  penalties
              
              $
              230,990
              
              
              $
              176,688Income
                  taxes
              
              $
              -
              
              
              $
              -
 
 For
        the
        three month period ended March 31, 2007, the Company implemented FSP 00-19-2
        as
        discussed in Note 2 which resulted in a non-cash transaction, increasing
        additional paid in capital and common stock purchase warrants $4,246,500,
        increasing accumulated deficit $3,603,282 and decreasing contingent liability
        $643,218.
  **NOTE
          10:                      SUBSEQUENT
          EVENTS**
 
 To
        date
        the Company has received six law suits from creditors of the Company for
        the
        non-payment of services and goods totaling approximately $785,445, one
        contractual mediation request from a creditor for the non-payment of services
        and goods totaling approximately $111,994, nine well liens for the non-payment
        of services and goods totaling approximately $333,771, and eighteen demand
        letters for the non-payment of services and goods totaling approximately
        $520,554 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, mediation requests, well liens and demand
        letters have been accrued, as applicable, as of March 31, 2007 and December
        31,
        2006.
 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.




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





**GENERAL**





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





Two
      additional wholly-owned subsidiaries, Oak Hills Drilling and Operating
      International, Inc., a Nevada company, and Oak Hills Drilling and Operating
      LLC,
      an Oklahoma limited liability company (“Oak Hills”), were acquired in the first
      quarter of 2006. Oak Hills Drilling and Operating International Inc. is the
      private parent company to Oak Hills. Oak Hills is our designated oil and gas
      operator for our well and property interests located in the Barnett Shale and
      Texas Project leases.





**Disposition
      of Oak Hills Drilling Rig**





During
      the fourth quarter of 2006, we considered monetizing certain of our assets
      and
      those of Oak Hills in order to decrease liabilities and overhead incurred by
      us
      on a consolidated basis from previous capital expenditures and a lack of current
      debt and equity resources made available to us. In this respect, we actively
      solicited offers from unaffiliated third parties for the purchase of certain
      assets of Oak Hills, inclusive of Oak Hills' Wilson Giant single draw works
      drilling rig and related equipment (collectively, the "Drilling Rig"). At the
      same time, we also requested an independent evaluation report regarding
      valuation of the Drilling Rig in order to substantiate the consideration to
      be
      offered.




On
      January 2, 2007, our Board of Directors authorized and approved the execution
      by
      Oak Hills of an agreement dated December 29, 2006 (the “Agreement”) with
      Innovative Energy Services ("IES") pertaining to the sale and purchase of the
      Drilling Rig. In accordance with the terms of this agreement: (i) IES paid
      to
      Oak Hills an aggregate gross amount of $3,100,000; and (ii) Oak Hills delivered
      title to the Drilling Rig to IES. 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
      October 2, 2006, we entered into a convertible debt set-off agreement (the
      “Convertible Debt Agreement”) with Dylan Peyton LLC, a Texas limited liability
      company (“Dylan Peyton"), relating to amounts due and owing to Dylan Peyton by
      Oak Hills 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 Peyton; (ii) Oak Hills had 120
      days
      to pay the amount of $120,000 due and owing to Dylan Peyton 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 Peyton
      well #1-23; and (iv) in the event Oak Hills did not re-purchase the Wilson
      pumps
      for $120,000 within the 120 days, the sale of the pumps would constitute full
      and complete settlement of the $120,000 due and owing Dylan
      Peyton.


19


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




On
      January 27, 2007, we extinguished our obligations under the convertible debt
      set-off agreement with Dylan Peyton by repaying $120,000 to Ada Energy Services
      and reclaiming our pledged collateral (two Wilson 600 duplex
      pumps).  On January 27, 2007, we sold our two Wilson 600 duplex pumps
      to Innovative Energy Services for $125,000.





**Sale
      of Undeveloped Acreage**





On
      February 26, 2007, we sold approximately 499 acres of Barnett Shale targeted
      exploration leases located in Hood County, Texas resulting in net proceeds
      of
      approximately $365,000.





**RESULTS
      OF OPERATIONS**





Our
      net
      loss for the three-month period ended March 31, 2007 was approximately
      ($549,837) compared to ($3,809,589) for the three-month period ended March
      31,
      2006 (a decrease of $3,259,752).





During
      the three-month period ended March 31, 2007, we generated $208,871 in gross
      revenue compared to $301,306 in gross revenue generated during the three-month
      period ended March 31, 2006 (a decrease of $92,435), resulting from oil and
      gas
      revenue of $156,165 and $52,706 in well drilling and services revenue generated
      by our subsidiary, Oak Hills. Prices from natural gas averaged $4.94 per mcf
      (net of marketing and transportation costs) during the three month period ended
      March 31, 2007 compared to $5.30 per mcf for the three-month period ended March
      31, 2006. Volume of gas sold for the three-month period ended March 31, 2007
      was
      approximately 39,029 mcf up from approximately 26,367 mcf from the three-month
      period ended March 31, 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.





During
      the three-month period ended March 31, 2007, we incurred operating expenses
      in
      the aggregate amount of $595,178 compared to $2,489,820 incurred during the
      three-month period ended March 31, 2006 (a decrease of $1,894,642). The
      operating expenses incurred during the three-month period ended March 31, 2007
      consisted of: (i) operating costs and taxes of $96,199 (2006: $60,098); (ii)
      depreciation, depletion and amortization of $197,024 (2006: $186,804); (iii)
      general and administrative of $181,282 (2006: $265,878); (iv) investor relations
      and promotion of $37,500 (2006: $1,599,174); (v) drilling rig, well and pulling
      unit expense of $38,446 (2006: $221,486); and (vi) salaries, wages and related
      of $44,727 (2006: $156,380). The decrease in operating expenses incurred during
      the three-month period ended March 31, 2007 compared to the three-month period
      March 31, 2006 resulted primarily from the decrease in operating expenditures
      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, and a decrease in investor relations and promotion relating to
      investor awareness programs.




Of
      the
      $595,178 incurred as operating expenses during the three-month period ended
      March 31, 2007, an aggregate of $30,000 was incurred in fees payable to
      International Market Trend (“IMT”) for amounts due and owing for operational,
      administrative and consulting services rendered during the three-month period
      ended March 31, 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
      $595,178 incurred as operating expenses during the three-month period ended
      March 31, 2007: (i) an aggregate of $15,000 was incurred to our
      officers/directors for management fees; and (ii) an aggregate of $4,000 was
      incurred to one of our directors for fees. Furthermore, an additional $22,500
      was incurred to Mr. Humphreys, who is also the sole officer and director of
      Oak
      Hills, as compensation during the three-month period ended March 31, 2007.
      In
      addition, Oak Hills incurred $10,500 to Mr. Humphreys and a relative of this
      director for rent on our field offices in Oklahoma. As at March 31, 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 March
      31, 2007, we have not received any 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 three-month period ended March 31, 2007, no development
      activities were conducted on the related properties and accordingly, no
      compensation was recorded in connection with the costs of this carried working
      interest.


20


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




Our
      net
      loss from operations during the three-month period ended March 31, 2007 also
      includes $395,506 related to interest and finance fees, a loss of $110,219
      related to a contingent liability from the adoption of EITF 00-19-2, and a
      gain
      of $342,195 related to the disposal of other equipment which, together with
      operating expenses, results in a net loss of ($549,837). Included in interest
      and finance fees are non-cash amounts totaling $146,809 relating to the
      amortization of a convertible debt discount, and deferred finance costs. The
      decrease in net loss during the three-month period ended March 31, 2007 compared
      to the three-month period ended March 31, 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 three-month period ended March 31, 2007 was ($549,837)
      or
      ($0.01) per share compared to a net loss of ($3,809,589) or ($0.16) per share
      for the three-month period ended March 31, 2006. The weighted average number
      of
      shares outstanding was 38,766,270 at the three-month period ended March 31,
      2007
      compared to 23,954,794 at the three-month period ended March 31,
      2006.





**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
      at the
      three-month period ended March 31, 2007, our current assets were $1,724,810
      and
      our current liabilities were $9,426,770, resulting in a working capital deficit
      of $7,701,960. As at the three-month period ended March 31, 2007, current assets
      were comprised of: (i) $273,131 in cash and cash equivalents; (ii) $1,350,784
      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 at the three-month period ended March 31, 2007, our current
      liabilities were comprised of: (i) $7,894,185 in accounts payable and accrued
      liabilities; (ii) $655,068 in promissory note and other short term advances;
      and
      (iii) $205,180 in amounts due to related parties. See “ - Material
      Commitments.”





For
      the three-month period ended March 31, 2007, our total assets were
      $15,292,348 comprised of: (i) $1,724,810 in current assets; (ii) $8,262,189
      in
      carrying value of proved oil and gas properties (net of accumulated depletion);
      (iii) $4,773,447 in carrying value of unproved oil and gas properties; and
      (iv)
      $531,902 in other fixed assets (net of accumulated depreciation). The decrease
      in total assets during the three-month period ended March 31, 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.





For
      the three-month period ended March 31, 2007, our total liabilities
      consisted of $9,426,770 in current liabilities. The decrease in total
      liabilities during the three-month period ended March 31, 2007 from fiscal
      year
      ended December 31, 2006 was primarily due to the decrease in derivative
      liability and payments on long term debt from sale of the Company's drilling
      rig.





Stockholders’
      equity increased from $5,734,697 for December 31, 2006 to $5,865,578 for the
      three-month period ended March 31, 2007.




We
      have
      not generated positive cash flows from operating activities. For the three-month
      period ended March 31, 2007, net cash flow used in operating activities was
      ($1,172,459) compared to net cash flow used in operating activities of
      ($909,484) for the three-month period ended March 31, 2006. Net cash flow used
      in operating activities during the three-month period ended March 31, 2007
      consisted primarily of a net loss of ($549,837) adjusted by $146,809 relating
      to
      non-cash interest and finance fee expenses, ($342,195) relating to gain on
      disposal of other equipment, $150,202 relating to oil and gas depletion, $46,822
      in depreciation, $146,809 in non-cash interest and finance fees, $37,500 in
      non-cash expenses, $110,219 relating to a loss on contingent liability, and
      other working capital charges of ($771,979).


21


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




During
      the three-month period ended March 31, 2007, net cash flow provided by investing
      activities was $3,377,530 compared to net cash flow used in investing activities
      of ($1,421,796) for the three-month period ended March 31, 2006. Net cash flow
      provided by investing activities during the three-month period ended March
      31,
      2007 was primarily the result of $3,225,000 in proceeds on disposal of the
      Drilling Rig and $272,530 in disposal of oil and gas properties adjusted by
      ($120,000) in purchases of other equipment.





During
      the three-month period ended March 31, 2007, net cash flow used in financing
      activities was ($2,018,181) compared to net cash flow from financing activities
      of $1,821,556 for the three-month period ended March 31, 2006. Net cash flow
      used in financing activities during the three-month period ended March 31,
      2007
      pertained primarily to ($1,295,961) in long-term debt repayments, ($700,457)
      in
      convertible note repayments, and ($21,763) 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 a registration statement under the Securities Act of
      1933
      to register the 8,415,000 common shares issued and 7,650,000 common shares
      underlying the Warrants. The registration statement was not declared effective
      before financial penalties were due pursuant to registration timing. Penalties
      accrued and unpaid to March 31, 2007 aggregate $753,164. 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.




Effective
        January 1, 2007, we adopted the provisions of FASB Staff Position (“FSP”) No.
        EITF 00-19-2 *Accounting for Registration Payment Arrangements* (“EITF
        00-19-2”) in connection with the accounting for these registration
        arrangements.  We previously 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, we 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, we are required to classify the financing component
        parts as equity, assets or liabilities, notwithstanding the registration
        damages
        and related payment arrangements.  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 our first interim period
        commencing after December 15, 2006, being the quarter ended March 31,
        2007.
 
 We
        were
        required to account for the adoption of EITF 00-19-2 as a change in accounting
        principle through a cumulative adjustment to retained earnings
        (deficit).  On adoption of EITF 00-19-2, effective January 1, 2007, we
        recorded an increase in additional paid in capital of $74,500, and increase
        in
        common stock purchase warrants of $4,172,000 and an increase in deficit of
        $3,603,282.
  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.





During
      fiscal year 2006 and to the date of this Quarterly Report, we have received
      six
      law suits from our creditors for the non-payment of services and goods totaling
      approximately $785,445, one contractual mediation request from a creditor for
      the non-payment of services and goods totaling approximately $111,994, nine
      well
      liens for the non-payment of services and goods totaling approximately $333,771,
      and eighteen demand letters for the non-payment of services and goods totaling
      approximately $520,554 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, mediation requests, well liens and demand
      letters have been accrued, as applicable, as of March 31, 2007 and December
      31, 2006. 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.


22


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




**MATERIAL
      COMMITMENTS**




**Secured
      Convertible Notes**




As
      at
      December 31, 2006, a material commitment for us related to the repayment of
      secured convertible debenture holders of the outstanding amounts of principal
      and interest accruing at 8% per annum. The secured convertible debt principal
      outstanding was $700,457 plus accrued interest of $22,373. On January 26, 2007,
      we repaid all outstanding convertible promissory notes consisting of the
      $700,457 principal, $32,105 in accrued interest and a 20% penalty repayment
      amount of $146,512 for an aggregate amount of $879,074 to the convertible note
      holders who had a secured interest in the assets of Lexington.





**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 March 31, 2007, there is $55,068 of accrued and unpaid interest on this
      loan.





**Oak
      Hills Debt**




During
      2007, a material commitment for us on behalf of Oak Hills relates to outstanding
      promissory notes totaling $1,295,261, which accrues interest at 9% per annum,
      and requires no payments of interest or principal until the end of a two-year
      term ending January 22, 2008. The promissory notes are owed to certain former
      shareholders of Oak Hills and are secured against the assets of Oak Hills.
      During fiscal year ended December 31, 2006, we accrued $106,730 of interest
      on
      these loans resulting in $226,136 in accumulated accrued interest due and owing.
      On January 26, 2007, the $1,295,961 in promissory notes and accrued interest
      of
      $227,775 was repaid in full pursuant to contractual obligation relating to
      the
      sale of equipment securing these notes.




**Capital
      Expenditure Related Accounts Payable**




As
      of the
      date of this Quarterly Report, we have incurred capital expenditures relating
      to
      the drilling and completion of various wells and for the development of our
      various lease interests in Oklahoma and Texas. As a consequence of well
      performance, gas price volatility, the lack of availability of debt and equity
      sources on commercially acceptable terms to us, and other factors, our trade
      payables including accrued liabilities have increased to $7,894,185 as at March
      31, 2007. We will continue to review available sources of debt and equity to
      satisfy these debts, and will also review the monetization of various of our
      assets as an alternative source of capital.




**Lease
      Acquisition Expenditures - Comanche County, Texas**




On
      March
      3, 2006, effective January 31, 2006, we entered into the Comanche County Barnett
      Shale Exploration Agreement to jointly acquire and develop approximately 5,670
      acres of Barnett Shale and shallow gas targets in Comanche County, Texas. We
      will pay approximately $1,225,500 for our 50% working interest in the new
      acreage through a combination of $575,000 in cash 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 (all paid or incurred last
      year).  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.


23


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




**Registration
      Statement Penalties**




On
      July
      3, 2006, we filed the Registration Statement to register the 8,415,000 common
      shares issued and 7,650,000 common shares underlying the Warrants. The
      Registration Statement was not declared effective before financial penalties
      were due pursuant to registration timing. Penalties accrued and unpaid to March
      31, 2007 aggregate $753,164. 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.




As
        described in more detail earlier in this quarterly report, during the period
        we
        adopted the accounting recommendations of EITF 00-19-2.  We were
        required to account for the adoption of EITF 00-19-2 as a change in accounting
        principle through a cumulative adjustment to retained earnings
        (deficit).  On adoption of EITF 00-19-2, effective January 1, 2007, we
        recorded an increase in additional paid in capital of $74,500, and increase
        in
        common stock purchase warrants of $4,172,000 and an increase in deficit of
        $3,603,282.
  **Mineral
      Property Liens**




As
      of the
      date of this Quarterly Report, the following liens or claims have been made
      against our mineral properties:






·
            January
                12, 2007 Notice of Claim of Lien by Red River Well Service, Ltd.,
                notifying us of a lien filed in Vol. 1332, Page 93 of the real property
                records of Palo Pinto County, Texas, in the amount of $84,841.19,
                with
                respect to materials/services furnished in connection with the Gilbert
                property.






·
            January
                12, 2007 Notice of Claim of Lien by Red River Well Service, Ltd.,
                notifying us of a lien filed in Book 2383, Page 1843 of the real
                property
                records of Parker County, Texas, in the amount of $62,635.30, with
                respect
                to materials/services furnished in connection with the Martin Cantrell
                property.






·
            January
                10, 2007 Petition for Suit on Sworn Account by Oil Field Service
                Company,
                Inc., filed in the District Court of Palo Pinto County, Texas, seeking
                judgment in the amount of $20,643.33, plus interest and attorney's
                fees,
                with respect to materials/services furnished in connection with one
                of our
                mineral properties.






·
            December
                28, 2006 Notice of Mechanic's and Materialmen's Liens to be filed
                in Palo
                Pinto and Comanche Counties, Texas, by Well Management Partners,
                LLC, in
                an aggregate amount of $57,966.50, with respect to materials/services
                furnished in connection with the Gilbert and Petta
                properties.






·
            December
                13, 2006 Notice of Demand for Payment by Coil Tubing Services, LLC,
                in the
                amount of $58,194.32, plus attorney's fees, with respect to
                materials/services furnished in connection with one of our mineral
                properties.






·
            December
                4, 2006 Notice of Intent to File Liens by Ulterra Drilling Technologies,
                LP, in Parker and Palo Pinto Counties, Texas, in an aggregate amount
                of
                $49,919.54, with respect to materials/services furnished in connection
                with the Martin Cantrell and Gilbert
                properties.






·
            November
                27, 2006 Statement of Lien and Affidavit by Sun West Mud Company,
                Inc.,
                filed in Parker County, Texas, in the amount of $25,069.06, plus
                interest,
                with respect to materials/services furnished in connection with the
                Martin
                Cantrell lease.




·
              Cude
                  Oilfield Contractors Inc. and Cude Energy Services Inc. (collectively,
                  the
                  "lienholders"), recorded mineral property liens to secure payment
                  in
                  connection with amounts owed to the lienholders totaling $589,407
                  relating
                  to labor, materials and services provided by the lienholders on
                  certain of
                  our drilling sites located in Texas. The properties subject to
                  the liens
                  include the Olive Lease in Tarrant County, the Martin Cantrell
                  Lease in
                  Parker County and the Gilbert Lease in Palo Pinto County. Subsequently,
                  on
                  or about December 1, 2006, the lienholders filed suit in each of
                  Tarrant,
                  Parker and Palo Pinto Counties, Texas, in connection with such
                  claims.
 24
  **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 Mr. Norman
      MacKinnon, our Principal Financial Officer, of the effectiveness of the design
      and operation, our Chief Financial Officer of our disclosure controls andprocedures as of
      the end of the period
      covered by this Quarterly Report. Based on that evaluation, our management
      including the Chief Executive Officer and Principal Financial Officer, concluded
      that our 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
      three-month quarterly period ended March 31, 2007, that materially affected,
      or
      were reasonably likely to materially affect, our internalcontrols over financial reporting.








**PART
      II. OTHER INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS**





Management
      is not aware of any legal proceedings contemplated by any governmental authority
      or any other party involving us or our properties other than that described
      as
      unsecured creditor debt as follows.  To date, we have received six law
      suits from our creditors for the non-payment of services and goods totaling
      approximately $785,445, one contractual mediation request from a creditor for
      the non-payment of services and goods totaling approximately $111,994, nine
      well
      liens for the non-payment of services and goods totaling approximately $333,771,
      and eighteen demand letters for the non-payment of services and goods totaling
      approximately $520,554 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, mediation requests, well liens and
      demand letters have been accrued, as applicable, as of December 31, 2006 and
      March 31, 2007 (see “Mineral Property Liens” – Item 2. Management’s Discussion
      and Analysis of Financial Condition or Plan of Operation). As of the date of
      this Quarterly Report, no director, officer or affiliate is (i) a party adverse
      to us in any legal proceeding, or (ii) has an adverse interest to us in any
      legal proceedings. Management is not aware of any other legal proceedings
      pending or that have been threatened against us or our properties.





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





No
      report
      required.


25


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**





On
      May 2,
      2007, our Board of Directors announced the acceptance of the resignation of
      Mr.
      Gino Cicci as a director effective May 2, 2007.





**ITEM
      6. EXHIBITS**





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





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





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





**SIGNATURES**





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





**LEXINGTON
              RESOURCES,
              INC.**Dated:
                June 21,
                2007
            By:
            /s/ Grant
              AtkinsName Grant
              AtkinsTitle President
              andChief
              Executive Officer Dated:
                June 21, 2007
            By:
            /s/ Norman
              MacKinnonName Norman
              MacKinnonTitle Chief
              Financial Officer