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 quarterly period ended June 30, 2005

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

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

                            7473 West Lake Mead Road
                             Las Vegas, Nevada 89128
                    (Address of Principal Executive Offices)

                   (702) 382-5139 (Issuer's telephone number)

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

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

                                        Yes  X       No
                                        -------      -------

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

                                       N/A

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

                                        Yes          No
                                        -------      -------

<PAGE>

                      Applicable only to corporate issuers

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

Class                                  Outstanding as of August 12, 2005
                                                 17,403,405

Common Stock, $.00025 par value

Transitional Small Business Disclosure Format (check one)

     Yes      No  X

<PAGE>


PART I.  FINANCIAL INFORMATION

ITEM 1.  INTERIM CONSOLIDATED FINANCIAL STATEMENTS

         CONSOLIDATED BALANCE SHEETS                                          2

         INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS                        3

         INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

         INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS                        4

         NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS                   5

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

ITEM 3.  CONTROLS AND PROCEDURES

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS                                                   16

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS                           21

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES                                     22

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                 22

ITEM 5.  OTHER INFORMATION                                                   22

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                                    22

SIGNATURES                                                                   23


<PAGE>


PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
-----------------------------

                            LEXINGTON RESOURCES, INC.

                    INTERIM CONSOLIDATED FINANCIAL STATEMENTS

                                 JUNE 30, 2005
                                  (Unaudited)






                            LEXINGTON RESOURCES, INC.


                    INTERIM CONSOLIDATED FINANCIAL STATEMENTS


                                  JUNE 30, 2005

                                   (unaudited)



















CONSOLIDATED BALANCE SHEETS

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS



                                      F-1

<PAGE>

<TABLE>
<CAPTION>



                            LEXINGTON RESOURCES, INC.

                           CONSOLIDATED BALANCE SHEETS


                                                                                                 June 30,       December 31,
                                                                                                   2005             2004
--------------------------------------------------------------------------------------------- ---------------- ----------------
                                                                                                (unaudited)

                                                            ASSETS

<S>                                                                                                <C>             <C>
CURRENT ASSETS
   Cash and cash equivalents                                                                       $   24,920      $  326,293
   Accounts receivable                                                                                240,602         136,573
--------------------------------------------------------------------------------------------- ---------------- ----------------
                                                                                                      265,522         462,866
--------------------------------------------------------------------------------------------- ---------------- ----------------

PROPERTY AND EQUIPMENT ( Note 4)
   Oil and gas properties full cost method of accounting
           Proved, net of accumulated depletion ($301,208)                                          2,986,515        1,209,938
           Unproved                                                                                   931,318        1,419,447
--------------------------------------------------------------------------------------------- ---------------- ----------------
                                                                                                    3,917,833        2,629,385
   Other equipment, net of accumulated depreciation                                                     2,665            2,997
--------------------------------------------------------------------------------------------- ---------------- ----------------
                                                                                                    3,920,498        2,632,382
--------------------------------------------------------------------------------------------- ---------------- ----------------

                                                                                                  $ 4,186,020      $ 3,095,248
============================================================================================= ================ ================


                                             LIABILITIES AND STOCKHOLDER'S EQUITY

CURRENT LIABILITIES

   Accounts payable and accrued liabilities                                                        $  939,000      $  228,819
   Current portion of drilling obligations (Note 5)                                                   702,383         617,000
     Current portion of promissory notes (Notes 6 & 7 )                                               179,915               -
--------------------------------------------------------------------------------------------- ---------------- ----------------
                                                                                                    1,821,298         845,819
PROMISSORY NOTES (Notes 6 & 7)                                                                        635,602                -
DRILLING OBLIGATIONS (Note 5)                                                                         307,447         563,915
--------------------------------------------------------------------------------------------- ---------------- ----------------
                                                                                                    2,764,347       1,409,734
--------------------------------------------------------------------------------------------- ---------------- ----------------


CONTINGENCIES AND COMMITMENTS (Notes 1, 4 & 5)

STOCKHOLDERS' EQUITY (Note 7)
   Common stock $.00025 par value: 200,000,000 shares authorized
   Preferred stock, $.001 par value: 75,000,000 shares authorized
Issued and outstanding:
   17,403,405 common shares (December 31, 2004 - 16,999,038)                                            4,351           4,250
     Additional paid-in capital                                                                    10,510,501       8,947,604
   Common stock purchase warrants                                                                     298,228         301,815
    Deficit accumulated during the exploration stage                                              (9,391,407)      (7,568,155)
--------------------------------------------------------------------------------------------- ---------------- ----------------
                                                                                                    1,421,673        1,685,514
--------------------------------------------------------------------------------------------- ---------------- ----------------

                                                                                                  $ 4,186,020      $ 3,095,248
============================================================================================= ================ ================
</TABLE>

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

                                      F-2


<PAGE>

<TABLE>
<CAPTION>


                            LEXINGTON RESOURCES, INC.

                  INTERIM CONSOLIDATED STATEMENT OF OPERATIONS

                                   (unaudited)


                                                 Three months      Three months      Six months        Six months
                                               Ended June 30,     Ended June 30,   Ended June 30,    Ended June 30,
                                                    2005               2004             2005              2004
--------------------------------------------- ------------------ ----------------- ---------------- -----------------

<S>                                                 <C>             <C>            <C>                 <C>
OIL AND GAS REVENUE                                 $   263,204     $      53,517  $       393,263     $      94,207

--------------------------------------------- ------------------ ----------------- ---------------- -----------------

EXPENSES
     Depletion                                           84,972             3,879          139,880             6,558
     Operating costs and taxes                           63,396                 -          121,461                 -
--------------------------------------------- ------------------ ----------------- ---------------- -----------------
                                                        148,368             3,879          261,341             6,558
--------------------------------------------- ------------------ ----------------- ---------------- -----------------

GROSS PROFIT                                            114,836            49,638          131,922            87,649
--------------------------------------------- ------------------ ----------------- ---------------- -----------------

OTHER EXPENSES
   Consulting - stock based (Note 8)                          -                 -          775,753         2,989,221
   General and administrative                           283,469         1,233,552        1,170,671         1,361,701
   Interest expense                                       8,750             5,317            8,750            19,717
--------------------------------------------- ------------------ ----------------- ---------------- -----------------

                                                        292,219         1,238,869        1,955,174         4,370,639
--------------------------------------------- ------------------ ----------------- ---------------- -----------------

NET LOSS FOR THE PERIOD                                (177,383)     $ (1,189,231) $    (1,823,252)    $  (4,282,990)
============================================= ================== ================= ================ =================




BASIC NET LOSS PER SHARE                            $     (0.01)    $      (0.08)  $         (0.11)    $      ( 0.30)

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

WEIGHTED AVERAGE COMMON
      OF SHARES OUTSTANDING                          17,365,104       14,618,332        17,227,525        14,282,945
============================================= ================== ================= ================ =================

</TABLE>

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

                                      F-3

<PAGE>
<TABLE>
<CAPTION>


                            LEXINGTON RESOURCES, INC.

                  INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (unaudited)


                                                                                  For the Six       For the six
                                                                                 month period      month period
                                                                               ended June 30,    ended June 30,
                                                                                         2005              2004
--------------------------------------------------------------------------- ------------------ -----------------

<S>                                                                            <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss for the period                                                      $ ( 1,823,252)     $ (4,282,990)
  Adjustments to reconcile net loss to net cash from operating activities:
       Stock-based consulting fees                                                   775,753         2,989,221
           Non-cash compensation                                                     146,429             6,667
       Oil and gas depletion                                                         139,880             6,558
           Depreciation                                                                  332               166
  Changes in working capital assets and liabilities
       Prepaid expenses                                                                    -           (13,550)
       Accounts receivable                                                          (104,029)          (48,394)
       Accounts payable                                                              (79,429)           18,147
       Accrued interest payable                                                            -            19,710
       Accrued and unpaid fees payable                                                     -            60,000
--------------------------------------------------------------------------- ------------------ -----------------

NET CASH FLOWS USED IN OPERATING ACTIVITIES                                         (944,316)       (1,244,465)
--------------------------------------------------------------------------- ------------------ -----------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of equipment                                                                    -            (3,495)
  Oil and gas properties                                                            (785,146)       (1,386,876)
--------------------------------------------------------------------------- ------------------ -----------------

NET CASH FLOWS USED IN INVESTING ACTIVITIES                                         (785,146)      (1,390,371)
--------------------------------------------------------------------------- ------------------ -----------------

CASH FLOWS FROM FINANCING ACTIVITIES
    Drilling obligation (repayments) advances                                       (171,086)          678,869
  Advances payable                                                                         -           (74,694)
    Promissory notes, net of repayments (Notes 6 and 7)                            1,086,545           500,000
  Net proceeds on sale of common stock                                               512,630         1,960,000
--------------------------------------------------------------------------- ------------------ -----------------

NET CASH FLOWS FROM FINANCING ACTIVITIES                                           1,428,089         3,064,175
--------------------------------------------------------------------------- ------------------ -----------------

INCREASE (DECREASE) IN CASH                                                         (301,373)          429,339

CASH, BEGINNING OF PERIOD                                                            326,293           351,420
--------------------------------------------------------------------------- ------------------ -----------------

CASH, END OF PERIOD                                                            $      24,920      $    780,759
=========================================================================== ================== =================

</TABLE>

SUPPLEMENTAL CASH FLOW INFORMATION (Refer to Note 11)


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


                                      F-4

<PAGE>


LEXINGTON RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
(UNAUDITED)
--------------------------------------------------------------------------------

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

By Share Exchange Agreement dated November 19, 2003, Lexington  Resources,  Inc.
(formerly Intergold Corporation) ("LRI" or "the Company"), a Nevada corporation,
acquired 100% of the issued and  outstanding  shares of Lexington Oil & Gas Ltd.
Co. LLC, (an exploration stage company) ("Lexington"), in exchange for 9,000,000
(3,000,000 pre January 26, 2004 3:1 forward split)  restricted  shares of common
stock of the Company representing 85% of the total issued and outstanding shares
of the Company at the time. In  connection  with this  transaction,  the Company
changed its name to Lexington Resources, Inc. (Refer to Note 3.)

This acquisition has been accounted for as a reverse  acquisition with Lexington
being treated as the accounting parent and LRI, the legal parent,  being treated
as  the  accounting  subsidiary.   Accordingly,   the  consolidated  results  of
operations  of the Company  include  those of Lexington  for the period from its
inception on  September  29, 2003 and those of LRI since the date of the reverse
acquisition.

Lexington is an Oklahoma Limited Liability Corporation incorporated on September
29, 2003 formed 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.  As planned  principal  operations  commenced  in 2004,  the
Company is no longer considered to be an exploration stage company.

GOING CONCERN The  consolidated  financial  statements have been prepared on the
basis of a going concern which  contemplates  the  realization of assets and the
satisfaction of liabilities in the normal course of business.  The Company has a
working  capital  deficiency of $1,555,776 at June 30, 2005, has incurred losses
since  inception  of  $9,391,407,  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 research and development and ultimately on generating  future profitable
operations.  The company currently has unfunded property acquisition obligations
as  disclosed  in Note 4. The  Company  will  continue to fund  operations  with
advances and debt instruments, as well as further equity placements.

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, 2004 included in the Company's  Annual Report on Forms 10-KSB
and 10-KSB/A  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 and  10-KSB/A.  In the
opinion  of  Management,   all  adjustments  considered  necessary  for  a  fair
presentation, consisting solely of normal recurring adjustments, have been made.
Operating  results for the six months  ended June 30,  2005 are not  necessarily
indicative of the results that may be expected for the year ending  December 31,
2005.


NOTE 2:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------

(A)      PRINCIPLES OF CONSOLIDATION
The consolidated  financial  statements  include the accounts of the Company and
its  wholly-owned  subsidiary,  Lexington.  Lexington  was  acquired  by reverse
acquisition on November 19, 2003. All significant inter-company transactions and
account balances have been eliminated upon consolidation.


                                      F-5

<PAGE>

LEXINGTON RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
(UNAUDITED)
--------------------------------------------------------------------------------

NOTE 2:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------------------------------------

(B)      OIL AND GAS PROPERTIES
The  Company  follows  the full cost  method of  accounting  for its oil and gas
operations  whereby all costs related to the acquisition of methane,  petroleum,
and natural gas interests are capitalized. Under this method, all productive and
nonproductive  costs  incurred  in  connection  with  the  exploration  for  and
development of oil and gas reserves are capitalized. Such costs include land and
lease acquisition  costs,  annual carrying charges of non-producing  properties,
geological and geophysical costs, costs of drilling and equipping productive and
non-productive  wells,  and direct  exploration  salaries and related  benefits.
Proceeds from the disposal of oil and gas properties are recorded as a reduction
of the related  capitalized  costs without  recognition of a gain or loss unless
the  disposal  would  result in a change of 20 percent or more in the  depletion
rate. The Company currently operates solely in the U.S.A.

Depletion   of   proved   oil   and   gas   properties   is   computed   on  the
units-of-production   method  based  upon  estimates  of  proved  reserves,   as
determined by  independent  consultants,  with oil and gas being  converted to a
common unit of measure based on their relative energy content.

The costs of acquisition  and  exploration  of unproved oil and gas  properties,
including  any  related  capitalized   interest  expense,  are  not  subject  to
depletion,  but  are  assessed  for  impairment  either  individually  or  on an
aggregated  basis. The costs of certain  unevaluated  leasehold acreage are also
not  subject to  depletion.  Costs not  subject to  depletion  are  periodically
assessed for possible impairment or reductions in value. If a reduction in value
has  occurred,  costs  subject to  depletion  are  increased or a charge is made
against  earnings  for  those  operations  where  a  reserve  base  is  not  yet
established.

Estimated future removal and site  restoration  costs are provided over the life
of  proven  reserves  on  a  units-of-production  basis.  Costs,  which  include
production equipment removal and environmental  remediation,  are estimated each
period by management based on current regulations, actual expenses incurred, and
technology and industry  standards.  The charge is included in the provision for
depletion and depreciation and the actual  restoration  expenditures are charged
to the accumulated provision amounts as incurred.

The Company applies a ceiling test to capitalized  costs which limits such costs
to the aggregate of the estimated  present value,  using a ten percent  discount
rate of the estimated  future net revenues from production of proven reserves at
year end at market  prices less future  production,  administrative,  financing,
site  restoration,  and  income  tax costs  plus the lower of cost or  estimated
market value of unproved  properties.  If  capitalized  costs are  determined to
exceed estimated future net revenues,  a write-down of carrying value is charged
to depletion in the period.

(C)      ASSET RETIREMENT OBLIGATIONS
The Company has adopted the  provisions of SFAS No. 143,  "Accounting  for Asset
Retirement Obligations." SFAS No. 143 requires the fair value of a liability for
an asset  retirement  obligation  to be  recognized in the period in which it is
incurred  if a  reasonable  estimate of fair value can be made.  The  associated
asset  retirement  costs are  capitalized as part of the carrying  amount of the
related oil and gas  properties.  As of June 30, 2005  management has determined
that there are no material asset retirement obligations.

(D)      EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing  earnings (loss) for the
period by the  weighted  average  number of common  shares  outstanding  for the
period.  Diluted  earnings  (loss) per share reflects the potential  dilution of
securities by including  other  potential  common stock,  including  convertible
preferred  shares,  in the weighted average number of common shares  outstanding
for a period  and is not  presented  where  the  effect  is  anti-dilutive.  The
presentation  is only of  basic  earnings  (loss)  per  share as the  effect  of
potential  dilution of securities  has no impact on the current  period's  basic
earnings (loss) per share.  Loss per share,  as presented,  has been restated to
reflect the forward stock split described in Note 7. The weighted average number
of  shares  outstanding  prior to the  reverse  acquisition  is deemed to be the
number of  shares  issued  in  connection  with the  reverse  acquisition  being
9,000,000 shares (3,000,000 pre January 26, 2004 3:1 forward split).

(E)      REVENUE RECOGNITION
Oil and natural gas revenues are recorded  using the sales  method,  whereby the
Company  recognizes  oil and natural gas revenue  based on the amount of oil and
gas sold to  purchasers,  when  title  passes,  the amount is  determinable  and
collection is reasonably assured.


                                      F-6

<PAGE>

LEXINGTON RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
(UNAUDITED)
--------------------------------------------------------------------------------

NOTE 2:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------------------------------------

(F)      FINANCIAL INSTRUMENTS
The  fair  values  of  cash,  accounts  receivable,  accounts  payable,  accrued
liabilities,  drilling  obligations  and  advances  due to related  parties were
estimated  to  approximate  their  carrying  values  due  to  the  immediate  or
short-term  maturity of these financial  instruments.  The Company's current and
planned  operations  are  located in the States of  Oklahoma  and Texas,  in the
United  States,  and as a result  the  Company  is not  subject  to  significant
exposure to market risks from changes in foreign currency rates.

The Company's financial instruments that are exposed to concentrations of credit
risk consist  primarily of cash and accounts  receivable.  The Company's cash is
held at a major U.S.  based  financial  institution.  The  Company  manages  and
controls  market and credit risk through  established  formal  internal  control
procedures, which are reviewed on an ongoing basis.

The  Company  sells  its  gas to  only  two  customers  as  there  is  currently
insufficient  production  for  multiple  purchasers.  The  Company  manages  and
controls this situation by ensuring it only deals with gas  purchasers  that are
reputable and are well established.

(G)      CONCENTRATION OF CREDIT RISK
Substantially  all of the Company's sales are to two parties.  Consequently  the
Company is exposed to a concentration of credit risk.

 (H)     USE OF ESTIMATES
 The preparation of these consolidated  financial statements requires the use of
certain   estimates  by  management  in   determining   the  Company's   assets,
liabilities,  revenues  and  expenses.  Actual  results  could  differ from such
estimates.  Depreciation,  depletion and  amortization of oil and gas properties
and the impairment of oil and gas properties are determined  using  estimates of
oil and gas  reserves.  There  are  numerous  uncertainties  in  estimating  the
quantity of reserves and in projecting the future rates of production and timing
of development expenditures, including future costs to dismantle, dispose, plug,
and restore the Company's  properties.  Oil and gas reserve  engineering must be
recognized as a subjective  process of estimating  underground  accumulations of
oil and gas that cannot be measured in an exact way.  Proved reserves of oil and
natural gas are  estimated  quantities  that  geological  and  engineering  data
demonstrate with reasonable certainty to be recoverable in the future from known
reservoirs under existing conditions.

(I)      STOCK-BASED COMPENSATION
In December  2002, the Financial  Accounting  Standards  Board  ("FASB")  issued
Financial Accounting Standard No. 148, "Accounting for Stock-Based  Compensation
-  Transition  and  Disclosure"  ("SFAS No.  148"),  an  amendment  of Financial
Accounting Standard No. 123 "Accounting for Stock-Based Compensation" ("SFAS No.
123").  The  purpose of SFAS No. 148 is to: (1) provide  alternative  methods of
transition for an entity that voluntarily changes to the fair value based method
of accounting for stock-based  employee  compensation,  (2) amend the disclosure
provisions  to require  prominent  disclosure  about the effects on reported net
income of an entity's  accounting  policy  decisions with respect to stock-based
employee compensation, and (3) to require disclosure of those effects in interim
financial information.  The disclosure provisions of SFAS No. 148 were effective
for the Company for the period ended December 31, 2003.

The  Company  has  elected to  continue  to  account  for  stock-based  employee
compensation  arrangements  in  accordance  with the  provisions  of  Accounting
Principles  Board Opinion No. 25,  "ACCOUNTING  FOR STOCK ISSUED TO  EMPLOYEES",
("APB No.  25") and comply  with the  disclosure  provisions  of SFAS No. 123 as
amended by SFAS No. 148 as described above. In addition, in accordance with SFAS
No. 123 the  Company  applies  the fair  value  method  using the  Black-Scholes
option-pricing model in accounting for options granted to consultants. Under APB
No. 25, compensation  expense is recognized based on the difference,  if any, on
the date of grant  between the estimated  fair value of the Company's  stock and
the amount an employee  must pay to acquire the stock.  Compensation  expense is
recognized  immediately  for past services and pro-rata for future services over
the option-vesting period.

                                      F-7

<PAGE>

LEXINGTON RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
(UNAUDITED)
--------------------------------------------------------------------------------

NOTE 2:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------------------------------------

(I)      STOCK-BASED COMPENSATION - CONTINUED
The Company accounts for equity  instruments  issued in exchange for the receipt
of goods or services from other than  employees in accordance  with SFAS No. 123
and the  conclusions  reached  by the  Emerging  Issues  Task Force in Issue No.
96-18.   Costs  are  measured  at  the  estimated   fair  market  value  of  the
consideration  received or the  estimated  fair value of the equity  instruments
issued,  whichever is more reliably measurable.  The value of equity instruments
issued for  consideration  other than  employee  services is  determined  on the
earliest  of a  performance  commitment  or  completion  of  performance  by the
provider of goods or services as defined by EITF 96-18.

The Company has also adopted the  provisions of the FASB  Interpretation  No.44,
ACCOUNTING  FOR  CERTAIN   TRANSACTIONS   INVOLVING  STOCK   COMPENSATION  -  AN
INTERPRETATION  OF APB OPINION NO. 25 ("FIN 44"), which provides  guidance as to
certain applications of APB 25.

(J)      INCOME TAXES
The Company follows the liability  method of accounting for income taxes.  Under
this method,  deferred tax assets and  liabilities are recognized for the future
tax  consequences  attributable to differences  between the financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
balances.  Deferred tax assets and  liabilities  are measured  using  enacted or
substantially  enacted tax rates  expected to apply to the taxable income in the
years in which those  differences  are expected to be recovered or settled.  The
effect  on  deferred  tax  assets  and  liabilities  of a change in tax rates is
recognized  in income in the  period  that  includes  the date of  enactment  or
substantial enactment. A valuation allowance is provided for deferred tax assets
if it is more  likely  than not that the  Company  will not  realize  the future
benefit, or if future deductibility is uncertain.

(K)      CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments with an original maturity of
three months or less at the time of issuance to be cash equivalents.

--------------------------------------------------------------------------------
NOTE 3 - ACQUISITION OF LEXINGTON OIL & GAS LTD. CO. LLC ("LEXINGTON")
--------------------------------------------------------------------------------

By Share Exchange  Agreement dated November 19, 2003, the Company  acquired 100%
of the  issued  and  outstanding  shares  of  Lexington  (an  exploration  stage
company),  in exchange for 9,000,000 (3,000,000 pre January 26, 2004 3:1 forward
split)  restricted  shares of common stock of the  Company.  As a result of this
transaction the former  stockholders of Lexington acquired  approximately 85% of
the total issued and outstanding  shares of the Company as at November 19, 2003,
resulting in a change in control of the Company.

During  January,  2004,  the  parties to the Share  Exchange  Agreement,  Orient
Exploration  Ltd.  ("Orient"),  Douglas  Humphreys  ("Humphreys"),  the Company,
Lexington,  and Paluca Petroleum Inc.  ("Paluca")  re-evaluated the terms of the
original  Share  Exchange  Agreement  and upon further  negotiations  desired to
modify the terms of the original  agreement in the best  interest of all parties
such that: (i) 2,250,000 post forward split shares of restricted Common Stock of
the  Company  held  of  record  by  Humphreys  were  transferred  to  Orient  in
consideration  therefore;  (ii) the Company  assigned to  Humphreys a 5% carried
working  interest in every well  drilled by the Company on the Wagnon  Property;
(iii) the Company  agreed to allow  Humphreys to participate up to an additional
5% working interest in every well drilled by the Company on the Wagnon Property;
(iv) the Company agreed to transfer to Paluca certain assets previously acquired
by the Company (which included  working  interests and net revenue  interests in
certain oil and gas leases  located on the Doc Cole  Property,  the Atwood Booch
Sand Property, the Jeneva Property and the Sasakwa Gilcrease Sand Property).

Management  of the  Company  decided  not to  proceed  with the  acquisition  or
development  of  the  described  properties  as  set  out in  item  (iv)  due to
management's  analysis that the properties did not contain the  appropriate  oil
and gas development  elements that form part of the Company's  current focus and
criteria for corporate oil and gas development initiatives.

                                      F-8

<PAGE>

LEXINGTON RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
(UNAUDITED)
--------------------------------------------------------------------------------

NOTE 3 - ACQUISITION OF LEXINGTON OIL & GAS LTD. CO. LLC ("LEXINGTON") -
         (CONTINUED)
--------------------------------------------------------------------------------

This acquisition has been accounted for as a  recapitalization  using accounting
principles  applicable to reverse  acquisitions  with Lexington being treated as
the accounting parent (acquirer) and Lexington Resources,  Inc. being treated as
the accounting subsidiary (acquiree). The value assigned to the capital stock of
consolidated  Lexington Resources,  Inc. on acquisition of Lexington is equal to
the book value of the capital stock of Lexington  plus the book value of the net
assets  (liabilities)  of  Lexington  Resources,  Inc.  as at  the  date  of the
acquisition.

The  book  value  of  Lexington's   capital  stock  subsequent  to  the  reverse
acquisition is calculated and allocated as follows:

         Lexington capital stock                                      $     300
         Lexington Resources, Inc. net assets (liabilities)          (1,430,969)
                                                                  --------------
                                                                     (1,430,669)
         Charge to deficit on reverse acquisition                     1,433,317
                                                                  --------------
         Consolidated stock accounts post reverse acquisition        $    2,648
                                                                  ==============

These  consolidated  financial  statements  include the results of operations of
subsidiary  Lexington  since  September 29, 2003  (inception) and the results of
operations of parent  Lexington  Resources,  Inc.  since the date of the reverse
acquisition  effective November 19, 2003. The Company's  consolidated results of
operations  for the period from January 1, 2003 to September  30, 2003 have been
reported in the Company's September 30, 2003 filing on Form 10-QSB.

In  order  to  reflect  the  revised   operating   arrangement   resulting  from
modifications  to the  original  terms  of the  Share  Exchange  Agreement,  the
Humphreys  Purchase and Sale Agreement and the Paluca Agreement both outlined in
the following sections were simultaneously executed.

HUMPHREYS PURCHASE AND SALE AGREEMENT
On January 21, 2004,  Orient and Humphreys,  a director of the Company,  entered
into  a  purchase  and  sale  agreement  (the   "Humphreys   Purchase  and  Sale
Agreement").  Pursuant to the terms and provisions of the Humphreys Purchase and
Sale  Agreement:  Humphreys  agreed to transfer  2,250,000  shares of restricted
Common Stock of the Company held of record by Humphreys to Orient.

PALUCA AGREEMENT
On January 21, 2004, the Company, Lexington,  Paluca, and Humphreys entered into
an agreement whereby: (i) the Company assigned to Humphreys a 5% carried working
interest in every well drilled by the Company on the Wagnon  Property;  (ii) the
Company agreed to allow  Humphreys to participate up to an additional 5% working
interest  in every well  drilled by the  Company on the Wagnon  Property;  (iii)
Humphreys agreed to waive any and all other claims, debts or obligations owed to
Humphreys  by the  Company  or by  Lexington,  and (iv) the  Company  agreed  to
transfer to Paluca  certain  assets  previously  acquired by the Company  (which
included  working  interests  and net revenue  interests  in certain oil and gas
leases  located on the Doc Cole Property,  the Atwood Booch Sand  Property,  the
Jeneva Property and the Sasakwa Gilcrease Sand Property).

MANAGEMENT COMPENSATION AGREEMENT
The Company and Lexington have  negotiated a new  compensation  agreement  ("New
Agreement")  with  Humphreys  for his  assistance  in  overseeing  the  drilling
operations and the completion,  management of wells, and for his increasing role
in  development  of the  Company on a  performance  basis.  Under the  covenants
provided under the New Agreement and within its effective  term,  Humphreys,  or
his  designate:  (1) will receive  compensation  of $7,500 per month,  effective
April 1, 2004;  (2) will be  assigned up to a 10%  carried  working  interest of
Lexington's  total  interest  in  every  well  drilled  by  the  Company  on all
properties held by the Company, including the Wagnon property, (3) will have the
right to purchase up to an additional 5% working  interest of Lexington'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;  and (4) will receive a further 200,000 options in the Company to be
granted at $3.00 per share  exercisable for a five year term. These options were
granted in July 2004. (Refer to Note 8.)

During  the  period  ended  June  30,  2005  the  Company  recorded   additional
compensation  expense to  Humphreys  of $146,429  (June,  2004 - $NIL) being the
estimated  value of his 10% carried  interest in the  Company's  wells that were
successfully developed in the period ended June 30, 2005. (Refer to Note 4.)

                                      F-9

<PAGE>

LEXINGTON RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
(UNAUDITED)
--------------------------------------------------------------------------------

NOTE 3 - ACQUISITION OF LEXINGTON OIL & GAS LTD. CO. LLC ("LEXINGTON") -
        (CONTINUED)
--------------------------------------------------------------------------------

Humphreys is a director of the Company and is the Drilling Operations Manager of
Lexington,  and also a director,  General  Manager,  and 25%  shareholder in Oak
Hills  Drilling and Operating,  LLC ("Oak  Hills"),  an oil and gas drilling and
well operating  company based in  Holdenville,  Oklahoma that acts as designated
"operator" to Lexington since January 1, 2005. Humphreys is in charge of oil and
gas  operations  for  Lexington  in the  United  States.  (Refer to Note 9.) The
previous operator in charge of drilling and operating of wells for Lexington was
Oakhills Energy, Inc.

Paluca  Petroleum Inc. is a private  Oklahoma based oil and gas services company
owned by Humphreys and his immediate  family.  Some of the services  provided by
Humphreys  to the  Company  are  provided  through  this  business  entity.  Mr.
Humphreys is also the President of Paluca.

NOTE 4 - PROPERTY AND EQUIPMENT
--------------------------------------------------------------------------------

Property and equipment include the following:

                                                 JUNE 30,         DECEMBER 31,
                                                   2005               2004
                                               ---------------- ----------------
OIL AND GAS PROPERTIES:
Proved, subject to depletion                     $3,287,723        $1,371,266

Unproved, not subject to depletion                  931,318         1,419,447

Accumulated depletion                              (301,208)         (161,328)

                                               ---------------- ----------------
Net oil and gas properties                        3,917,833         2,629,385
                                               ---------------- ----------------

Other equipment                                       3,495             3,495

Accumulated depreciation                               (830)             (498)

                                               ---------------- ----------------
Net other property and equipment                      2,665             2,997

                                               ---------------- ----------------
Property and equipment, net of accumulated
  depreciation  and depletion                     3,920,498         2,632,382
                                               ================ ================


The  Company's  oil and gas  activities  are  currently  conducted in the United
States.  During the current  period the Company  incurred  development  costs of
$1,574,757  on its  properties  inclusive  of  carrying  costs to  Humphreys  of
$146,429.

WAGNON LEASE
By agreement dated October 9, 2003,  Lexington acquired an interest in a section
of farm-out acreage with the intention to develop coal bed methane gas producing
wells in Pittsburg County, Oklahoma. Lexington holds an 80% working interest and
a 60.56% net revenue interest in approximately  590 gross acreage of a potential
gas  producing  property  located in  Pittsburg  County,  Oklahoma  (the "Wagnon
Property"). The Company's interest relating to the Wagnon Property is subject to
farm-out  agreements  equating to a total 20% working  interest  between Paluca,
Oakhills Energy,  Inc. and the lessee of the Wagnon  Property.  Drilling targets
are Hartshorne Coal bed methane gas zones.

A director  and an officer  of the  Company  were  minority  owners in  Oakhills
Energy,  Inc. in 2003. Their interest in Oakhills Energy,  Inc. was purchased by
the majority shareholder on January 26, 2004.

During  the year  ended  December  31,  2004,  three  horizontal  gas wells (the
Kellster 1-5, Kyndal 2-2 and Bryce 3-2) have been put into production.

On March 15, 2005 the Company began drilling a fourth horizontal gas well on the
Wagnon Property (Caleigh 4-2). The well began producing on April 2, 2005. During
the period  ended June 30, 2005 the Company  has  incurred  $528,110 on drilling
expenditures  relating to four total  producing  gas wells on the Wagnon  lease.
(Refer to Note 5.)


                                      F-10


<PAGE>

LEXINGTON RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
(UNAUDITED)
--------------------------------------------------------------------------------

NOTE 4 - PROPERTY AND EQUIPMENT - (CONTINUED)
--------------------------------------------------------------------------------

COAL CREEK PROSPECT
In March 2004 the  Lexington  obtained an option to purchase  an  undivided  95%
interest in  approximately  2,500 net leasehold  acres in 5 sections of the Coal
Creek  Prospect  located  in  Hughes  and  Pittsburg  Counties,  in the State of
Oklahoma. During the year ended December 31, 2004 the Company acquired 1,932 net
leasehold  acres  under the  option.  Lexington  does not expect to acquire  any
additional  acreage under this option.  Under the terms of the purchase of these
leases,  Lexington has an undivided  95% - 100% working  interest in the subject
lands and a minimum  79% net revenue  interest.  The terms of the leases are for
two years. Drilling targets are Hartshorne Coal bed methane gas zones.

On March 31, 2005 Lexington began drilling its first horizontal coal bed methane
gas well on the Coal Creek  Prospect  (Lex 1-34).  The well began  production in
April 2005.  Lexington has  approximately a 50% working interest in the well and
has accrued $317,071 in costs associated with the well for the period.

On April 14,  2005  Lexington  began  drilling  its second  horizontal  coal bed
methane gas well on its Coal Creek  Prospect  (Braumbaugh  1-10).  Lexington has
approximately  a 22% working  interest  in the well and has accrued  $142,471 in
costs associated with the well for the period.  The well began production in May
2005.

On May 31, 2005 Lexington  began drilling its third  horizontal coal bed methane
gas well on its Coal Creek Prospect (Ellis 1-15). Lexington has approximately an
88% working  interest in the well and has incurred  $593,588 in costs associated
with the well for the period.  The well is currently in drilling and development
stages.

In June 2005 the Company  received  loans  totaling  $1,100,000  which have been
secured against the Coal Creek property. (Refer to Note 6.)

PANTHER CREEK PROSPECT
In March 2004  Lexington  purchased  a 3 year lease of  approximately  300 acres
located in five separate sections to develop the Panther Creek Project in Hughes
County,  Oklahoma.  Lexington has an undivided 100% working  interest in subject
lands and an approximate 81% net revenue  interest.  Part of the acreage in this
lease has been subject to three division pooling orders by Newfield  Exploration
Mid-Continent,  Inc. ("Newfield"), for three wells to be drilled and operated by
Newfield in which  Lexington  has elected to  participate.  Lexington's  working
interests  in the three wells to be drilled  are  proportionate  to  Lexington's
Panther  Creek lease  ownership in areas pooled by Newfield.  Lexington  working
interests in the three wells are estimated to be as follows;  25.78% (contingent
liability  of $419,801  for a completed  well based on  Newfield  Authority  For
Expenditure "AFE), 10.94% (contingent liability of $159,655 for a completed well
based on Newfield AFE if drilled),  and 4.06%  (contingent  liability of $58,521
for a  completed  well based on Newfield  AFE if  drilled).  Newfield  has up to
approximately  the end of 2005 to drill the  remaining  two wells and may or may
not proceed  with any  individual  well  project at their  election.  Contingent
liability  exists to Lexington for any well drilled by Newfield  that  Lexington
has elected to participate.

Newfield has proceeded  with the drilling and  completion of one of the wells in
which  Lexington  has  leased  acreage.  The first of the three  vertical  wells
targeting  a  Woodford  Shale gas  zone,  the POE 1-29,  commenced  drilling  on
February 9, 2005 and began  producing on March 21, 2005.  Lexington has incurred
$453,059 for drilling and  completion  costs relating to the POE 1-29 as of June
30, 2005.

SOUTH LAMAR PROSPECT
By agreement dated April 21, 2004,  Lexington  acquired a 100% working interest,
78.5% net revenue interest, in three sections (960 acres) of farm-out acreage in
Hughes  County,  Oklahoma  (the "South Lamar  Prospect")  with the  intention to
develop coal bed methane gas producing wells and Caney Shale wells.  The term of
the lease is two years.  On July 26, 2004,  Lexington  acquired a further 183.98
acres in the South Lamar  prospect  and a 100%  working  interest  and a 79% net
revenue interest in the additional acreage.  The term of the lease is two years.
Lexington  has begun site  preparation  on the first well  (Goodson  1-23) to be
drilled on the property.

                                      F-11

<PAGE>

LEXINGTON RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
(UNAUDITED)
--------------------------------------------------------------------------------

NOTE 4 - PROPERTY AND EQUIPMENT - (CONTINUED)
--------------------------------------------------------------------------------

H-9 PROSPECT
By agreement  dated June 29, 2004,  Lexington has obtained an option to purchase
an  undivided  100%  leasehold  interest,   79.25%  net  revenue  interest,   in
approximately  4,600 net leasehold acres in approximately 38 sections of the H-9
Prospect  located in Hughes and  McIntosh  Counties,  in the State of  Oklahoma.
Lexington  concluded the purchase of the property on July 29, 2004. The terms of
leases acquired within the prospect are between three and four years.

On July 19,  2004  Lexington  acquired  an  additional  325 acres of gas  target
drillable  acreage in the northeast  portion of Hughes  County,  Oklahoma in the
vicinity of the  approximate  4,600 acres of farm out leases  under  acquisition
(H-9)  Prospect.  Drilling  targets  that  are  included  in the  lease  include
Hartshorne and Booch Coal gas zones with a 100% Working Interest and a 78.3% Net
Revenue  Interest.  The acquired  lease is held by  production.  The term of the
lease is three years.
--------------------------------------------------------------------------------

MIDDLE CREEK PROSPECT
By agreement  dated October 28, 2004,  Lexington has purchased an undivided 100%
leasehold interest,  70% net revenue interest, in 320 net leasehold acres in two
sections of the Middle Creek Prospect located in Hughes County,  in the State of
Oklahoma.  Drilling  targets are the Caney Shale and Hartshorne coal bed methane
zones. The leasehold interest acquired is held by production.

BARNETT PATHWAY  PROSPECT On June 2, 2005 (amended on July 14, 2005) the Company
entered  into an  agreement  whereby it has the option to purchase up to a 100 %
working interest in net revenue  interests  ranging between 70% and 75% in up to
3,687 acres of Barnett  Shale gas targeted  properties  located in Jack and Palo
Pinto Counties in the State of Texas for between $450 and $500 per acre together
with a 30 month best efforts  drilling  commitment.  On June 8, 2004 the Company
provided the seller a $100,000  non-refundable deposit. The closing date of this
acquisition is expected to be on or before August 19, 2005 subject to the seller
delivering good and marketable title to the leases as approved by the Company.

NOTE 5:  DRILLING OBLIGATIONS
--------------------------------------------------------------------------------

During the period ended December 31, 2003 Lexington,  the Company,  and Oakhills
Energy,  Inc.  entered into  drilling  agreements  with private  investors  (the
"Funding  Investors")  for the funding for the first three  wells,  the Kellster
1-5, the Kyndal 2-2 and the Bryce 3-2,  located on the Wagnon Lease. The Funding
Investors   subsequently  each  provided  one-third  of  the  Authorization  For
Expenditure   ("AFE")  capital  estimated  at  $360,000  for  the  drilling  and
completion of each of the first three wells. As of June 30, 2005 a total of four
such drilling  agreements  with private  investors had been entered into between
Funding  Investors,  the Company,  and  Lexington.  The Company had received the
total  required  funding of  $1,485,000 ( 2004 - $720,000)  for the drilling and
completion of the four  horizontal  coal bed methane  Wagnon Lease wells and has
successfully  drilled and  completed the Kellster 1-5, the Kyndal 2-2, the Bryce
3-2 and the Caleigh 4-2 wells. The terms of the drilling agreements of all wells
on the Wagnon Lease are the same for each well on the property.  The Caleigh 4-2
began production on April 2, 2005.

Wells to be  drilled  on the  Wagnon  Lease  property  carry  royalty  interests
totaling 25% to land owners and property  interest  holders and carried  working
interests of 5% to a land owner,  and 10% to a company  related to a director of
the  Company,  Paluca  Petroleum,  Inc.  (see Note 3 -  Management  Compensation
Agreement).  Paluca Petroleum,  Inc. also owns a non-carried working interest of
5% as part of capital participation funding provided by Paluca.

The Funding Investors are provided an 80% working  interest,  60.56% net revenue
interest,  in the wells  until their  invested  capital for each well is repaid,
after which time the Funding  Investors  revert to an  aggregate  20.1%  working
interest,  15.075%  net  revenue  interest,  in the wells  located on the Wagnon
Lease. Oakhills Energy, Inc., the previous operator responsible for drilling the
wells,  will  "back-in" to a reversionary  6.7% working  interest after invested
capital is repaid to the Funding  Investors  in the wells  located on the Wagnon
Lease and Lexington will back-in to a reversionary  53.2% working interest.  The
Company's  repayment  obligation  to the  Funding  Investors  is  limited to the
production   revenues   generated  from  wells  located  on  the  Wagnon  Lease.
Accordingly,   if  any  of  the  subject   wells  on  the  Wagnon  Lease  become
unsuccessful,  the drilling advances will be written off when such determination
is made.

                                      F-12

<PAGE>

LEXINGTON RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
(UNAUDITED)
--------------------------------------------------------------------------------

NOTE 5:  DRILLING OBLIGATIONS (CONTINUED)
--------------------------------------------------------------------------------

As of June 30, 2005, the Funding  Investors  have been repaid  $475,171 of their
$1,485,000 investment in the Kellster 1-5, Kyndal 2-2, Bryce 3-2 and Caleigh 4-2
wells drilled from  February,  2004 to April,  2005.  The amount paid in the six
month period ended June 30, 2005 was $171,086 (June 30, 2004 - $52,211).

NOTE 6:  PROMISSORY NOTES
--------------------------------------------------------------------------------

In June 2005 the  Company  obtained  loans by way of  promissory  notes from two
shareholders of the Company  totaling  $1,100,000  ($600,000 and $500,000).  The
terms of the loans are 5 years from the dates of issue with an interest  rate of
10%.  Payments of blended  principal and interest are payable  monthly over a 60
month  amortization.  In conjunction with the promissory note advances,  220,000
warrants, valued at $271,028 (refer to Note 7), were issued exercisable at $3.00
per share with exercise terms until May 31, 2010.  The  promissory  notes may be
repaid at anytime  without  penalty,  and such  notes are  secured  against  the
Company's Coal Creek oil and gas property leases.  As of June 30, 2005 the total
loan  amount  outstanding  was  $1,086,545  which has been  recorded  net of the
$271,028  fair value of the  warrants.  The fair value of the  warrants  will be
expensed over the term of the loans and accreted to the principal of the debt.

PRINCIPAL REPAYMENT
The  aggregate  amount of principal  payments  required in each of the next five
years to meet debt retirement provisions is as follows:



                          2006               $   179,915
                          2007                   198,754
                          2008                   219,566
                          2009                   242,558
                          2010                   245,752
                                         -----------------
                                             $ 1,086,545
                                         =================

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.

REVERSE STOCK SPLIT
Effective  August  7,  2003 the  Company  completed  a  reverse  stock  split of
one-for-three hundred of the Company's outstanding common stock,  resulting in a
reduction  of the then  outstanding  common  stock  from  156,328,943  shares to
521,184  shares.  The par value and the number of authorized but unissued shares
of the  Company's  common stock was not changed as a result of the reverse stock
split.

FORWARD STOCK SPLIT
On January 26, 2004 the Company  forward split its common shares on the basis of
three new shares for each common share outstanding. The par value and the number
of authorized but unissued shares of the Company's  common stock was not changed
as a result of the forward stock split.

Unless  otherwise   noted,  all  references  to  common  stock,   common  shares
outstanding,  average numbers of common shares outstanding and per share amounts
in these  Financial  Statements and Notes to Financial  Statements  prior to the
effective  dates of the reverse and forward  stock splits have been  restated to
reflect the one-for-three  hundred reverse split and the  one-for-three  forward
split on a retroactive basis.

STOCK OPTION EXERCISE - 2004
On January 22, 2004 the Company  issued  1,200,000  post forward split shares of
its common stock,  upon the exercise of 1,200,000 post forward share split stock
options at $0.167 per post  forward  share split share for proceeds of $200,000,
which was paid by way of offset of $200,000  originally  advanced to the Company
by ICI which was assigned by Investor Communications International, Inc. ("ICI")
to  International  Market  Trend,  Inc.  ("IMT")  designated  option  holders as
described in Note 8.

                                      F-13

<PAGE>

LEXINGTON RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
(UNAUDITED)
--------------------------------------------------------------------------------

NOTE 7:  STOCKHOLDERS' EQUITY - (CONTINUED)
--------------------------------------------------------------------------------

On May 18, 2004 the Company issued 495,000 shares of its common stock,  upon the
exercise of 495,000  stock  options at $1.00 per share for proceeds of $495,000,
which was paid by way of offset of $495,000  originally  advanced to the Company
by ICI, which was assigned to an IMT designated  option holder,  as described in
Note 8.

STOCK OPTION EXERCISE - 2004 - CONTINUED
--------------------------------------------------------------------------------
On June 25, 2004 the Company issued 320,000 shares of its common stock, upon the
exercise  of  320,000  stock  options  at $3.00 per share for cash  proceeds  of
$960,000.

STOCK OPTION EXERCISE - 2005
On May 23, 2005 the Company issued 100,000 shares of its common stock,  upon the
exercise  of 100,000  stock  options at $0.167  per share for cash  proceeds  of
$16,667.

PRIVATE PLACEMENTS
On September 9, 2004 the Company  approved a financing of up to 4,150,000  units
of  restricted  common  shares at a price of $1.47 per share  plus a full  share
purchase  warrant  exercisable  at a price of $1.68  per  share  for each  share
purchased (the "September  Unit(s)").  The unexercised  warrants expired on July
23, 2005,  such date being six months from the effective date of registration of
the stock and warrants  issued under the offering.  Brokers' fees payable on the
September Units were: cash of 8% of gross proceeds,  brokers'  warrants equal to
4% of the gross  proceeds  (to be issued  under the same  terms as the  warrants
issued under the offering),  and a warrant  exercise fee equal to 5% of proceeds
received as a result of the future exercise of the warrants by the investors. On
November 1, 2004 the Company  completed  the sale of an  aggregate  of 1,700,686
Units.  The  Company  filed  a  registration  statement  (form  SB-2)  with  the
Securities and Exchange  Commission  ("SEC") on December 15, 2004,  covering the
resale of shares of common stock sold in the private  placement or issuable upon
exercise of the warrants.  Under the terms of the  financing,  the  registration
statement  is to become  effective  within 120 days after the filing  date;  the
registration  statement  went effective on January 24, 2005 in less than 42 days
from the filing date.

As of December 31, 2004, 1,700,686 September Units had been sold for proceeds of
$2,319,264, net of an $180,746 agent fee which was charged to additional paid in
capital.  Of the 1,700,686  units sold 376,318 were  non-brokered  and 1,324,368
were  brokered.  The fair value of the warrants was  estimated to be $0.147 each
and $250,001 has been recorded as a separate component of stockholders'  equity.
The fair value of the 46,353 broker  warrants  issued to date has been estimated
to be $0.147 per warrant and as a result, $6,814 has been recorded as a separate
component  of  stockholders'  equity.  The  non-brokered  units in the amount of
376,318 were issued upon:  (1) settlement of a $500,000  convertible  promissory
note and accrued  interest of  approximately  $12,637 for 348,733 units; and (2)
pursuant to a  non-brokered  placee  that paid  $40,550  for 27,585  units.  The
Company does not intend to sell any further securities under this offering.

SHARE PURCHASE WARRANTS
Share purchase warrants outstanding at June 30, 2005 are:


                                                              Weighted average
   Range of exercise      Weighted                         remaining contractual
        prices         average price   Number of shares       life (in years)
--------------------------------------------------------------------------------

     $1.68 - $5.00         $2.19          1,862,672               .94
================================================================================


                                      F-14

<PAGE>

LEXINGTON RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
(UNAUDITED)
--------------------------------------------------------------------------------


NOTE 7:  STOCKHOLDERS' EQUITY - (CONTINUED)
--------------------------------------------------------------------------------

A summary of the  Company's  stock  purchase  warrants as of June 30, 2005,  and
changes during the period ended is presented below:

<TABLE>
<CAPTION>

                                         --------------------- ----------------------- -----------------------
                                                                  Weighted average        Weighted average
                                          Number of Warrants       exercise price      remaining contractual
                                                                     per share            life (in years)
                                         --------------------- ----------------------- -----------------------
                                                                         $
<S>                                                <C>                  <C>                     <C>
Outstanding at December 31, 2003                           -
Granted May 3, 2004                                  200,000
Granted September 30, 2004                         1,018,680
Granted November 1, 2004                             728,359
                                         --------------------- ----------------------- -----------------------
Balance at December 31, 2004                       1,947,039            2.02                    .60
Exercised March 31, 2005                            (278,014)
Exercised April 1, 2005                              (26,353)
Granted May 31, 2005                                 220,000
                                         --------------------- ----------------------- -----------------------

Balance at June 30, 2005                           1,862,672            2.19                    .94
                                         ===================== ======================= =======================

</TABLE>

On May 31,  2005 the  Company  issued  220,000  warrants  at  $3.00  per unit in
conjunction  with the issuing of  promissory  notes  totaling  $1,100,000 to two
shareholders  ($500,000  and  $600,000) to the Company (see Note 6). The term of
these  warrants are five years.  The fair value of these warrants at the date of
grant of $271,028 was estimated  using the  Black-Scholes  warrant pricing model
with an expected  life of 5 years,  a risk free  interest rate of 3%, a dividend
yield of 0% and an expected  volatility  of 159.69% and has been  recorded as an
increase  in  equity  and a  reduction  of the debt  (refer  to Note 9,  Related
Parties).

In the  period  ended  June 30,  2005,  304,367  share  purchase  warrants  were
exercised at $1.68 per purchase  warrant  providing  $495,964 in proceeds to the
Company, net of brokers' fees of $15,373.

NOTE 8:  STOCK OPTION PLAN
--------------------------------------------------------------------------------

As of June 30, 2005, 4,700,000 options under the Company's current SOP have been
granted and 3,765,000 have been exercised.

A summary of the Company's stock options as of June 30, 2005, and changes during
the period ended is presented below:

<TABLE>
<CAPTION>

                                         --------------------- ----------------------- -----------------------
                                                                  Weighted average        Weighted average
                                                Number of          exercise price      remaining contractual
                                               options               per share            life (in years)
                                         --------------------- ----------------------- -----------------------
                                                                         $
<S>                                               <C>                   <C>                    <C>
Outstanding at December 31, 2003                   1,350,000            0.50                   3.392
Exercised January 22, 2004                        (1,200,000)
Granted February 2, 2004                           1,000,000
Exercised May 18, 2004                              (495,000)
Exercised June, 2004                                (320,000)
Granted July 26, 2004                                200,000
                                         --------------------- ----------------------- -----------------------
Exercisable at December 31, 2004                     535,000           1.64                    4.26
Cancellation, February 1, 2005                      (100,000)
Granted February 1, 2005                             600,000
Exercised May 11, 2005                              (100,000)
                                         --------------------- ----------------------- -----------------------

Exercisable at June 30, 2005                         935,000            1.77                    3.17
                                         ===================== ======================= =======================
</TABLE>

                                      F-15

<PAGE>

LEXINGTON RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
(UNAUDITED)
--------------------------------------------------------------------------------

NOTE 8:  STOCK OPTION PLAN (CONTINUED)
--------------------------------------------------------------------------------

In January 2004, 1,200,000 stock options (400,000 pre-forward split shares) were
exercised at $0.167 per share ($0.50 per  pre-forward  split share) for proceeds
of $200,000 which was paid by way of offset of $200,000  originally  advanced to
the Company by ICI which was assigned by ICI to IMT designated option holders.

On February 2, 2004,  an  additional  1,000,000  share  options  were granted to
consultants  and three  directors,  500,000  exercisable  at $1.00  and  500,000
exercisable at $3.00. The term of these options is five years. The fair value of
these  options  at the date of grant  of  $2,989,221  was  estimated  using  the
Black-Scholes option pricing model with an expected life of 5 years, a risk free
interest rate of 3%, a dividend yield of 0%, and an expected  volatility of 251%
and has been recorded as a consulting  expense in the period.  Of these options,
100,000 of the $3.00 options were granted to an  officer/director of the Company
and 10,000 of the $1.00 options were granted to two directors.

In April 2004 the Company registered 500,000 common stock options exercisable at
$1.00 per share under an S-8 Registration Statement. On May 18, 2004, 495,000 of
these stock  options were  exercised at $1.00 per share for proceeds of $495,000
which was paid by way of offset of $495,000  originally  advanced to the Company
by ICI which was assigned to a designated option holder.

In June 2004 the Company registered 400,000 common stock options  exercisable at
$3.00 per share under an S-8 Registration Statement.  And, in June 2004, 320,000
of these stock  options were  exercised at $3.00 per share for cash  proceeds of
$960,000.

By  Directors'  Resolution  dated  July  2,  2004,  the  Company  increased  the
authorized  number of options under its Stock Option Plan ("SOP") from 4,000,000
to 5,000,000.

On July 12,  2004,  200,000  stock  options  were  granted at $3.00 per share to
Humphreys.  The term of these  options  is five  years.  The fair value of these
options at the date of grant of $692,051 was estimated  using the  Black-Scholes
option pricing model with an expected life of 5 years, a risk free interest rate
of 3%,  a  dividend  yield  of 0%,  and an  expected  volatility  of 222% and in
accordance  with the  provisions of SFAS 148, has been  disclosed on a pro-forma
basis in Note 2.

On February 1, 2005, 500,000 options were granted at $1.00 per share to IMT. The
term of these options is five years. The fair value of these options at the date
of grant of $646,054 was estimated using the Black-Scholes  option pricing model
with an expected  life of 5 years,  a risk free  interest rate of 3%, a dividend
yield of 0%, and an expected volatility of 239.25%.

On February 1, 2005,  100,000  existing S-8 options were granted at $0.16667 per
share to IMT. The term of these  options is five years.  The fair value of these
options at the date of grant of $129,699 was estimated  using the  Black-Scholes
option pricing model with an expected life of 5 years, a risk free interest rate
of 3%, a dividend yield of 0% and an expected volatility of 239.25%.

On May 23, 2005, 100,000 S-8 registered share options were exercised at $0.16667
per share for cash proceeds of $16,667.

NOTE 9:  RELATED PARTY TRANSACTIONS
--------------------------------------------------------------------------------

FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2005
The Company  previously  entered into a contract with IMT, a private  company to
whom certain of the Company's directors and officers provide consulting services
relating to oil and gas industry and market  development  services.  The Company
incurred  $60,000  in fees to IMT for the  period  ended  June 30,  2005 (2004 -
$NIL).

 On February 1, 2005 IMT was granted 600,000 stock options (refer to Note 8).

On November 9, 2004, the Company reached an agreement with Oak Hills, to drill a
ten well  program.  Humphreys  is a director of the Company and is the  Drilling
Operations Manager of Lexington, and also the General Manager, director, and 25%
shareholder  of Oakhills,  an oil and gas drilling  and well  operating  company
based in  Holdenville,  Oklahoma  that  acts as  "operator"  to  Lexington.  Mr.
Humphreys  is in charge of oil and gas  operations  for  Lexington in the United
States.

                                      F-16

<PAGE>

LEXINGTON RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
(UNAUDITED)
--------------------------------------------------------------------------------

NOTE 9:  RELATED PARTY TRANSACTIONS - (CONTINUED)
--------------------------------------------------------------------------------

Humphreys  has  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.  The estimated  value of
the 10% carried  Working  Interest of $146,429 has been  recorded as  additional
compensation  expense during the period ended June 30, 2005.  Humphreys also has
the right to  purchase  an  additional  5% working  interest  in each well to be
located  on the Wagnon  Lease and has  elected to do so for the first four wells
drilled on this  lease.  The  original  5% cost to  participate  in the wells by
Humphreys  was  $60,000.  As of June 30, 2005 the Company was still owed $15,000
(December  31, 2004 - $22,500) and has recorded the amount as a receivable  from
Humphreys as full payment for an additional  5% working  interest in each of the
Kellster 1-5, the Kyndal 2-2, and the Bryce 3-2. Refer to Notes 3, 5, and 8.

During the period  ended June 30,  2005 the  Company  incurred  $102,500  to its
officers for management fees (June 30, 2004 - $103,800).

On January 1, 2005, the Company  appointed Oak Hills as its elected operator for
wells  on its  Wagnon  Lease,  and  for  further  drilling  to be  conducted  by
Lexington.  Oak Hills Drilling and Operating, LLC replaces Oakhills Energy, Inc.
as its designated operator.

Refer to Note 3.

NOTE 10: INCOME TAXES
--------------------------------------------------------------------------------

The Company  has adopted  FASB No. 109 for  reporting  purposes.  As of June 30,
2005,  the  Company  had net  operating  loss carry  forwards  of  approximately
$4,200,000 that may be available to reduce future years' taxable income and will
expire between the years 2006 - 2025.  Availability  of loss usage is subject to
change of ownership  limitations  under  Internal  Revenue Code 382.  Future tax
benefits which may arise as a result of these losses have not been recognized in
these  financial  statements,  as their  realization is determined not likely to
occur and  accordingly,  the Company has recorded a valuation  allowance for the
deferred tax asset relating to these tax loss carry forwards.

The Company  evaluates its valuation  allowance  requirements on an annual basis
based on projected future operations.  When circumstances change and this causes
a change in management's judgment about the recoverability of future tax assets,
the impact of the change on the  valuation  allowance is generally  reflected in
current income.

NOTE 11: SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                   Period ended June 30, 2005     Period ended June 30, 2004
 --------------------------------- ---------------------------- --------------------------------
<S>                                <C>                                        <C>
 Cash paid during the year for:
          Interest                 $                8,750                     $ -
          Income taxes             $                 -                        $ -
 --------------------------------- ---------------------------- --------------------------------

</TABLE>

                                      F-17

<PAGE>

         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.

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 (herein known as "we" or the "Company").  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: A0BKLP.

CURRENT BUSINESS OPERATIONS

         We are a natural resource  exploration and production company currently
engaged in the  acquisition  and  development  of oil and gas  properties in the
United States. We expect to weight our future  development  initiatives  towards
gas production. We are committed to developing into a profitable independent oil
and gas  producer  through the  systematical  expansion  of  operations  and the
acquisition  of new drilling  targets while  organizing  drilling and production
initiatives on leased properties.

<PAGE>

         Our wholly owned subsidiary,  Lexington Oil & Gas Ltd. Co., an Oklahoma
limited liability company  ("Lexington"),  previously  acquired a 590 gross acre
section of farm-out  acreage in Pittsburg  County,  Oklahoma for the development
and production of coal bed methane gas (the "Wagnon  Property").  We hold an 80%
working interest and a 60.56% net revenue  interest in the Wagnon  Property.  We
have  drilled,  completed  and are  producing gas from four wells drilled on the
Wagnon Property.

         We have also successfully  drilled,  completed,  and are producing from
two  further  CBM gas wells  located  on our Coal  Creek  Project  with  working
interests  of 50% and 22%,  respectively.  In  addition,  we have a 25%  working
interest  in a third gas well  drilled,  completed,  and  producing  by Newfield
Exploration Mid-Continent, Inc. on our Panther Creek prospect. In total, we have
interests in six coal bed methane gas wells and one Woodford Shale gas well, and
estimated  acreage suitable for the drilling of an estimated  further seventy to
one hundred gas wells primarily  targeting coal bed methane gas wells.

         We have also consummated the acquisition of certain additional coal bed
methane gas  prospects in the Arkoma  Basin in the State of Oklahoma,  including
1,932 gross leasehold  acres in the Coal Creek Prospect,  292 gross acres in the
Panther Creek Prospect, 320 gross acres in the Middlecreek Prospect, 1,144 gross
acres in the South Lamar Prospect, and 4,925 gross acres in the H-9 Prospect. In
addition,  we have committed to purchase up to a 100% working  interest in up to
3,687 gross acres of Barnett Shale  targeted gas leases in the Dallas Fort Worth
Basin in the State of Texas. We currently have an aggregate of approximately 590
gross  developed and 12,300 gross  undeveloped  acres  pursuant to leases and/or
concessions as more fully described  below.  It is anticipated  that our ongoing
efforts,  subject to  adequate  funding  being  available,  will  continue to be
focused on successfully  concluding  negotiations for additional tracts of prime
gas  and  oil  producing  domains,  and to  implement  additional  drilling  and
production development  initiatives through the drilling of new wells to develop
reserves and to provide revenues.  We plan to continue building and increasing a
strategic base of proven reserves and production opportunities within Oklahoma's
Arkoma Basin, and development initiatives in the State of Texas.

OIL AND GAS PROPERTIES

         As of the date of this Quarterly Report, we have not reported nor filed
any reserve estimates with any Federal agencies,  but have commenced  production
from  certain   properties  as  more  fully  described  below.  We  obtained  an
independent reserve and economic evaluation report regarding the Wagnon Property
that was  conducted  by  Fletcher  Lewis  Engineering,  Inc.  of  Oklahoma.  The
following is a description of our oil and gas properties.

         WAGNON PROPERTY

         We hold an 80% working  interest  and a 60.56% net revenue  interest in
approximately  590.2 gross  acres of a gas lease  located in  Pittsburg  County,
Oklahoma  (the "Wagnon  Property").  The gas lease was  acquired  from Oak Hills
Energy,  Inc.  ("Oak Hills  Energy"),  which  acquired  the lease  pursuant to a
farm-out  agreement  with Quinton  Rental & Repair  Services,  Inc. (the "Wagnon
Farm-Out Agreement"). Our interest relating to the Wagnon Property is subject to
farm-out  agreements  equating to a total 20% working  interest  between  Paluca
Petroleum  Inc.  ("Paluca"),  an  affiliate  of one of  our  directors,  Douglas
Humphreys, Oak Hills Energy, and the lessee of the Wagnon Property.

<PAGE>

         As of June 30, 2005, we have drilled, completed and put four wells into
production on this prospect, the Kellster #1-5, the Kyndal #2-2, the Bryce #3-2,
and the Caleigh  #4-2.  On April 2, 2005,  the Caleigh #4-2 coal bed methane gas
well commenced production.  It is estimated that up to a total of five wells may
drilled on this the Wagnon Property.

         We previously  entered into funding  agreements  for the Kellster #1-5,
Kyndal  #2-2,  Bryce #3-2,  and Caleigh #4-2 wells  (collectively,  the "Funding
Agreements").  Pursuant  to  the  Funding  Agreements,  private  investors  were
provided with an 80% working  interest and a 60.56% net revenue  interest in the
wells  until their  respective  invested  capital in each well is repaid,  after
which time the private  investors  will  revert to an  aggregate  20.1%  working
interest  and a 15.075% net revenue  interest.  Oak Hills  Energy,  the original
driller and operator of the wells, will "back-in" to a reversionary 6.7% working
interest after invested  capital is repaid to the private  investors and we will
"back-in" to a  reversionary  53.2%  working  interest.  Pursuant to the further
terms and provisions of the Funding  Agreements,  all wells to be drilled on the
Wagnon property carry royalty interests  totaling 25% to landowners and property
interest holders and carried working interests of 5% to a landowner,  as well as
a 10% carried working interest to Paluca. Paluca also owns a non-carried working
interest of 5% as part of capital  participation  funding provided by Paluca. As
of June 30, 2005,  we have  received the total  required  funding of  $1,485,000
under the Funding  Agreements for drilling and completion of the four horizontal
coal bed methane gas wells on the Wagnon Property.  As of June 30, 2005, private
investors  have  been  repaid  an  aggregate  of  $475,171  of their  $1,485,000
investment under the Funding  Agreements,  of which $171,086 was paid during the
six-month period ended June 30, 2005.

         COAL CREEK PROSPECT

         During fiscal year 2004, we obtained an option to purchase an undivided
95% interest in approximately 2,500 net leasehold acres in five sections located
in Hughes and Pittsburg Counties, State of Oklahoma (the "Coal Creek Prospect").
On March 12, 2004,  we entered  into a two-year  lease for  approximately  1,536
gross acres in the Coal Creek  Prospect  pursuant to which we have an  undivided
95% working interest and a minimum 79% net revenue interest. On May 20, 2004, we
entered into a two-year  lease  pursuant to which we acquired an additional  372
acres of the Coal Creek  Prospect  with a minimum 95 working  interest and a 78%
net revenue interest. On August 20, 2004, we entered into an additional two-year
lease  pursuant to which we acquired  an  additional  23 acres of the Coal Creek
Prospect with a minimum 95% working interest and a 79% net revenue interest.  As
of the date of this  Quarterly  Report,  the total acreage  acquired in the Coal
Creek Gas Prospect is approximately 1,932 gross leasehold acres.

         On March 31, 2005,  we began  drilling the first well on the Coal Creek
Prospect,  the Lex #1-34, of which we have a 50% working interest. The Lex #1-34
well has been  completed and is currently in  production.  On April 15, 2005, we
began  drilling a second well on the Coal Creek  Project,  the  Brumbaugh  #1-10
well, of which we have a 22% working interest. The Brumbaugh #1-10 well has been
completed and began  production in May 2005. It is estimated  that  interests in
twelve to sixteen  wells may be drilled on lease  acreage owned by us that forms
part of the Coal Creek Prospect.

         On May 31, 2005,  we began  drilling a third CBM well on our Coal Creek
Prospect, the Ellis #1-15, of which we have an 88.5 % working interest. Drilling
on this  well has  encountered  a  shallow  "Bartlesville  Sand"  gas zone  that
produced a significant  gas flair upon testing of the zone. The zone was logged,
underwent  economic and geological study to assess  commercial  potential of the
new, non-CBM gas zone, and we attempted  completion in the Barlesville Sand zone
without  success due to intrusion of water from a salt water disposal well. As a
result,  procedures  are under  evaluation for the completion of the well in the
originally targeted, Hartshorne CBM gas zone that is unaffected by the intrusion
of water.


<PAGE>

         PANTHER CREEK PROSPECT

         During March 2004, we entered into a three-year lease for approximately
292 acres  located  in five  separate  sections  in the  Panther  Creek coal bed
methane gas prospect  located in Hughes County,  State of Oklahoma (the "Panther
Creek  Prospect").  We have a 100% working  interest and an approximate  81% net
revenue interest in the Panther Creek Prospect acreage acquired.

         A portion of the  acreage in the Panther  Creek  Prospect is subject to
three division  pooling  orders by Newfield  Exploration  Mid-Continent  Inc., a
subsidiary of Newfield Exploration Company  ("Newfield"),  for three wells to be
drilled and  operated by Newfield in which we have  elected to  participate.  On
January 25, 2005, we entered into the joint operating agreement with Newfield to
participate  in  the  proposed  wells  to  be  drilled  (the  "Joint   Operating
Agreement").  Pursuant  to the  terms  and  provisions  of the  Joint  Operating
Agreement: (i) Newfield shall drill and operate the first well and explore other
zones up to 8500 feet in depth; (ii) we have an approximate 25% working interest
in the  first  completed  well;  (iii)  we have an  approximate  10.94%  working
interest in the second completed well; (iv) we have an approximate 4.06% working
interest in the third completed  well; and (v) Newfield has up to  approximately
the end of fiscal year 2005 to drill such wells and may or may not proceed  with
any individual well project at their discretion.

         On February 9, 2005, Newfield commenced drilling on the first well, the
POE #1-29 and, as of March 21, 2005, the POE #1-29 gas well commenced production
from a Woodford Shale gas zone.

         SOUTH LAMAR PROSPECT

         On April 21,  2004,  we entered  into a  two-year  lease  agreement  to
acquire a 100% working  interest  and a 78.5% net revenue  interest in 960 gross
undeveloped acres to develop coal bed methane gas wells in Hughes County,  State
of Oklahoma  (the  "South  Lamar  Prospect").  On July 26,  2004,  we acquired a
further 183.98 gross acres in the South Lamar Prospect pursuant to which we hold
a 100% working interest and a 79% net revenue  interest.  As of the date of this
Quarterly  Report,  we are  preparing the drill site for the drilling of a first
well on this site on this prospect, the Goodson #1-24 well. The planned "Goodson
#1-23"  CBM  Hartshorne  Coal  targeted  gas well has  undergone  drilling  site
preparations, road work, and pipeline planning phases of development.

         MIDDLECREEK PROSPECT

         On May 24,  2004,  we entered into an agreement to acquire an undivided
100% leasehold  interest and a 70% net revenue  interest in 320 gross  leasehold
acres  located in two  sections in the  Middlecreek  Prospect  located in Hughes
County,  State of Oklahoma  (the  "Middlecreek  Prospect").  Rights to drill all
geological  zones are included  and primary gas targets  include the Caney shale
and Hartshorne coal zones with further  possibilities  in the Booch,  Stuart and
Savannah zones.

         H-9 PROSPECT

         On June 29,  2004,  we entered  into an option  agreement to purchase a
leasehold  interest  and a net  revenue  interest  in  approximately  4,600  net
leasehold  acres  located in  approximately  38 sections of the H-9  Prospect in
Hughes and McIntosh  counties,  State of Oklahoma (the "H-9 Prospect").  On July
29,  2004,  we entered  into three to four year lease  agreements  to acquire an
undivided 100% leasehold interest and a 79.25% net revenue interest in the 4,600
gross  leasehold  acres on the H-9  Prospect.  On July 19, 2004, we entered into
another  three-year  lease to acquire a 100% leasehold  interest and a 78.3% net
revenue  interest  in an  additional  325 gross  acres of gas  target  drillable
acreage on the H-9 Prospect.

<PAGE>

         BARNETT SHALE PROJECT

         On June 2, 2005, as amended July 14, 2005, we entered into a definitive
agreement  with a Texas-based  limited  partnership  (the "Barnett  Agreement"),
regarding a gas well  horizontal  drilling  venture in the Jack,  Wise, and Palo
Pinto Counties in the State of Texas (the "Barnett Shale Project").  Pursuant to
the  terms  and  provisions  of the  Barnett  Agreement:  (i) we will be able to
acquire 75% to 100% working  interests in delivered net revenue interests of 70%
and 75%,  respectively,  in up to 3,687 net leasehold acres in the Barnett Shale
Project  for  between  $450  and $500 per  acre;  (ii) we paid a  non-refundable
deposit of $100,000  which deposit shall be credited  against the total purchase
price to be paid by us for the working interests; (iii) the closing date of this
acquisition is expected to be on or before August 19, 2005 subject to the seller
delivering  good and marketable  title to the leases as approved by the Company;
(iv) in the event we purchase the maximum 100% working interest, we will receive
a 70% net revenue  interest on the leases without carried  interest to the Texas
limited  and  the  remaining  net  revenue  interest  shall  be  reserved  as an
overriding royalty interest for the Texas limited partnership;  (v) in the event
we  purchase  a 75%  working  interest,  we will  receive a 56.25%  net  revenue
interest on the leases and we will carry for the Texas limited partnership a 10%
working  interest in the drilling,  completion  and equipping of the pipeline on
all  wells  drilled  on the  acreage  purchased  by us;  and (vi)  our  contract
operator,  Oak Hills  Drilling  and  Operating  LLC ("Oak  Hills"),  will be the
operator for the project.

         We  anticipate,  subject  to  financing,  that the  first  well will be
spudded in September 2005 and that all drilling on the acquired  acreage will be
completed in less than two years.

         WELLS DEVELOPED ON OIL AND GAS PROPERTIES

         As of the date of this Quarterly Report, the following table summarizes
wells and working interests in wells under current development initiatives:

<TABLE>
<CAPTION>

-------------------------------- ----------------------------- ---------------------------- -----------------------------
COMPANY LEASE/PROSPECT           WELL NAME                     INTEREST                     STATUS

-------------------------------- ----------------------------- ---------------------------- -----------------------------
<S>                              <C>                           <C>                          <C>
Wagnon                           Kellster #1-5                 53.2% Back WI APO            Producing
-------------------------------- ----------------------------- ---------------------------- -----------------------------
Wagnon                           Kyndal #2-2                   53.2% Back WI APO            Producing
-------------------------------- ----------------------------- ---------------------------- -----------------------------
Wagnon                           Bryce #3-2                    53.2% Back WI APO            Producing
-------------------------------- ----------------------------- ---------------------------- -----------------------------
Wagnon                           Calleigh #4-2                 53.2% Back WI APO            Producing
-------------------------------- ----------------------------- ---------------------------- -----------------------------
Panther Creek                    POE #1-29                     25.7% WI                     Producing
-------------------------------- ----------------------------- ---------------------------- -----------------------------
Coal Creek                       LEX #1                        50.1% WI                     Producing
-------------------------------- ----------------------------- ---------------------------- -----------------------------
Coal Creek                       Brumbaugh #1-10               22.2% WI                     Producing
-------------------------------- ----------------------------- ---------------------------- -----------------------------
Coal Creek                       Ellis #1-15                   88.5% WI                     In drilling stages
-------------------------------- ----------------------------- ---------------------------- -----------------------------
South Lamar                      Goodson #1-23                 87.5% WI                     Drilling site prepared
-------------------------------- ----------------------------- ---------------------------- -----------------------------

</TABLE>


         To date, we have committed to interests in eight gas wells. We estimate
that we have additional available acreage suitable for the drilling of a further
seventy to one hundred, primarily coal bed methane gas wells.

<PAGE>

RESULTS OF OPERATION

SIX-MONTH PERIOD ENDED JUNE 30, 2005 COMPARED TO SIX-MONTH PERIOD ENDED JUNE 30,
2004

         Our net  loss  for  the  six-month  period  ended  June  30,  2005  was
approximately  ($1,823,252)  compared to a net loss of  ($4,282,990)  during the
six-month  period  ended June 30, 2004 (a decrease  of  $2,459,738).  During the
six-month  period ended June 30, 2005,  we generated  $393,263 in gross  revenue
compared to $94,207 in gross  revenue  generated  during the same period in 2004
(an increase of  $299,056),  resulting  primarily  from the sale of gas produced
from coal bed methane gas wells on the Wagnon  Property that started  production
in mid February 2004.  Depletion and operating costs and taxes increased  during
the  six-month  period ended June 30, 2005  compared to the same period in 2004.
The gross revenue of $393,263  generated  during the six-month period ended June
30,  2005 was  reduced  by an  aggregate  of  $261,341  ($139,880  in  estimated
depletion  and  $121,461 in operating  costs and taxes),  resulting in operating
income of $131,922.  The gross revenue of $94,207 generated during the six-month
period  ended June 30, 2004 was reduced by an  aggregate  of $6,558 in estimated
depletion,  resulting in operating income of $87,649.  The increase in depletion
and operating expenses and taxes during the six-month period ended June 30, 2005
from the  six-month  period ended June 30, 2004 was  primarily the result of the
increase in operating costs and estimated depletion resulting from the increased
number of operating wells.

         During the  six-month  period  ended June 30, 2005,  we incurred  other
expenses in the aggregate amount of $1,955,174  compared to $4,370,639  incurred
during the same period in 2004 (a decrease of  $2,415,465),  which consisted of:
(i) general and administrative expenses of $1,170,671 (2004:  $1,361,701);  (ii)
consulting fees - stock based  compensation  relating to the fair value of stock
options  granted  to  consultants  of  $775,753  (2004:  $2,989,221);  and (iii)
interest  expense of $8,750  (2004:  $19,717).  The  decrease in other  expenses
incurred  during the  six-month  period ended June 30, 2005 compared to the same
period during 2004 resulted  primarily  from the decrease in fair value of stock
options granted to consultants.  General and  administrative  expenses generally
include corporate overhead,  financial and administrative  contracted  services,
marketing, and consulting costs.

         Of the  $1,955,174  incurred  as other  expenses  during the  six-month
period  ended June 30, 2005,  an  aggregate  of $60,000 was incurred  payable to
International  Market Trend  ("IMT") for amounts due and owing for  operational,
administrative and financial services rendered during the six-month period ended
June 30, 2005. On November 10, 2003, we entered into a consulting agreement with
IMT  (the  "Consulting  Agreement"),  whereby  IMT  performs  a  wide  range  of
management, administrative, financial, and business development services for us.
On February 1, 2005,  we granted to IMT an  aggregate of 500,000  stock  options
exercisable at $1.00 per share for a period of five years.  On February 1, 2005,
we also granted to IMT an aggregate of 100,000 stock options registered under an
S-8  Registration  Statement  exercisable  at $0.16667 per share for a period of
five years.

         Of the  $1,955,174  incurred  as other  expenses  during the  six-month
period  ended June 30,  2005,  an  aggregate  of  $102,500  was  incurred to our
officers for management fees.  Furthermore,  $146,429 was recorded as additional
compensation  expense to one of our directors,  Mr.  Humphreys,  relating to the
estimated  valuation of his 10% carried working  interest in our wells developed
during the six month  period ened June 30, 2005.  On July 12,  2004,  we entered

<PAGE>

into a consultation  agreement (the  "Humphreys  Consultation  Agreement")  with
Lexington Oil & Gas and Mr.  Humphreys.  Pursuant to the Humphreys  Consultation
Agreement,  Mr. Humphreys assists in overseeing the drilling  operations and the
completion and management of our wells. Mr. Humphreys  compensation  pursuant to
the terms and provisions of the Humphreys  Consultation Agreement is: (i) $7,500
per month;  (ii) the assignment of up to 10% carried  working  interest in every
well drilled on all properties held by us, including the Wagnon Lease; (iii) the
right to purchase up to an additional  5% working  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;  and (iv) grant of 200,000
Stock  Options to purchase  shares of our common  stock at an exercise  price of
$3.00 per share  (which were  granted  July 2004).  The  Humphreys  Consultation
Agreement  can be  terminated  at any time with  ninety days  written  notice by
either party.

         As  discussed  above,  the  decrease in net loss  during the  six-month
period ended June 30, 2005 compared to the six-month  period ended June 30, 2004
is  attributable  primarily to the increase in oil and gas gross revenue and the
decrease in  consulting  fees - stock based  compensation.  Our net revenue loss
during the six-month period ended June 30, 2005 was  approximately  ($1,955,174)
or ($0.10) per share  compared to a net loss of  ($4,282,990)  or ($0.30) during
the six-month  period ended June 30, 2004. The weighted average number of shares
outstanding was 17,227,525 for the six-month period ended June 30, 2005 compared
to  14,282,945  for the  six-month  period  ended June 30,  2004 (which had been
restated in accordance with the forward stock split of  three-for-one  shares of
common stock effected January 26, 2004).

THREE-MONTH PERIOD ENDED JUNE 30, 2005 COMPARED TO THREE-MONTH PERIOD ENDED JUNE
30, 2004

         Our net  loss  for the  three-month  period  ended  June  30,  2005 was
approximately  ($177,383)  compared  to a net loss of  ($1,189,231)  during  the
three-month  period ended June 30, 2004 (a decrease of  $1,011,848).  During the
three-month  period ended June 30, 2005, we generated  $263,204 in gross revenue
compared to $53,517 in gross revenue  generated  during the same period in 2004,
resulting  primarily  from the sale of gas  produced  from coal bed  methane gas
wells on the Wagnon Property.  Depletion and operating costs and taxes increased
during the three-month period ended June 30, 2005 compared to the same period in
2004.  The gross revenue of $263,204  generated  during the  three-month  period
ended  June 30,  2005 was  reduced  by an  aggregate  of  $148,368  ($84,972  in
estimated depletion and $63,396 in operating costs and taxes), which resulted in
operating income of $114,836.  The gross revenue of $53,517 generated during the
three-month  period ended June 30, 2004 was reduced by an aggregate of $3,879 in
estimated depletion, which resulted in operating income of $49,638. The increase
in depletion  and  operating  expenses and taxes during the  three-month  period
ended  June 30,  2005  from  the  three-month  period  ended  June 30,  2004 was
primarily the result of the increase in operating costs and estimated  depletion
resulting from the increased number of operating wells.

         During the  three-month  period ended June 30, 2005, we incurred  other
expenses in the aggregate  amount of $292,219  compared to  $1,238,869  incurred
during the same period in 2004 (a decrease of $946,650), which consisted of: (i)
general and  administrative  expenses of $283,469 (2004:  $1,233,552);  and (ii)
interest  expense of $8,750  (2004:  $5,317).  The  decrease  in other  expenses
incurred during the three-month  period ended June 30, 2005 compared to the same
period  during  2004  resulted  primarily  from  the  decrease  in  general  and
administrative expenses.

<PAGE>

         As discussed  above,  the  decrease in net loss during the  three-month
period  ended June 30, 2005  compared to the  three-month  period ended June 30,
2004 is attributable  primarily to the increase in oil and gas gross revenue and
the  decrease in general and  administrative  expenses.  Our net loss during the
three-month  period ended June 30, 2005 was approximately  ($177,383) or ($0.01)
per  share  compared  to a net  loss  of  ($1,189,231)  or  ($0.08)  during  the
three-month  period ended June 30, 2004.  The weighted  average number of shares
outstanding  was  17,365,104  for the  three-month  period  ended June 30,  2005
compared to 14,618,332 for the three-month period ended June 30, 2004 (which had
been restated in accordance with the forward stock split of three-for-one shares
of common stock effected January 26, 2004).

LIQUIDITY AND CAPITAL RESOURCES

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

SIX-MONTH PERIOD ENDED JUNE 30, 2005

         As of the six-month period ended June 30, 2005, our current assets were
$265,522  and our  current  liabilities  were  $1,821,298,  which  resulted in a
working capital deficit of $1,555,776. As of the six-month period ended June 30,
2005, our total assets were $4,186,020  consisting of: (i) $24,920 in cash; (ii)
$240,602 in accounts  receivable;  (iii) $2,986,515 carrying value of proved oil
and gas properties (net of depletion);  (iv) $931,318 carrying value of unproved
oil and gas  properties;  and (v) $2,665 in other property and equipment (net of
accumulated  depreciation).  As of the six-month period ended June 30, 2005, our
total  liabilities were $2,764,347  consisting of: (i) $1,009,830 in current and
non-current drilling obligations;  (ii) $939,000 in accounts payable and accrued
liabilities; and (iii) $815,517 in current and non-current portion of promissory
notes.

         Stockholders'  equity  decreased from  $1,685,514 for fiscal year ended
December 31, 2004 to $1,421,673 for the six-month period ended June 30, 2005.

         We have not generated  positive cash flows from  operating  activities.
For the six-month  period ended June 30, 2005,  net cash flows used in operating
activities  was  ($944,316)  compared  to  net  cash  flows  used  in  operating
activities  for the six-month  period ended June 30, 2004 of  ($1,244,465).  Net
cash flows used in operating  activities for the six-month period ended June 30,
2005 consisted  primarily of a net loss of ($1,823,252).  Net cash flows used in
operating  activities was adjusted by $878,936 to reconcile net loss to net cash
from  operating  activities  primarily  relating to the non-cash  expense of the
grant of stock  options and non-cash  compensation,  oil and gas  depletion  and
accounts payable.

         Net cash flows used in  investing  activities  was  ($785,146)  for the
six-month  period  ended  June  30,  2005  compared  to net cash  flows  used in
investing   activities  for  the  six-month  period  ended  March  31,  2004  of
($1,390,371),  which  primarily  pertained to the acquisition of the oil and gas
properties.

         Net  cash  flows  from  financing  activities  was  $1,428,089  for the
six-month  period ended June 30, 2005 compared to net cash flows from  financing
activities for the six-month period ended June 30, 2004 of $3,064,175.  Net cash
flows from  financing  activities  for the six-month  period ended June 30, 2005
consisted  of  $1,086,545   (2004:   $500,000)  in  promissory   notes  (net  of
repayments),  $512,630 (2004:  $1,960,000) in net proceeds on sale of stock, and
$-0- in drilling  advances (2004:  $678,869),  amounts were adjusted by $171,086
(2004:  $-0-) in  repayment of drilling  advances  and $-0- in advances  payable
(2004: $74,694).

<PAGE>

PLAN OF OPERATION

         During  fiscal year 2004,  we  completed  the sale of an  aggregate  of
1,700,686  Units at a  purchase  price of $1.47 per Unit for gross  proceeds  of
approximately  $2,319,264.  Further,  the  holder  of  two  of  our  outstanding
promissory  notes in the  aggregate  principal  amount of $500,000  plus accrued
interest of $12,637  exchanged  the  promissory  notes and accrued  interest for
Units,  resulting  in the issuance of an  additional  376,318  Units.  Each Unit
consists of one share of our common stock and one warrant to purchase a share of
our common stock at an exercise price of $1.68 (the "September  Warrants").  The
September  Warrants  from the offering were  exercisable  for a term of 180 days
after the  Registration  Statement  was  declared  effective on January 21, 2005
creating  an  expiry  term of July 23,  2005.  As of the date of this  Quarterly
Report, an aggregate of 304,367 September  Warrants were exercised for aggregate
proceeds of $495,964,  net of $15,373 in brokers' fees. The remaining  1,396,319
September Warrants have expired by their terms and declared void.

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

         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,
or existing  agreements which could  significantly  and materially  restrict our
business operations.

         The independent auditors' report accompanying our December 31, 2004 and
December 31, 2003  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.


<PAGE>

MATERIAL COMMITMENTS

DRILLING OBLIGATIONS

         As of the date of this Quarterly  Report, we have committed to drilling
and operating four wells on the Wagnon  Property and have elected to participate
in the  drilling  of a  well  on  the  Panther  Creek  Prospect  with  Newfield.
Pertaining to the private drilling capital obtained for the drilling of the four
wells on our Wagnon  Property,  as at June 30, 2005,  we have  received from the
funding  investors the total funding  requirement of $1,485,000 for the drilling
and  completion of the Kellster  #1-5,  the Kyndal #2-2,  the Bryce #3-2 and the
Caleigh  #4-2 wells.  As at June 30,  2005,  we have paid the funding  investors
approximately  $475,171,  of which $171,086 was paid during the six-month period
ended June 30, 2005.

PROMISSORY NOTES

         As of the date of this Quarterly  Report, we have obtained funds in the
amounts of $600,000 and  $500,000,  respectively,  pursuant to three  promissory
notes  from  two of our  shareholders  totaling  $1,100,000  (collectively,  the
"Promissory  Notes").  The terms of the Promissory  Notes provide for: (i) a due
date of five years from the date of issuance;  (ii) an interest  rate of 10% per
annum;  (iii) monthly payments of principal and interest payable over a 60-month
amortization;  and  (iv) a  security  interest  in our  Coal  Creek  oil and gas
property leases.  In conjunction  with the issuance of the Promissory  Notes, we
granted  220,000  warrants  exercisable  at $3.00 per share with exercise  terms
until May 31, 2010.

OFF-BALANCE SHEET ARRANGEMENTS

         As of the date of this Quarterly Report, we do not have any off-balance
sheet  arrangements  that have or are  reasonably  likely  to have a current  or
future  effect on our  financial  condition,  changes  in  financial  condition,
revenues or expenses, results of operations,  liquidity, capital expenditures or
capital resources that are material to investors.  The term  "off-balance  sheet
arrangement"  generally means any  transaction,  agreement or other  contractual
arrangement to which an entity unconsolidated with us is a party, under which we
have:  (i) any  obligation  arising  under  a  guaranteed  contract,  derivative
instrument or variable  interest;  or (ii) a retained or contingent  interest in
assets transferred to such entity or similar  arrangement that serves as credit,
liquidity or market risk support for such assets.

ITEM III. CONTROLS AND PROCEDURES

         An  evaluation  was  conducted  under  the  supervision  and  with  the
participation of our management, including Grant Atkins, our President and Chief
Executive Officer, and Vaughn Barbon, our Treasurer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure  controls and
procedures as at June 30, 2005.  Based on that  evaluation,  Messrs.  Atkins and
Barbon  concluded that our disclosure  controls and procedures were effective as
of such date to ensure that information  required to be disclosed in the reports
that we file or submit under the  Securities  Exchange  Act of 1934,  as amended
(the "Exchange Act"), is recorded, processed, summarized and reported within the
time periods specified in Commission rules and forms. Such officers also confirm
that there was no change in our internal control over financial reporting during
the six-month  period ended June 30, 2005 that has  materially  affected,  or is
reasonably  likely to materially  affect,  our internal  control over  financial
reporting.


<PAGE>

AUDIT COMMITTEE REPORT

         The Board of Directors has established an audit committee.  The members
of the audit committee are Mr. Steven Jewett, Mr. Doug Humphreys, and Mr. Norman
MacKinnon.  Two of the three members of the audit  committee  are  "independent"
within the meaning of Rule 10A-3 under the Exchange Act. The audit committee was
organized  in April 2004 and  operates  under a written  charter  adopted by our
Board of Directors.

         The audit  committee has reviewed and  discussed  with  management  our
unaudited financial statements as of and for the six-month period ended June 30,
2005.  The audit  committee has also  discussed  with Dale Matheson  Carr-Hilton
LaBonte the matters required to be discussed by Statement on Auditing  Standards
No. 61,  Communication  with  Audit  Committees,  as  amended,  by the  Auditing
Standards Board of the American Institute of Certified Public  Accountants.  The
audit committee has received and reviewed the written disclosures and the letter
from Dale Matheson Carr-Hilton LaBonte required by Independence  Standards Board
Standard No. 1, Independence Discussions with Audit Committees,  as amended, and
has discussed with Dale Matheson Carr-Hilton LaBonte their independence.

         Based on the  reviews  and  discussions  referred  to above,  the audit
committee has recommended to the Board of Directors that the unaudited financial
statements  referred to above be included in our Quarterly Report on Form 10-QSB
for the  six-month  period  ended June 30,  2005 filed with the  Securities  and
Exchange Commission.


PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

EXERCISE OF SHARE PURCHASE WARRANTS

         As of the date of this Quarterly Report, we have issued an aggregate of
304,367 shares of common stock to  shareholders  pursuant to the exercise of the
September  Warrants.  During  fiscal  year  2004,  we  completed  the sale of an
aggregate  of  1,700,686  Units at a purchase  price of $1.47 per Unit for gross
proceeds  of  approximately  $2,319,264.  Further,  the  holder  of  two  of our
outstanding  promissory notes in the aggregate principal amount of $500,000 plus
accrued interest of $12,637  exchanged the promissory notes and accrued interest
for Units,  resulting in the issuance of an additional  348,733 Units. Each Unit
consists of one share of our common stock and one warrant to purchase a share of
our common stock at an exercise  price of $1.68.  The  September  Warrants  were
exercisable until July 23, 2005.

         As of the  date of this  Quarterly  Report,  an  aggregate  of  304,367
September  Warrants were  exercised for aggregate  proceeds of $495,964,  net of
$15,373 in brokers'  fees. The 304,367 shares of common stock were issued to the
shareholders in reliance on the registration provisions of the Securities Act of
1933, as amended, in accordance with the terms of the Registration Statement.

<PAGE>

EXERCISE OF STOCK OPTIONS

         During the  six-month  period  ended June 30,  2005,  an  aggregate  of
100,000 Stock Options were  exercised at $0.16667 per share for cash proceeds of
$16,667. The shares of common stock were issued to the shareholder in accordance
with the S-8 Registration Statement.

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

         No report required.

ITEM 5. OTHER INFORMATION

         No report required.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

         Exhibits:

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

         Reports on Form 8-K:

         Report on Form 8-K Item 5.01 filed on February 18, 2005. Report on Form
         8-K Item 1.01 filed on June 8, 2005.

<PAGE>

SIGNATURES

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


                                             LEXINGTON RESOURCES, INC.

Dated: August 13, 2005                       By: /s/ GRANT ATKINS
                                             ---------------------------
                                             Grant Atkins, President and
                                             Chief Executive Officer


Dated: August 13, 2005                       By: /s/ VAUGHN BARBON
                                             ---------------------------
                                             Vaughn Barbon, Chief Financial
                                             Officer