UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      DC 20549









Form
      10-Q/A









(Mark
      one)




xQuarterly
      Report Under
      Section 13 or 15(d) of The Securities Exchange Act of 1934




For
      the quarterly period ending June 30, 2007




o  
       Transition Report Under Section 13 or 15(d) of The Securities Exchange Act
      of 1934




For
      the transition period from ______________ to _____________




Commission
      File Number:0-29613






TIDELANDS
      OIL & GAS
      CORPORATION


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






Nevada
            66-0549380(State
                of incorporation)
            (IRS
                Employer ID Number)





1862
      West Bitters Rd., San
      Antonio, TX 78248


(Address
      of principal executive offices)




(210)
      764-8642


(Issuer's
      telephone number)




Securities
      registered under Section 12 (b) of the Exchange Act: None




Securities
      registered under Section 12(g) of the Exchange Act:


Common
      Stock - $0.001 par value




Check
      whether the issuer has (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 the Company was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes x Noo




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definitions of "accelerated
      filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check
      one): Large accelerated filer o, Accelerated
      filer
o, Non-accelerated
      filer x




Indicate
      by check mark whether the registrant is a shell company (as defined by Rule
      12b-2of the Exchange Act. Yes o  No x




APPLICABLE
      ONLY TO CORPORATE ISSUERS




As
      of
      August 14, 2007, there were 106,084,806 shares of Common Stock issued and
      outstanding.




Transitional
      Small Business Disclosure Format: Yes o     No
x




Table
          of Contents




EXPLANATORY
          NOTE
 
 As
          previously disclosed in our report on Form 8-K filed on November 19, 2007,
          the
          Board of Directors of Tidelands Oil & Gas Corporation, after discussions
          with our registered independent public accounting firm, determined that
          the
          accounting treatment of certain options issued to its directors (the “Options”)
          originally reported on its Quarterly Report of Form 10-Q for the three
          and six
          months ended June 30, 2007 was incorrect and required
          revision.   We are filing this amendment to the prior report on
          Form 10-Q for the period ended June 30, 2007 to make this
          correction.
 
 This
          Amendment corrects the accounting treatment of the Options to comply with
          the
          provisions of Financial Accounting Standards Board Statement No. 123 Share
          Based
          Payment (FAS 123(R)).  FAS 123(R) was adopted by the Company on
          January 1, 2006; however, with respect to the Options, the Company inadvertently
          failed to record the appropriate expense for such Options in accordance
          with FAS
          123(R).
 
 The
          Company uses the Black-Scholes option pricing model to compute the fair
          value of
          stock options, which requires the Company to make the following
          assumptions:
 
 ●
                The
                    risk-free interest rate is based on the short-term Treasury bond
                    at date
                    of grant.●
                The
                    dividend yield on the Company’s common stock is assumed to be zero since
                    the Company does not pay dividends and has no current plans to
                    do
                    so.
 
 ●
                The
                    market price volatility of the Company’s common stock is based on daily
                    historical prices for the twelve months previous to the grant
                    date.●
                The
                    term of the grants is the current year since all grants are vested
                    at the
                    time of the grants; therefore, the entire fair value of stock-based
                    compensation was recorded in 2007.
 
 We
          have
          also revised the related narrative as it relates to these changes in the
          condensed consolidated financial statements, including additional disclosure
          in
          the Notes thereto under the heading “Summary of Restated Interim Reports” and
          have revised the disclosure in Part I, Item 2 “Management’s Discussion and
          Analysis” and Part I, Item 4 “Controls and Procedures”.  In addition,
          currently-dated certifications from our Chief Executive Officer and Chief
          Financial Officer have been included as exhibits to this Amendment.
 
 Other
          than as set forth above, there
          are no other significant changes to the original 10-Q and this 10-Q/A does
          not
          reflect events occurring after the filing of the original 10-Q, or modify
          or
          update disclosures therein in any other way.


1
 Table
          of Contents






TIDELANDS
      OIL & GAS CORPORATION


FORM
      10-Q




Table
        of
        Contents


PART
                  I   Financial InformationItem
                  1
              Financial
                  Statements Unaudited
              3Condensed
                      Consolidated Balance Sheets as of  June 30, 2007 (Restated) and
                      December 31, 2006
              4Condensed
                    Consolidated Statements of Operations For the Three Months Ended June
                    30, 2007 (Restated) and 2006
              5Condensed
                      Consolidated Statements of Operations For the Six Months Ended
                      June 30,
                      2007 (Restated) and 2006
              6Condensed
                Consolidated Statements of Cash Flows For the Six Months Ended June
                30, 2007 (Restated) and 2006
              7Notes
                to Unaudited Condensed Consolidated Financial
                Statements
              8-19Item
                  2
              Management's
                  Discussion and Analysis of
                  Financial Condition and Results of Operations
              20Item
                  3
              Quantitative
                    and Qualitative Disclosures About Market
                    Risk
              23Item
                  4
              Controls
                and Procedures
              23PART
                  II  Other InformationItem
                  1
              Legal
                  Proceedings
              24Item
                  1A
              Risk
                  Factors
              24Item
                  2
              Unregistered
                  Sale Of Equity Securities And Use Of
                  Proceeds
              24Item
                  3
              Defaults
                  Upon Senior Securities
              25Item
                  4
              Submission
                  Of Matters To Vote Of Security
                  Holders
              25Item
                  5
              Other
                  Information
              25Item
                  6
              Exhibits
              25Signature






2
 Table
          of Contents




PART
        1 – FINANCIAL INFORMATION
 Item
        1. FinancialStatements
 TIDELANDS
                  OIL & GAS CORPORATIONCONDENSED
                  CONSOLIDATED BALANCE SHEETSASSETSJune
                    30,2007
              
              
              December
                    31,2006(Restated-
                  Note 7)(Unaudited)Current
                  Assets:Cash
              
              $
              85,762
              
              
              $
              367,437Accounts
                  and Other Receivable
              
              
              163,438
              
              
              
              388,754Inventory
              
              
              115,782
              
              
              
              84,030Prepaid
                  Expenses
              
              
              411,571
              
              
              
              148,551Total
                  Current Assets
              
              
              776,553
              
              
              
              988,772Property
                  Plant and Equipment, Net
              
              
              10,995,265
              
              
              
              12,364,359Other
                  Assets:Deposits
              
              
              187,324
              
              
              
              56,708Cash
                  Restricted
              
              
              53,703
              
              
              
              52,642Deferred
                  Charges
              
              
              0
              
              
              
              565,221Goodwill
              
              
              1,158,937
              
              
              
              1,158,937Total
                  Other Assets
              
              
              1,399,964
              
              
              
              1,833,508Total
                  Assets
              
              $
              13,171,782
              
              
              $
              15,186,639LIABILITIES
                  AND STOCKHOLDERS' EQUITYCurrent
                  Liabilities:Current
                  Maturities - Note Payable
              
              $
              7,303,290
              
              
              $
              225,000Accounts
                  Payable and Accrued Expenses
              
              
              2,381,748
              
              
              
              1,624,752Customer
                  Deposits
              
              
              9,150
              
              
              
              0Reserve
                  for Litigation
              
              
              2,250,000
              
              
              
              2,250,000Total
                  Current Liabilities
              
              
              11,944,188
              
              
              
              4,099,752Long-Term
                  Debt
              
              
              0
              
              
              
              8,934,294Total
                  Liabilities
              
              
              11,944,188
              
              
              
              13,034,046Stockholders’
                  Equity:Common
                  Stock, $.001 Par Value per Share,250,000,000
                  Shares Authorized, 104,908,344and
                  86,457,922 Shares Issued and Outstanding atJune
                  30, 2007 and December 31, 2006 Respectively
              
              
              104,909
              
              
              
              86,459Additional
                  Paid-in Capital
              
              
              55,434,193
              
              
              
              46,703,202Subscriptions
                  Receivable
              
              
              (110,000
              )
              
              
              (220,000
              )Minority
                  Interest
              
              
              -
              
              
              
              -Accumulated
                  (Deficit)
              
              
              (54,201,508
              )
              
              
              (44,417,068
              )Total
                  Stockholders’ Equity
              
              
              1,227,594
              
              
              
              2,152,593Total
                  Liabilities and Stockholders’ Equity
              
              $
              13,171,782
              
              
              $
              15,186,639See
                  Accompanying Notes to Unaudited Consolidated Financial
                  Statements
   3
 Table
            of Contents
    TIDELANDS
                  OIL & GAS CORPORATIONCONDENSED
                  CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)Three
                  Months Ended
              
              
              Three
                  Months EndedJune
                  30, 2007
              
              
              June
                  30, 2006(Restated)Revenues:Gas
                  Sales and Pipeline Fees
              
              $
              405,372
              
              
              $
              392,108Construction
                  Services
              
              
              78,627
              
              
              
              15,016Total
                  Revenues
              
              
              483,999
              
              
              
              407,124Expenses:Cost
                  of Sales
              
              
              206,876
              
              
              
              206,413Operating
                  Expenses
              
              
              92,732
              
              
              
              99,587Depreciation
              
              
              123,135
              
              
              
              116,038Impairment
                  Loss
              
              
              2,605,061
              
              
              
              0Interest
                  Expense
              
              
              182,322
              
              
              
              373,950Stock-Based
                  Compensation – Related Parties
              
              
              1,105,498
              
              
              
              597,500Sales,
                  General and Administrative
              
              
              834,858
              
              
              
              1,002,303Total
                  Expenses
              
              
              5,150,482
              
              
              
              2,395,791(Loss)
                  From Operations
              
              
              (4,666,483
              )
              
              
              (1,988,667
              )Other
                  Income (Expense)(Loss)
                  on Sale of Assets
              
              
              (6,888
              )
              
              
              0Interest
                  and Dividend Income
              
              
              7,249
              
              
              
              28,118Miscellaneous
              
              
              38
              
              
              
              0Total
                  Other Income (Expenses)
              
              
              399
              
              
              
              28,118Net
                  (Loss)
              
              $
              (4,666,084
              )
              
              $
              (1,960,549
              )Net
                  (Loss) Per Common Share:Basic
                  and
                  Diluted
              
              $
              (0.05
              )
              
              $
              (0.03
              )Weighted
                  Average Number of CommonShares
                  Outstanding
              
              
              101,798,627
              
              
              
              80,080,815See
                  Accompanying Notes to Unaudited Condensed Consolidated Financial
                  Statements
    4
 Table
            of Contents
   TIDELANDS
                  OIL & GAS CORPORATIONCONDENSED
                  CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)Six
                  Months Ended
              
              
              Six
                  Months EndedJune
                  30, 2007
              
              
              June
                  30, 2006(Restated)Revenues:Gas
                  Sales and Pipeline Fees
              
              $
              1,407,254
              
              
              $
              1,064,614Construction
                  Services
              
              
              180,716
              
              
              
              144,404Total
                  Revenues
              
              
              1,587,970
              
              
              
              1,209,018Expenses:Cost
                  of Sales
              
              
              774,597
              
              
              
              583,279Operating
                  Expenses
              
              
              176,103
              
              
              
              184,118Depreciation
              
              
              245,744
              
              
              
              231,802Impairment
                  Loss
              
              
              2,605,061
              
              
              
              0Interest
                  Expense
              
              
              528,426
              
              
              
              485,009Stock-Based
                  Compensation – Related Parties
              
              
              4,872,498
              
              
              
              1,187,400Sales,
                  General and Administrative
              
              
              2,171,005
              
              
              
              2,255,345Total
                  Expenses
              
              
              11,373,434
              
              
              
              4,926,953(Loss)
                  From Operations
              
              
              (9,785,464
              )
              
              
              (3,717,935
              )Other
                  Income (Expense)(Loss)
                  on Sale of Assets
              
              
              (6,888
              )
              
              
              0Interest
                  and Dividend Income
              
              
              7,874
              
              
              
              61,739Miscellaneous
              
              
              38
              
              
              
              0Total
                  Other Income (Expenses)
              
              
              1,024
              
              
              
              61,739Net
                  (Loss)
              
              $
              (9,784,440
              )
              
              $
              (3,656,196
              )Net
                  (Loss) Per Common Share:Basic
                  and
                  Diluted
              
              $
              (0.10
              )
              
              $
              (0.05
              )Weighted
                  Average Number of CommonShares
                  Outstanding
              
              
              95,683,133
              
              
              
              79,876,700See
                  Accompanying Notes to Unaudited Condensed Consolidated Financial
                  Statements
   5
 Table
            of Contents
   TIDELANDS
                  OIL & GAS CORPORATIONSTATEMENTS
                  OF CONDENSED CONSOLIDATED CASH FLOWS(UNAUDITED)Six
                  Months Ended
              
              
              Six
                  Months EndedJune
                  30, 2007
              
              
              June
                  30, 2006(Restated)Cash
                  Flows Provided (Required) ByOperating
                  Activities:Net
                  (Loss)
              
              $
              (9,784,440
              )
              
              $
              (3,656,196
              )Adjustments
                  to Reconcile Net (Loss)to
                  Net Cash Provided (Required) ByOperating
                  Activities:Depreciation
              
              
              245,744
              
              
              
              231,802Impairment
                  Loss
              
              
              2,605,061
              
              
              
              0Issuance
                  of Common Stock:For
                  Services Provided – Related Parties
              
              
              4,872,498
              
              
              
              1,187,400For
                  Services Provided – Other
              
              
              908,967
              
              
              
              311,900Changes
                  in:Accounts
                  Receivable
              
              
              225,316
              
              
              
              161,714Inventory
              
              
              (31,752
              )
              
              
              57,858Prepaid
                  Expenses
              
              
              (208,854
              )
              
              
              (115,873
              )Deferred
                  Charges
              
              
              565,221
              
              
              
              (1,264,245
              )Deposits
              
              
              (50
              )
              
              
              (60,000
              )Restricted
                  Cash
              
              
              (1,061
              )
              
              
              25,096Accounts
                  Payable and Accrued Expenses
              
              
              1,100,240
              
              
              
              (89,539
              )Customer
                  Deposits
              
              
              9,150
              
              
              
              0Net
                  Cash Provided (Required) By Operating Activities
              
              
              506,040
              
              
              
              (3,210,083
              )Cash
                  Flows (Required)By
                  Investing Activities:Proceeds
                  from Sale of Assets
              
              
              2,200
              
              
              
              0Acquisitions
                  of Property, Plant and Equipment
              
              
              (1,483,911
              )
              
              
              (1,383,436
              )Net
                  Cash (Required) By Investing Activities
              
              
              (1,481,711
              )
              
              
              (1,383,436
              )See
                  Accompanying Notes to Unaudited Condensed Consolidated Financial
                  Statements
    6
 Table
            of Contents
  TIDELANDS
                  OIL & GAS CORPORATIONSTATEMENTS
                  OF CONDENSED CONSOLIDATED CASH FLOWS(CONTINUED)(UNAUDITED)Six
                  Months Ended
              
              
              Six
                  Months EndedJune
                  30, 2007
              
              
              June
                  30, 2006(Restated)Cash
                  Flows Providedby
                  Financing Activities:Proceeds
                  from Stock Subscriptions Receivable
              
              
              0
              
              
              
              110,000Proceeds
                  from Exercise of Stock Option
              
              
              550,000
              
              
              
              0Proceeds
                  from Long-Term Loans
              
              
              0
              
              
              
              6,678,415Proceeds
                  from Short-Term Loan
              
              
              143,996
              
              
              
              0Repayment
                  of Loan by Related Party
              
              
              0
              
              
              
              3,219Net
                  Cash Provided by Financing Activities
              
              
              693,996
              
              
              
              6,791,634Net
                  Decrease (Increase) in Cash
              
              
              (281,675
              )
              
              
              2,198,115Cash
                  at Beginning of Period
              
              
              367,437
              
              
              
              1,113,911Cash
                  at End of Period
              
              $
              85,762
              
              
              $
              3,312,026Supplemental
                  Disclosures of Cash Flow Information:Cash
                  Payments for Interest
              
              $
              103,301
              
              
              $
              408,657Cash
                  Payments for Income Taxes
              
              $
              0
              
              
              $
              0Non-Cash
                  Investing and Financing Activities:Issuance
                  of Common Stock:Payments
                  of Accrued Expenses & Accounts Payable
              
              $
              343,244
              
              
              $
              445,000Conversion
                  of Debentures
              
              
              2,000,000
              
              
              
              0Legal
                  Fee – Retainer
              
              
              130,566
              
              
              
              0Prepaid
                  Legal Fees
              
              
              54,166
              
              
              
              0Cancellation
                  of Common Stock:In
                  Payment of Stock Subscription
              
              
              (110,000
              )
              
              
              0Total
                  Non-Cash Investing and Financing Activities
              
              $
              2,417,976
              
              
              $
              445,000See
                  Accompanying Notes to Unaudited Condensed Consolidated Financial
                  Statements
   7
 Table
            of Contents
   TIDELANDS
        OIL & GAS CORPORATION
 NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30, 2007
 (UNAUDITED)
 
 
 NOTE
        1–BASIS
        OF PRESENTATION
  The
        accompanying unaudited condensed consolidated financial statements for the
        six
        month periods ended June 30, 2007, and 2006, have been prepared in conformity
        with accounting principles generally accepted in the United States of America
        for interim financial information and with the instructions to Form 10-Q
        and
        Regulation S-X.  Please note that the prior year’s presentations for
        the Condensed Consolidated Statement of Operations and the Condensed
        Consolidated Statements of Cash Flows were changed to conform to current
        year’s
        presentation.  The financial information as of December 31, 2006, is
        derived from the registrant’s Form 10-K for the year ended December 31,
        2006.  Certain information or footnote disclosures normally included
        in financial statements prepared in accordance with accounting principles
        generally accepted in the United States of America have been condensed or
        omitted pursuant to the rules and regulations of the Securities and Exchange
        Commission.
  The
        preparation of condensed consolidated financial statements in conformity
        with
        accounting principles generally accepted in the United States of America
        requires management to make estimates and assumptions that affect the reported
        amounts of assets and liabilities at the date of the financial statements
        and
        the reported amounts of revenues and expenses during the reporting
        period.  Actual results could differ from those
        estimates.  In the opinion of management, the accompanying financial
        statements include all adjustments necessary (which are of a normal and
        recurring nature) for the fair presentation of the results of the interim
        periods presented.  While the registrant believes that the disclosures
        presented are adequate to keep the information from being misleading, it
        is
        suggested that these accompanying financial statements be read in conjunction
        with the registrant’s audited consolidated financial statements and notes for
        the year ended December 31, 2006, included in the registrant’s Form 10-K for the
        year ended December 31, 2006.
  Operating
        results for the six-month period ended June 30, 2007, are not necessarily
        indicative of the results that may be expected for the remainder of the fiscal
        year ending December 31, 2007.  The accompanying unaudited condensed
        consolidated financial statements include the accounts of the registrant,
        its
        wholly-owned subsidiaries, Rio Bravo Energy, LLC, Sonora Pipeline, LLC, Sonterra
        Energy Corporation, Arrecefe Management, LLC, Marea Associates, LP, Reef
        Ventures, LP, Reef International, LLC, Reef Marketing, LLC, Terranova Energia
        S.
        de R. L. de C. V., Esperanza Energy, LLC, and Tidelands Exploration &
Production Corporation.  All significant inter-company accounts and
        transactions have been eliminated in consolidation.
 
 
 
  8
 Table
            of Contents
  TIDELANDS
        OIL & GAS CORPORATION
 NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30, 2007
 (UNAUDITED)
 
 
 NOTE
        2– GOING
        CONCERN
  The
        Company has sustained recurring losses and negative cash flows from
        operations.  Over 2006, the Company’s growth had been funded through
        issuance of convertible debentures.  As of June 30, 2007, the Company
        had approximately $85,762 of unrestricted cash.  However, the Company
        has experienced and continues to experience negative cash flows from operations,
        as well as an ongoing requirement for substantial additional capital
        investment.  The Company needs to raise substantial additional capital
        to accomplish its business plan this year and over the next several
        years.  The Company is seeking to obtain such additional funding
        through private equity sources, from financial partners for some of its projects
        and the possible sale of certain operating assets along with a continued
        reduction of operating expenses.  There can be no assurance as to the
        availability or terms upon which such financing and capital might be available
        or that asset sales will be possible at suitable
        pricing.
  The
        Company’s ability to continue as a going concern will depend on management’s
        ability to successfully implement a business plan which will increase revenues,
        control costs, and obtain additional forms of debt and/or equity financing
        or
        financial partners.  These financial statements do not include any
        adjustments that might be necessary if the Company is unable to continue
        as a
        going concern.
   NOTE
        3– IMPAIRMENT
        CHARGE
  The
        Company incurred a non-cash impairment charge as of June 30, 2007, to reflect
        the difference between the carrying value and the market value of the affected
        asset which is its natural gas pipeline between Eagle Pass, Texas and
        Mexico.  The charge taken was $2,605,061 which reduced the gross value
        on the Company’s books to $3,501,194 from $6,106,255 before taking accumulated
        depreciation into account.
 
 
 9
 Table
            of Contents
 
 
  TIDELANDS
        OIL & GAS CORPORATION
 NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30, 2007
 (UNAUDITED)
 
  NOTE
        4– PROPERTY,
        PLANT AND EQUIPMENT
  A
        summary of property, plant and equipment at June 30, 2007 and December 31,
        2006
        is as follows:
  EstimatedJune
                    30,
                
                
                December
                    31,
                
                
                Economic2007
                
                
                2006
                
                
                LifePre-Construction
                    Costs:International
                    Crossings to Mexico
                
                $
                960,744
                
                
                $
                818,271
                
                
                
                N/AMexican
                    Gas Storage Facilityand
                    Related Pipelines
                
                
                2,679,894
                
                
                
                2,359,451
                
                
                
                N/ADomestic
                    LNG System
                
                
                2,572,852
                
                
                
                1,567,642
                
                
                
                N/ATotal
                
                
                6,213,490
                
                
                
                4,745,364Office
                    Furniture, Equipment andLeasehold
                    Improvements
                
                
                182,798
                
                
                
                185,174
                
                
                5
                    YearsPipeline
                    – Eagle Pass, TX to PiedrasNegras,
                    Mexico
                
                
                3,501,194
                
                
                
                6,106,255
                
                
                20
                    YearsTanks
                    & Lines – Propane DistributionSystem
                
                
                1,913,163
                
                
                
                1,908,247
                
                
                5
                    YearsMachinery
                    and Equipment
                
                
                75,185
                
                
                
                67,357
                
                
                5
                    YearsTrucks,
                    Autos and Trailers
                
                
                126,464
                
                
                
                126,464
                
                
                5
                    YearsPipeline
                    – South TX Gas Production
                
                
                490,000
                
                
                
                490,000
                
                
                15
                    YearsWell
                    Equipment
                
                
                2,371
                
                
                
                2,060
                
                
                5
                    YearsLeaseholds
                
                
                11,700
                
                
                
                10,000
                
                
                
                N/ATotal
                
                
                12,516,365
                
                
                
                13,640,921Less:
                    Accumulated Depreciation
                
                
                1,521,100
                
                
                
                1,276,562Net
                    Property, Plant and Equipment
                
                $
                10,995,265
                
                
                $
                12,364,359
 Depreciation
        expense for the six months ended June 30, 2007 and for the year ended December
        31, 2006 was $245,744 and $466,241 respectively.
  NOTE
        5–
LONG-TERM
        DEBT
  A
        summary of long-term debt at June 30, 2007 and December 31, 2006 is as
        follows:
  June
                    30,
                
                
                December
                    31,2007
                
                
                2006Note
                    Payable, Secured by Reef InternationalPipeline,
                    Interest Bearing at 2% Over PrimeRate,
                    Maturing May 25, 2008
                
                $
                4,928,999
                
                
                $
                4,785,003Convertible
                    Debentures, Unsecured,Including
                    Prepaid Interest, MaturingJanuary
                    20, 2008
                
                
                2,374,291
                
                
                
                4,374,2917,303,290
                
                
                
                9,159,294Less:
                    Current Maturities
                
                
                7,303,290
                
                
                
                225,000Total Long-Term
                    Debt
                
                $
                0
                
                
                $
                8,934,294
    10
 Table
            of Contents
  TIDELANDS
        OIL & GAS CORPORATION
 NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30, 2007
 (UNAUDITED)
 
 
 NOTE
        6– COMMON
        STOCK TRANSACTIONS
  On
        April 2, 2007, the Company issued 246,212 shares of its common stock valued
        at
        $54,167 to law firm for 2007 legal services related to securities law
        matters.
  On
        April 4, 2007, the Company issued 125,000 shares of its restricted common
        stock
        valued at $25,000 for 2007 investor public relations
        services.
  On
        April 10, 2007, the Company issued 1,190,476 shares of its common stock to
        a
        Director for $250,000 as a result of his exercise of stock options at $0.21
        per
        share.
  On
        April 16, 2007, the Company issued 53,441 shares of its common stock to a
        Director/Officer valued at $8,551 as compensation for services and related
        costs.
  On
        April 18, 2007, the Company issued 50,000 shares of its common stock to an
        officer valued at $8,000 in accordance with his employment
        contract.
  On
        May 9, 2007, the Company issued 103,478 shares of its common stock to a
        Director/Officer valued at $10,348 as compensation for services and related
        costs.
  On
        May 10, 2007, the Company issued 476,190 shares of its common stock to a
        Director for $100,000 as a result of his exercise of stock options at $0.21
        per
        share.
  On
        May 22, 2007, the Company issued 641,667 shares of its common stock valued
        at
        $77,000 to a law firm for future services regarding ongoing
        litigation.
  On
        May 30, 2007, the Company issued 2,692,308 shares of its common stock valued
        at
        $350,000 for future legal services connected with listing its stock on European
        stock exchanges.
  On
        June 1, 2007, the Company issued 40,663 shares of its common stock to a
        Director/Officer valued at $6,099 as compensation for services and related
        costs.
  On
        June 6, 2007, the Company issued a total of 600,000 shares of its restricted
        common stock valued at $90,000 as stock bonuses to two officers and an
        employee.
 
 
  11
 Table
            of Contents
  TIDELANDS
        OIL & GAS CORPORATION
 NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30, 2007
 (UNAUDITED)
 
 
 NOTE
        7– SUMMARY
        OF RESTATED INTERIM REPORT
  On
        November 14, 2007, the Board of Directors of Tidelands Oil & Gas Corporation
        (the “Company”), determined that the accounting treatment of certain options
        issued to its directors (the “Options”) originally reported on its (i) Quarterly
        Report of Form 10-Q for the three months ended March 31, 2007, and (ii)
        Quarterly Report for the three and six months ended June 30, 2007 (the “Prior
        Reports”), was incorrect and required revision.  Therefore, the Board of
        Directors has determined that the financial statements in the Company’s Prior
        Reports should not be relied upon and should be
        restated.
  The
        adjustments to the Prior Reports listed below correct the accounting treatment
        of the Options to comply with the provisions of Financial Accounting Standards
        Board Statement No. 123 Share Based Payment (FAS 123(R)).  FAS 123(R) was
        adopted by the Company on January 1, 2006; however, with respect to the Options,
        the Company inadvertently failed to record the appropriate expense for such
        Options in accordance with FAS 123(R).
  The
        Company uses the Black-Scholes option pricing model to compute the fair value
        of
        stock options, which requires the Company to make the following
        assumptions:
  §
              The
                  risk-free interest rate is based on the short-term Treasury bond
                  at date
                  of grant.
 §
              The
                  dividend yield on the Company’s common stock is assumed to be zero since
                  the Company does not pay dividends and has no current plans to
                  do
                  so.
 §
              The
                  market price volatility of the Company’s common stock is based on daily
                  historical prices for the twelve months previous to the grant
                  date.
 §
              The
                  term of the grants is the current year since all grants are vested
                  at the
                  time of the grants; therefore, the entire fair value of stock-based
                  compensation was recorded in 2007.
 
 The
        Company has now recognized the fair value stock option compensation expense
        as
        follows:
  Quarterly
                    Report of 10-Q for the Three Months Ended March 31, 2007
                
                $
                2,667,000Quarterly
                    Report of 10-Q for the Three Months Ended June 30, 2007
                
                
                971,000Total
                    for the Six Months Ended June 30, 2007
                
                $
                3,638,000
 
  12
 Table
            of Contents
 
 TIDELANDS
        OIL & GAS CORPORATION
 NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30, 2007
 (UNAUDITED)
 
 
 NOTE
        7– SUMMARY
        OF RESTATED INTERIM REPORTS (CONTINUED)
  The
        transactions referred to above relate to non-cash charges and did not affect
        the
        Company’s revenues, cash flows from operations, liquidity, assets, liabilities
        or total stockholders’ equity.
 
 Three
                  Months Ended March 31,
                  2007Previously
              
              
              
              Restatement
              
              
              RestatedReported
              
              
              
              Adjustment
              
              
              AmountConsolidated
                  Balance Sheets:Total
                  Assets
              
              $
              15,475,483
              
              
              
              $
              -
              
              
              $
              15,475,483Total
                  Liabilities
              
              
              11,531,967
              
              
              
              
              -
              
              
              
              11,531,967Stockholders’
                  EquityCommon
                  Stock
              
              
              98,690
              
              
              
              
              -
              
              
              
              98,690Additional
                  Paid-in Capital
              
              
              50,823,250
              
              
              
              
              2,667,000
              
              (1)
              
              53,490,250Subscriptions
                  Receivable
              
              
              (110,000
              )
              
              
              
              -
              
              
              
              (110,000
              )Accumulated
                  Deficit
              
              
              (46,868,424
              )
              
              
              
              (2,667,000
              )
              (3)
              
              (49,535,424
              )Total
                  Stockholders’ Equity
              
              $
              3,943,516
              
              
              
              $
              -
              
              
              $
              3,943,516Consolidated
                  Statement of Operations:Revenues
              
              $
              1,103,971
              
              
              
              $
              -
              
              
              $
              1,103,971Expenses
              
              
              3,555,952
              
              
              
              
              2,667,000
              
              (2)
              
              6,222,952Net
                  (Loss) from Operations
              
              
              (2,451,981
              )
              
              
              
              (2,667,000
              )
              
              
              (5,118,981
              )Other
                  Income
              
              
              625
              
              
              
              
              -
              
              
              
              625Net
                  (Loss)
              
              $
              (2,451,356
              )
              
              
              $
              (2,667,000
              )
              
              $
              (5,118,356
              )Net
                  (Loss) per Common Share:Basic
                  and
                  Diluted
              
              $
              (0.03
              )
              
              
              
              
              
              
              $
              (0.06
              )Weighted
                  Average Number of Common Shares Outstanding:Basic
                  and
                  Diluted
              
              
              92,573,416
              
              
              
              
              
              
              
              
              92,573,416
  (1)
                Adjust
                    additional paid-in capital to record fair value of stock options
                    issued.(2)
                Adjust
                    expenses to reflect fair value of stock-based
                    compensation.(3)
                Adjust
                    accumulated deficit to reflect additional losses as a result
                    of
                    stock-based compensation expense.
   13
 Table
            of Contents
  TIDELANDS
        OIL & GAS CORPORATION
 NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30, 2007
 (UNAUDITED)
 
 
 NOTE
        7– SUMMARY
        OF RESTATED INTERIM REPORTS (CONTINUED)
 
 SUMMARY
                  OF RESTATED FINANCIAL STATEMENTSSix
                  Months Ended June 30,
                  2007Previously
              
              
              
              Restatement
              
              
              RestatedReported
              
              
              
              Adjustment
              
              
              AmountConsolidated
                  Balance Sheets:Total
                  Assets
              
              $
              13,171,782
              
              
              
              $
              -
              
              
              $
              13,171,782Total
                  Liabilities
              
              
              11,944,188
              
              
              
              
              -
              
              
              
              11,944,188Stockholders’
                  EquityCommon
                  Stock
              
              
              
              104,909
              
              
              
              
              -
              
              
              
              104,909Additional
                  Paid-in Capital
              
              
              
              51,796,193
              
              
              
              
              3,638,000
              
              (1)
              
              55,434,193Subscriptions
                  Receivable
              
              
              
              (110,000
              )
              
              
              
              -
              
              
              
              (110,000
              )Accumulated
                  Deficit
              
              
              
              (50,563,508
              )
              
              
              
              (3,638,000
              )
              (3)
              
              (54,201,508
              )Total
                  Stockholders’ Equity
              
              $
              1,227,594
              
              
              
              $
              -
              
              
              $
              1,227,594Consolidated
                  Statement of Operations:Revenues
              
              $
              1,587,970
              
              
              
              $
              -
              
              
              $
              1,587,970Expenses
              
              
              7,735,434
              
              
              
              
              3,638,000
              
              (2)
              
              11,373,434Net
                  (Loss) from Operations
              
              
              (6,147,464
              )
              
              
              
              (3,638,000
              )
              
              
              (9,785,464
              )Other
                  Income
              
              
              1,024
              
              
              
              
              -
              
              
              
              1,024Net
                  (Loss)
              
              $
              (6,146,440
              )
              
              
              $
              (3,638,000
              )
              
              $
              (9,784,440
              )Net
                  (Loss) per Common Share:Basic
                  and
                  Diluted
              
              $
              (0.06
              )
              
              
              
              
              
              
              $
              (0.10
              )Weighted
                  Average Number of Common Shares Outstanding:Basic
                  and
                  Diluted
              
              
              95,683,133
              
              
              
              
              
              
              
              
              95,683,133
   (1)
              Adjust
                  additional paid-in capital to record fair value of stock options
                  issued.(2)
              Adjust
                  expenses to reflect fair value of stock-based
                  compensation.(3)
              Adjust
                  accumulated deficit to reflect additional losses as a result of
                  stock-based compensation expense.
   
 
 14
 Table
            of Contents
  TIDELANDS
        OIL & GAS CORPORATION
 NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30, 2007
 (UNAUDITED)
 
 
 NOTE
        8– RELATED
        PARTY TRANSACTION
  During
        the quarter, the Company issued 197,582 shares of common stock valued at
        $24,998
        to one outside Director for Corporate Secretary services and related
        costs.
   NOTE
        9– LITIGATION
  Matter
        No. 1:
 On
        January 6, 2003, we were served as a third party defendant in a lawsuit titled
        Northern Natural Gas Company vs. Betty Lou Sheerin vs. Tidelands Oil & Gas
        Corporation, ZG Gathering, Ltd. and Ken Lay, in the 150th Judicial District
        Court, Bexar County, Texas, Cause Number 2002-C1-16421. The lawsuit was
        initiated by Northern Natural Gas (“Northern”) when it sued Betty Lou Sheerin
        (“Sheerin”) for her failure to make payments on a note she executed payable to
        Northern in the original principal amount of $1,950,000. Northern's suit
        was
        filed on November 13, 2002. Sheerin answered Northern's lawsuit on January
        6,
        2003. Sheerin's answer generally denied Northern's claims and raised the
        affirmative defenses of fraudulent inducement by Northern, estoppel, waiver
        and
        the further claim that the note does not comport with the legal requirements
        of
        a negotiable instrument. Sheerin seeks a judicial ruling that Northern be
        denied
        any recovery on the note. Sheerin's answer included a counterclaim against
        Northern, ZG Gathering, and Ken Lay generally alleging, among other things,
        that
        Northern, ZG Gathering, Ltd. and Ken Lay, fraudulently induced her execution
        of
        the note. Northern has filed a general denial of Sheerin's counterclaims.
        Sheerin's answer included a third party cross claim against Tidelands Oil
        and
        Gas Corporation (“Tidelands”). She alleges that Tidelands entered into an
        agreement to purchase the Zavala Gathering System from ZG Gathering Ltd.
        and
        that, as a part of the agreement, Tidelands agreed to satisfy all of the
        obligations due and owing to Northern, thereby relieving Sheerin of all
        obligations she had to Northern on the $1,950,000 promissory note in
        question.
 
 
 
 
 
 15
 Table
            of Contents
   TIDELANDS
        OIL & GAS CORPORATION
 NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30, 2007
 (UNAUDITED)
 
 
 NOTE
        9– LITIGATION
        (CONTINUED)
  Matter
        No. 1: (Continued)
 In
        September 2002, as a pre-closing deposit to the
        purchase of the Zavala Gathering System, the Company executed a $300,000
        promissory note to Betty L. Sheerin, a partner of ZG Gathering, Ltd. In
        addition, the Company issued 1,000,000 shares of its common stock to various
        partners of ZG Gathering, Ltd. On December 3, 2003, Sheerin filed a separate
        lawsuit against Tidelands in the 150th District Court of Bexar County, Texas
        on
        this promissory note seeking a judgment against Tidelands for the principle
        amount of the note, plus interest. On December 29th,2003, Tidelands answered this lawsuit
        denying
        liability on the note. On April 1, 2004, Tidelands filed a plea in abatement
        asking the court to dismiss or abate Sheerin's lawsuit on the $300,000
        promissory note as it was related to and its outcome was dependent on the
        outcome of the Sheerin third party cross action against Tidelands in Cause
        Number 2002-C1-16421. The Company believes that the promissory note and shares
        of common stock should be cancelled based upon the outcome of the litigation
        described above. Accordingly, our financial statements reflect this
        belief.
  On
        September 15, 2004 and again on October 15, 2004 respectively, Sheerin amended
        her pleadings to include a third and fourth amended third party cross action
        against Tidelands adding a claim for the $300,000 promissory note. After
        adding
        the claim on the $300,000 promissory note to the third party claims of Sheerin
        against Tidelands in Cause No. 2002-C1-16421, Sheerin dismissed Cause Number
        2002-C1-16421.
  Tidelands
        won a partial summary judgment against Sheerin as to all of her tort claims
        pled
        against Tidelands, save and except only her claim for conversion of 500,000
        shares of Tidelands’ stock.
  Sheerin
        seeks damages against Tidelands for indemnity for any sums found to be due
        from
        her to Northern, unspecified amounts of actual damages, statutory damages,
        unspecified amounts of exemplary damages, attorneys fees, costs of suit,
        and
        prejudgment and post judgment interest.
 
 
 
 
 
 16
 Table
            of Contents
 
 
 
 
 
 
  TIDELANDS
        OIL & GAS CORPORATION
 NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30, 2007
 (UNAUDITED)
 
 
 NOTE
        9– LITIGATION
        (CONTINUED)
  Matter
        No. 1: (Continued)
 On
        November 28, 2005, ZG Gathering, Ltd. and ZG Pipeline Management ("ZG") filed
        its answer to Northern's Fifth Amended Petition, its counter-claim against
        Northern, and its answer and cross claim against Tidelands. ZG contends that
        the
        promissory notes given by ZG and Sheerin to Northern were procured by Northern's
        fraudulent misrepresentations and it claims unspecified amounts of damages
        against Northern. ZG's cross action against Tidelands claims Tidelands entered
        into an agreement to purchase the Zavala Gathering System from ZG and that,
        as
        part of that agreement, Tidelands agreed to satisfy the $3,700,914 Northern
        indebtedness of ZG, and to defend, indemnify, and hold ZG and Sheerin harmless
        from such indebtedness, to pay off a Sheerin loan of $300,000, and to issue
        1
        million shares of Tidelands’ stock, of which 500,000 was to be free trading
        shares. ZG claims that Tidelands breached this agreement by failing to satisfy
        the Northern indebtedness, failing to defend and indemnify it from such debt,
        failing to pay off the $300,000 note, failing to issue the free trading shares
        in Tidelands, and by placing a stop transfer order on the restricted stock
        that
        was issued by Tidelands. ZG seeks specific performance of the agreement,
        recovery of an unspecified amount of damages, and its attorney's
        fees.
  On
        March 16, 2006, the Court denied Tidelands’ motion for summary judgment against
        Sheerin on Tidelands’ affirmative defense of mutual mistake.  On July
        19, 2006, the Court denied ZG’s motion for summary judgment to strike Tidelands’
affirmative defense of mutual mistake.
  The
        trial date has been extended to January 9, 2008, by mutual agreement of the
        litigants unless a settlement is reached before that date.  The
        parties are continuing with settlement negotiations and the Company is hopeful
        that an agreement will be concluded prior to the end of the
        year.  Based on negotiations, the Company has reserved $2,250,000 as
        an estimated litigation settlement and that amount has been included in this
        report.
 
 
 
 
 
 
 
 
 17
 Table
            of Contents
   TIDELANDS
        OIL & GAS CORPORATION
 NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30, 2007
 (UNAUDITED)
 
 
 NOTE
        9– LITIGATION
        (CONTINUED)
  Matter
        No. 2:
 Cause
        No. GN 500948, Goodson Builders, Ltd., Plaintiff, vs. Jim Blackwell, BNC
        Engineering, Et. Al, Defendants, was filed April 7, 2005, in the 345th District
        Court of Travis County, Texas.  This case involves a claim that
        Defendant Toll Brothers Property, LP (“Toll Brothers”) sold Plaintiff Goodson
        Builder, Ltd. (“Plaintiff” or “Goodson”) property without disclosing a propane
        easement.  Plaintiff sued Sonterra Energy Corp. (“Sonterra”) for
        trespassing through the use of the easement.  Goodson’s primary claim
        is against the seller for fraud and non-disclosure.  Toll Brothers has
        responded with a claim for sanctions because the claim is
        frivolous.  Toll Brothers offers a witness who is Plaintiff’s former
        employee and took pictures of the propane tank prior to the Plaintiff’s
        purchase.  Goodson seeks damages in the hundreds of thousands of
        dollars.  Insurance would not cover these
        damages.
  The
        case is pending summary judgment.  The Company is contesting the case
        vigorously.
  Matter
        No. 3:
 Cause
        No. GM 501625, Senna Hills, Ltd., Plaintiff, vs. Sonterra Energy Corp.,
        Defendant, was filed in the 53rd Judicial District of Travis County, Texas
        and
        Cause No. GN 501626, HBH Development Co., LLC, Plaintiff, vs. Sonterra Energy
        Corp., Defendant, was filed in the 98th
        Judicial District Court of Travis County, Texas.  The above matters
        were each filed against Sonterra in May 2005 and involve the same claims
        arising
        from the same propane service agreement.  In each case, the plaintiff
        initially brought claims against Sonterra arising from Sonterra’s failure, as an
        assignee of the agreement, to pay easement use fees to the
        plaintiff.  Sonterra obtained summary judgment as to the plaintiffs’
respective breach of contract and failure of assignment claims arising from
        the
        failure to pay easement use fees.  The cases were not, however, fully
        dismissed because the plaintiffs added new causes of action for failure to
        pay
        easement use fees, claims for unpaid developer bonus, reformation of the
        agreements to require payment of easement use fees and alleged failure of
        assignment.  These separate lawsuits have since been consolidated into
        one suit for purposes of pretrial and trial.  The trial date will
        likely be reset in September 2007; however, the Company expects to file a
        motion
        for summary judgment prior to September 1st.
 
 
 
 
  18
 Table
            of Contents
  TIDELANDS
        OIL & GAS CORPORATION
 NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
        30, 2007
 (UNAUDITED)
 
 
 NOTE
        9– LITIGATION
        (CONTINUED)
  Matter
        No. 4:
 Cause
        No. 2007-CI-07451, Michael R. Ward vs. Tidelands Oil & Gas Corporation, was
        filed on May 17, 2007 in the 224th
        District Court of Bexar County, Texas. This case involves two claims by the
        Plaintiff, Michael R. Ward, the former President and CEO of Tidelands Oil
&
Gas Corporation against the Company. The first claim is for a breach of the
        Letter Agreement dated December 8, 2006 alleging a failure to pay Ward’s salary
        for the months of March through June 2007 pursuant to the terms of said Letter
        Agreement. The second claim involves an allegation by Ward that the Company
        prevented Ward from selling 1,650,000 shares of Company stock during the
        period
        of February 20, 2007 through April 4, 2007 and that Ward suffered economic
        damages as a result of a decline in share price during the relevant time
        periods. The Company filed a general denial on June 27, 2007. On July 18,
        2007,
        Plaintiff Ward filed a Motion for Partial Summary Judgment with respect to
        the
        first claim for breach of the Letter Agreement, a Motion setting the case
        for
        trial on the second claim for September 28, 2007, and discovery notices.
        On
        August 7, 2007, the Company filed an abatement request requesting Court ordered
        mediation pursuant to the Letter Agreement of December 8, 2006. The Company
        expects that its request for mediation will be honored by the Court and that
        the
        case will be set for mediation in September 2007.
  Matter
        No. 5:
 Cause
        No. 2007-CI 11661, Bentley Energy Corp. vs. Tidelands Exploration &
Production, Inc. (Please
        note
        that the suit was filed with incorrect corporate name.  It should be
        Tidelands Exploration & Production Corp.) was filed on August 7, 2007
        in the 407th
        District Court of Bexar County, Texas. This case involves a claim for breach
        of
        the Joint Operating Agreement and Participation Agreement between Tidelands
        Exploration & Production Corp. (“TEP”) and Bentley Energy Corp. (“BENTLEY”),
        as Assignee of Regency Energy, Inc. (“REGENCY”). BENTLEY is majority owned by
        Michael R. Ward, the former President and CEO of Tidelands Oil & Gas
        Corporation, which is the parent company for TEP. REGENCY is majority owned
        by
        Royis Ward, a former director of Tidelands Oil & Gas Corporation and the
        father of Michael R. Ward. Pursuant to the terms of the Joint Operating
        Agreement, TEP, as non-operator, granted REGENCY a lien or security interest
        in
        all the oil and gas leases and pipelines covered by the Joint Operating
        Agreement. BENTLEY seeks foreclosure of these interests due to TEP’s failure to
        pay joint interest billings under the Joint Operating Agreement. TEP has
        not yet
        filed an answer to this lawsuit, but expects to reply in the near future.
  In
        accordance with Statement of Financial Accounting Standards No. 5, “Accounting
        for Contingencies,” management has reached the conclusion that there is a remote
        possibility that the claims enumerated in Matters No. 2, 3, 4 and 5 above
        would
        be upheld at trial and has also determined that the amount of the claims
        cannot
        be reasonably estimated.  Accordingly, the Company’s financial
        statements reflect no accrual of a loss contingency with respect to these
        legal
        matters.







19
 Table
          of Contents




Item2.
      Management's Discussion and Analysis of Financial
      Condition and Results of Operations




Forward-Looking
      Statements




We
      have
      included forward-looking statements in this report. For this purpose, any
      statements contained in this report that are not statements of historical fact
      may be deemed to be forward-looking statements. Without limiting the foregoing,
      words such as "may", "will", "expect", "believe", "anticipate", "estimate",
      "plan" or "continue" or the negative or other variations thereof or comparable
      terminology are intended to identify forward-looking statements. These
      statements by their nature involve substantial risks and uncertainties, and
      actual results may differ materially depending on a variety of factors. Factors
      that might cause forward-looking statements to differ materially from actual
      results include, among other things, overall economic and business conditions,
      demand for the Company's products, competitive factors in the industries in
      which we compete or intend to compete, natural gas availability and cost and
      timing, impact and other uncertainties of our future acquisition
      plans.




Business
      Overview




Our
      products and services are primarily focused on development and operation of
      transportation, processing, distribution and storage projects of natural gas
      and
      natural gas liquids in the northeastern states of Mexico (Coahuila, Nuevo Leon
      and Tamaulipas) and the states of Texas and California in the United States
      of
      America.




We
      derive
      our revenue from transportation fees from delivery of natural gas to Conagas,
      the local distribution company in Piedras Negras, Coahuila, through the pipeline
      owned by Reef Ventures, LP and the sale of propane gas to residential customers
      through the assets owned by Sonterra Energy Corporation (“Sonterra”). Sonterra
      also designs and constructs residential propane delivery systems for new
      residential developments in Central Texas. We derive revenue from this activity
      in two ways, the first being from construction revenue for yard lines and meter
      sets installed to a homeowner's lot, and the second being the sale of LPG gas
      to
      customers in the residential subdivisions. Sonterra Energy Corporation has
      recently begun performing construction services for third-party utility
      companies in order to more efficiently utilize its existing expertise and
      assets.




Recent
      Developments




On
      July
      12, 2007, Sonora Pipeline, LLC (“Sonora”), a wholly-owned subsidiary of the
      Company, announced that it had received the following authorizations from the
      Federal Energy Regulatory Commission (“FERC”), with respect to the Mission and
      Progreso International Pipelines:




A
      Presidential Permit and authorization to site, construct, operate and maintain
      two bi-directional border crossing natural gas facilities at the international
      boundary between the United States and Mexico; and




A
      Certificate of public convenience and necessity to site, construct, operate
      and
      maintain the United States portion of a pipeline system consisting of
      approximately 29 miles of 30-inch diameter pipeline and appurtenant facilities
      that will extend into Mexico via two border crossings, all to be located in
      Hidalgo County, Texas.




These
      natural gas pipelines in the United States will interconnect with the pipeline
      system being developed by another wholly-owned subsidiary of the Company,
      Terranova Energia, S. de R.L. de C.V. (“Terranova”). Terranova previously
      received approval from the Comision Reguladora de Energia (“CRE”) for the
      interconnecting pipeline segments in Mexico on May 23, 2006.




The
      pipeline systems in the United States and Mexico are known as the Burgos Hub
      Export/Import Project which is being developed to serve the demand for
      importation of natural gas into Mexico, which is expected to increase
      dramatically beginning in the year 2010. The pipelines will also be
      interconnected with a proposed underground natural gas storage facility being
      developed by Terranova to serve Mexican power generation and industrial customer
      needs for management of swings in demand and seasonal spread in natural gas
      prices. Terranova has previously applied for a permit to construct and operate
      the storage facility with the CRE and is expecting a decision on the application
      in the third quarter of 2007.  The current catalog of FERC
      correspondence for Sonora’s activities is located at www.ferc.gov under
      Docket No. PF07-74 et sequence.




On
      March
      7, 2007, Esperanza Energy, LLC (“Esperanza”) announced plans to file
      applications with state and federal agencies to build a floating liquefied
      natural gas (“LNG”) receiving facility 15 miles off the Port of Long Beach,
      California. The project, named Port Esperanza, will bring natural gas to the
      Southern California marketplace. Esperanza plans to formally file its
      application in early 2008. The LNG receiving facility has attracted the
      commercial interest of several parties who could participate as co-venturers
      and/or gas purchasers. More information is available at www.esperanza-energy.com.




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Results
      of Operations





THREE
      MONTHS ENDED JUNE 30,
      2007 COMPARED TO THREE MONTHS ENDED JUNE 30, 2006





REVENUES:
      The Company reported revenues of $483,999 for the three months ended June 30,
      2007 compared to revenues of $407,124 for the three months ended June 30, 2006
      which is an improvement of 18.9 percent for the three months ended June 30,
      2007
      versus the three months ended June 30, 2006. The revenue increase resulted
      from
      increasing volumes and product prices for propane sold by our Sonterra Energy
      Corporation subsidiary to residential customers.





TOTAL
          COSTS AND EXPENSES: Total Costs and Expenses for the three months ended
          June 30,
          2007 were $5,150,482 versus $2,395,791 for the three months ended June
          30, 2006.
          The primary reason for the increase in Total Costs and Expenses was the
          non-cash
          impairment loss of $2,605,061 incurred during the three months ended June
          30,
          2007 versus no impairment loss for the three months ended June 30, 2006,
          as well
          as an increase occurred in stock based compensation due to issuances of
          common
          stock and options for services of directors.
 
 NET
          INCOME (LOSS): Net Loss for the three months ended June 30, 2007 was $4,666,483
          versus the Net Loss of $1,960,548 for the three months ended June 30, 2006.
          The
          Impairment Loss of $2,605,061 materially affected the increase in Net Loss,
          as
          well as an increase in stock based compensation due to issuances of common
          stock
          and options for services of directors for the three months ended June 30,
          2007
          versus the three months ended June 30, 2006.


SIX
      MONTHS ENDED JUNE 30,
      2007 COMPARED TO SIX MONTHS ENDED JUNE 30, 2006





REVENUES:  The
      Company reported revenues of $1,587,970 for the six months ended June 30, 2007
      as compared with revenues of $1,209,018 for the six months ended June 30, 2006,
      which is a 31% increase in revenue for the six months ended June 30, 2007
      compared to the six months ended June 30, 2006. Revenues from Reef Ventures,
      LP
      decreased to $78,533 for the six months ended June 30, 2007 compared to $123,076
      for the six months ended June 30, 2006. The decrease was due to lower volumes
      of
      gas transported in Mexico through the 12-inch natural gas pipeline owned by
      Reef
      Ventures, LP. Revenues from Sonterra Energy Corporation increased to $1,472,492
      for the six months ended June 30, 2007 compared to $ 1,085,942 for the six
      months ended June 30, 2006. Gas sales at Sonterra increased to $1,291,776 for
      the six months ended June 30, 2007 compared to $941,538 for the six months
      ended
      June 30, 2006. The increase in gas sales was primarily due to an increase in
      total customers served by Sonterra Energy Corporation. Construction services
      revenues at Sonterra increased to $180,716 for the six months ended June 30,
      2007 compared to $144,404 for the six months ended June 30, 2006. Revenues
      from
      Tidelands Exploration & Production Corporation were $36,945 for the six
      months ended June 30, 2007 compared to $0 for the six months ended June 30,
      2006.





TOTAL
          COSTS AND EXPENSES:  Total costs and expenses increased to $11,373,434
          for the six months ended June 30, 2007 compared to $4,926,953 for the six
          months
          ended June 30, 2006. The most significant increase in costs occurred from
          an
          impairment loss of $2,605,061 incurred with respect to the natural gas
          pipeline
          owned by Reef Ventures, LP and an increase in stock based compensation
          due to
          issuances of common stock and options for services of
          directors.


COST
      OF
      SALES:  Cost of sales increased to $774,597 for the six months ended
      June 30, 2007 compared to $583,279 for the six months ended June 30, 2006.
      The
      increase was due primarily to increased cost and volume of propane sold through
      our Sonterra Energy Corporation subsidiary. Cost of sales for Tidelands
      Exploration & Production Corporation were $13,740 for the six months ended
      June 30, 2007 compared to $0 for the six months ended June 30,
      2006.





OPERATING
      EXPENSES:  Operating expenses decreased to $176,103 for the six months
      ended June 30, 2007 compared to $184,118 for the six months ended June 30,
      2006.
      This decrease was primarily attributable to reduced operating costs from
      Sonterra Energy Corporation.





DEPRECIATION
      EXPENSE: Depreciation Expense increased to $245,744 for the six months ended
      June 30, 2007 compared to $231,802 for the six months ended June 30, 2006.
      The
      increase in depreciation expense is primarily from the additions of depreciable
      property in the Tidelands Exploration & Production Corporation
      subsidiary.





INTEREST
      EXPENSE:  Interest expense increased to $528,426 for the six months
      ended June 30, 2007 compared to $485,009 for the six months ended June 30,
      2006.
      The increase of $43,417 resulted primarily from additional interest expense
      associated with the promissory note due to Impact International, LLC and the
      increased write-off of prepaid interest relating to a 2006 financing
      transaction.





STOCK-BASED
          COMPENSATION – RELATED PARTIES: Stock-based compensation to related parties
          increased to $4,872,498 for the six months ended June 30, 2007 compared
          to
          $1,187,400 for the six months ended June 30, 2006. The increase resulted
          primarily from issuances of common stock and options for services of directors,
          partially offset by a reduction of stock-based compensation paid to the
          Chief
          Executive Officer.


STOCK-BASED
      COMPENSATION – OTHER: Stock-based compensation for services provided by others
      increased to $908,967 for the six months ended June 30, 2007 compared to
      $311,900 for the six months ended June 30, 2006. The increase of $597,067 was
      primarily due to legal fees paid by issuance of common stock.





SALES,
      GENERAL AND ADMINISTRATIVE:  Sales, General and Administrative Costs
      decreased to $2,171,005 for the six months ended June 30, 2007 compared to
      $2,255,345 for the six months ended June 30, 2006. This decrease resulted from
      cumulative cost reductions across many categories of Sales, General and
      Administrative expenses and was offset by an increase in legal fees and costs
      for the three months ended June 30, 2007 as compared with the three months
      ended
      June 30, 2006.. Of the total Sales, General and Administrative Costs of
      $2,171,005 for the six months ended June 30, 2007, $908,917 of these costs
      were
      paid by issuance of common stock and the remaining $1,262,080 of costs were
      paid
      with cash.




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IMPAIRMENT
      LOSS: Impairment Loss increased to $2,605,061 for the six months ended June
      30,
      2007 as compared to $0 for the six months ended June 30, 2006. The increase
      in
      loss resulted from a non-cash impairment charge to reflect the difference
      between the carrying value and the fair value of the natural gas pipeline assets
      owned by the Company’s subsidiary operations of Reef Ventures, LP. The amount of
      impairment charge was derived by reference to a third party valuation of the
      assets based upon current and expected future cash flows from the operation
      of
      the assets.





INTEREST
      AND DIVIDEND INCOME:  Interest and Dividend income decreased to $7,874
      for the six months ended June 30, 2007 as compared to $61,739 for the six months
      ended June 30, 2006 due to lower cash balances held in interest-bearing accounts
      during the six months ended June 30, 2007.





NET
          LOSS:  Net loss of $9,784,440 for the six months ended June 30, 2007
          represents an increase in loss of $6,128,244 as compared to net loss of
          $3,656,196 for the six months ended June 30, 2006. This increased loss
          was
          primarily due to the impairment loss of $2,605,061 for the period ended
          June 30,
          2007 and an increase in stock based compensation due to issuances of common
          stock and options for services of directors.


LIQUIDITY
      AND CAPITAL RESOURCES: The Notes on our financial statements in this Form 10-Q
      state that our difficulty in generating sufficient cash flow to meet our
      obligations and sustain operations raises substantial doubts about our ability
      to continue as a going concern.




With
      regard to liquidity and adequacy of capital resources, the Company will need
      additional equity or debt financing during the third quarter of 2007. Management
      plans to raise additional capital through debt and common stock offerings and
      to
      pursue all available financing alternatives in this regard. Management may
      also
      consider a variety of potential partnership or strategic alliances to strengthen
      its financial position. Additional funding for the permit process for the
      offshore LNG regas terminal in Southern California will be needed by the third
      quarter of 2007. Furthermore, the Company will need to raise additional capital
      to fund ongoing development activities for our Mexican subsidiary, Terranova
      Energia S. de R.L. de C.V., and also to fund operating overhead at the parent
      company level and the possible cost of a litigation settlement or adverse
      verdict if a case goes to trial. New issuance of common stock and debt
      sufficient to retire the outstanding debentures and to provide additional
      required capital is being actively pursued by the Company. No assurance can
      be
      made that such capital can be acquired in a timely fashion or at all.
      Furthermore, if capital is available through these sources, if may be at terms
      that are disadvantageous to the Company and its shareholders.




In
      light
      of these possible outcomes and the current cash resources available for the
      sustenance of corporate operations, management has taken action to reduce
      overhead costs and otherwise obtain cash resources for the Company including
      the
      use of stock issuances, when feasible, to pay for services rendered to the
      Company.





Direct
          capital expenditures during the six months ended June 30, 2007, totaled
          $1,483,911. The capital expenditures were composed of increased pre-construction
          costs regarding potential international pipeline crossings and storage
          facilities in Mexico, pre-construction costs regarding an offshore LNG
          terminal
          in Southern California, and additional machinery and equipment for the
          operation
          of the Sonterra Energy Corporation propane systems. Total debt decreased
          from
          $13,034,046 at December 31, 2006, to $11,944,188 at June 30, 2007. The
          decrease
          in total debt is due primarily to the conversion of $2,000,000 of convertible
          debentures from the financing transaction of January 20, 2006 into common
          stock
          and was offset by an increase in accounts payable. Net loss for the six
          months
          ended June 30, 2007, was $9,784,440, an increase in net loss of approximately
          168% from the net loss of $3,656,196 for the six months ended June 30,
          2006.
          Basic and diluted net loss per common share increased to $0.10 for the
          six
          months ended June 30, 2007, as compared to $0.05 for the six months ended
          June
          30, 2006. The net loss per share calculation for the six months ended June
          30,
          2007 included an increase in actual and equivalent shares
          outstanding.


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Item
      3. Quantitative and Qualitative Disclosures About Market
      Risk




Cash
      and Cash Equivalents




We
      have
      historically invested our cash and cash equivalents in short-term, fixed rate,
      highly rated and highly liquid instruments which are reinvested when they mature
      throughout the year. Although our existing investments are not considered at
      risk with respect to changes in interest rates or markets for these instruments,
      our rate of return on short-term investments could be affected at the time
      of
      reinvestment as a result of intervening events. As of June 30, 2007, we had
      cash
      and cash equivalents aggregated $85,762.




The
      Company does not issue or invest in financial instruments or their derivatives
      for trading or speculative purposes. The operations of the Company are conducted
      primarily in the United States, and, are not subject to material foreign
      currency exchange risk. Although the Company has outstanding debt and related
      interest expense, market risk of interest rate exposure in the United States
      is
      currently not material.




Debt





The
      interest rate on our Impact International debt obligation is generally
      determined based on the prime interest rate plus two percent and may be subject
      to market fluctuation as the prime rate changes.




Item
      4. Controlsand Procedures




Evaluation
      Of Disclosure Controls And Procedures.




James
          B.
          Smith, our Chief Executive Officer and Chief Financial Officer (Principal
          Executive Officer and Principal Financial Officer) performed an evaluation
          of
          the Company’s disclosure controls and procedures, as that term is defined in
          Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the
“Exchange
          Act”), as of June 30, 2007.  Based on that evaluation, in light of the
          restatement of the Company's financial statements to correct the accounting
          treatment of certain stock options issued to the Board of Directors, Mr.
          Smith
          has concluded that these disclosure controls and procedures were ineffective
          as
          of the end of the period covered by this Report.




Changes
      In Internal Control Over Financial Reporting.




During
      the quarter ended June 30, 2007, there were no changes in the Company’s internal
      control over financial reporting that have materially affected, or are
      reasonably likely to materially affect, the Company’s internal control over
      financial reporting.




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PART
      II - OTHER INFORMATION






Item
      1.Legal Proceedings




Except
      as
      set forth below, there have been no material changes to the legal proceeding
      or
      investigations reported in Part I, Item 3 - "Legal Proceedings" in the Company's
      Form 10-K filed with the SEC on April 17, 2007 and the 10-Q filed with the
      SEC
      on May 18, 2007 (the "Prior Reports"). Other than as set forth below and in
      the
      Prior Reports, the Company is not a party to any material pending legal
      proceeding.




Matter
      No. 1




As
      described in the Prior 10-K and in Note 8 above to the Company’s condensed
      consolidated financial statements, the Company is a party to a pending lawsuit
      titled Northern Natural Gas Company vs. Betty Lou Sheerin vs. Tidelands Oil
      & Gas Corporation, ZG Gathering, Ltd. and Ken Lay, in the 150th Judicial
      District Court, Bexar County, Texas, Cause Number
      2002-C1-16421.  During the quarter ended June 30, 2007, the trial date
      was been extended to January 9, 2008, by mutual agreements of the litigants
      unless a settlement is reached before that date. The parties are currently
      in
      advanced settlement negotiations and the Company is hopeful that an agreement
      will be concluded in the near future. Based on negotiations, the Company has
      reserved $2,250,000 as an estimated litigation settlement and that amount has
      been included in this report.




Matter
      Nos. 2 and 3 are described in Note 8 above and the Prior Reports.  No
      material updates took place in the quarter ended June 30, 2007.




Matter
      No. 4




Cause
      No.
      2007-CI-07451, Michael R. Ward vs. Tidelands Oil & Gas Corporation, was
      filed on May 17, 2007 in the 224th
      District Court of Bexar County, Texas. This case involves two claims by the
      Plaintiff, Michael R. Ward, the former President and CEO of Tidelands Oil &
Gas Corporation against the Company. The first claim is for a breach of the
      Letter Agreement dated December 8, 2006 alleging a failure to pay Ward’s salary
      for the months of March through June 2007 pursuant to the terms of said Letter
      Agreement. The second claim involves an allegation by Ward that the Company
      prevented Ward from selling 1,650,000 shares of Company stock during the period
      of February 20, 2007 through April 4, 2007 and that Ward suffered economic
      damages as a result of a decline in share price during the relevant time
      periods. The Company filed a general denial on June 27, 2007. On July 18, 2007,
      Plaintiff Ward filed a Motion for Partial Summary Judgment with respect to
      the
      first claim for breach of the Letter Agreement, a Motion setting the case for
      trial on the second claim for September 28, 2007, and discovery notices. On
      August 7, 2007, the Company filed an abatement request requesting Court ordered
      mediation pursuant to the Letter Agreement of December 8, 2006. The Company
      expects that its request for mediation will be honored by the Court and that
      the
      case will be set for mediation in September 2007.




Matter
      No. 5




Cause
      No.
      2007-CI 11661, Bentley Energy Corp. vs. Tidelands Exploration & Production,
      Inc. was filed on August 7, 2007 in the 407th
      District Court of Bexar County, Texas. (Note that the suit was filed with
      incorrect corporate name.  It should be Tidelands Exploration &
Production Corp.) This case involves a claim for breach of the Joint Operating
      Agreement and Participation Agreement between Tidelands Exploration &
Production Corp. (“TEP”) and Bentley Energy Corp. (“BENTLEY”), as Assignee of
      Regency Energy, Inc. (“REGENCY”). BENTLEY is majority owned by Michael R. Ward,
      the former President and CEO of Tidelands Oil & Gas Corporation, which is
      the parent company for TEP. REGENCY is majority owned by Royis Ward, a former
      director of Tidelands Oil & Gas Corporation and the father of Michael R.
      Ward. Pursuant to the terms of the Joint Operating Agreement, TEP, as
      non-operator, granted REGENCY a lien or security interest in all the oil and
      gas
      leases and pipelines covered by the Joint Operating Agreement. BENTLEY seeks
      foreclosure of these interests due to TEP’s failure to pay joint interest
      billings under the Joint Operating Agreement. TEP has not yet filed an answer
      to
      this lawsuit, but expects to reply in the near future.




Item
      1A.Risk Factors




During
      the quarter ended June 30, 2007, there were no material changes to the risk
      factors described in Part I, Item 1A “Risk Factors” of the Company’s Annual
      Report on Form 10-K for the fiscal year ended December 31,
      2006.




Item
      2. UnregisteredSales of Equity Securities and Use of
      Proceeds





The
      Company made the following issuances of unregistered securities during the
      quarter ended June 30, 2007 (not previously reported in a Form
      8-K):





On
      April
      4, 2007, the Company issued 25,000 shares of its restricted common stock valued
      at $24,875 for consulting services.





On
      June
      6, 2007, the Company issued 600,000 shares of its restricted common stock valued
      at $90,000 as stock bonuses to three employees.





No
      commissions were paid in connection with any of these issuances. We did not
      employ any form of general solicitation or advertising in connection with the
      offer and sale of the securities described below. Except as otherwise noted
      above, the offer and sale of the securities listed below were made in reliance
      on the exemption from registration provided by Section 4(2) of the Securities
      Act and/or Regulation D promulgated by the Securities and Exchange Commission
      as
      transactions by an issuer not involving any public offering.




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Item
      3. Defaults Upon Senior Securities




None.





Item
      4. Submissionof Matters to a Vote of Security
      Holders




No
      matters were submitted to a vote of security holders during the quarter covered
      by this report.




Item
      5. OtherInformation




None.




Item6.
      Exhibits




Exhibit
            
            Description
            
            Location
                of Exhibit31.1
            
            Chief
                Executive Officer and Chief Financial Officer Section 302 Certification
                pursuant to Sarbanes - Oxley Act.
            
            Included
                with this filing32.1
            
            Chief
                Executive Officer-Section 906 Certification pursuant to Sarbanes-Oxley
                Act
            
            Furnished
                herewith












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SIGNATURES






Pursuant
      to the requirements of the Securities Exchange Act of 1934, the Company has
      duly
      caused this report to be signed on its behalf by the undersigned thereunto
      duly
      authorized.





TIDELANDS
                OIL & GAS CORPORATIONDate: January 23,
                2008
            By:
            /s/  James
                B.
                SmithJames
                B. Smith
              President
                and Chief Executive Officer






26