UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549




FORM
10-Q




(Mark
One)




x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934For
      the quarterly period ended September 30,
      2008 ̈
            TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For the
transition period from 
to




Commission
File Number:  000-52001


Delta Oil & Gas,
Inc.


(Exact
name of registrant as specified in its charter)





Colorado
            91-2102350(State
      or other jurisdiction of incorporation or organization)
            (IRS
      Employer Identification No.)








2600 144 4th Ave S.W.,
      Calgary, Alberta, Canada T2P 3N4(Address
      of principal executive offices)





866-355-3644(Registrant’s
      telephone number, including area code)_______________________________________________________________(Former
      name, former address and former fiscal year, if changed since last
      report)





Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.ý Yes  
  ̈  
No




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer,” “non-accelerated filer,” and “a smaller reporting company”
in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer  ̈
            Accelerated
      filer  ̈Non-accelerated
      filer  ̈
            Smaller
      reporting company  ý




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




 ̈Yes   ý No




Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date:




Class
            
            Outstanding
      at October 17, 2008Common
      Stock, $0.001 par value
            
            46,840,506








Table of Contents












TABLE OF
      CONTENTS
            PagePART I – FINANCIAL
      INFORMATIONItem
      1.
            Financial Statements.
            3Item
      2.
            Management’s Discussion and Analysis of Financial Condition and
      Results of Operations.
            4Item
      3.
            Quantitative and Qualitative Disclosures About Market Risk
      .
            17Item
      4T.
            Controls and Procedures.
            17PART II – OTHER
      INFORMATIONItem
      1.
            Legal Proceedings .
            18Item
      1A.
            Risk Factors.
            18Item
      2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds.
            18Item
      3.
            Defaults Upon Senior Securities.
            18Item
      4.
            Submission of Matters to a Vote of Security
      Holders.
            19Item
      5.
            Other Information.
            19Item
      6.
            Exhibits.
            19SignaturesExhibitsCertifications







- 2
-
 Table of Contents





PART
I - FINANCIAL INFORMATION





Item 1.     Financial
Statements





Our
      unaudited consolidated financial statements included in this Form 10-Q are
      as follows:F-1
            Unaudited
      Consolidated Balance Sheet as of September 30, 2008.F-2
            Unaudited
      Consolidated Statements of Operations for the three and nine months ended
      September 30, 2008 and 2007
              and
      from inception on January 9, 2001 to September 30, 2008.F-3
            Unaudited
      Consolidated Statements of Cash Flows for the nine months ended September
      30, 2008 and 2007
              and
      from inception on January 9, 2001 to September 30, 2008.F-4
            Unaudited Consolidated Statement of Changes in
      Stockholders' Equityfrom
      inception on January 9, 2001
              toSeptember
      30, 2008.F-5
            Notes
      to Unaudited Consolidated Financial Statements.








These
unaudited consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and the SEC instructions to Form
10-Q.  In the opinion of management, all adjustments considered
necessary for a fair presentation have been included.  Operating
results for the interim period ended September 30, 2008 are not necessarily
indicative of the results that can be expected for the full year.






- 3
-
 Table of Contents





DELTA
      OIL & GAS, INC.(A
      Development Stage Company)Consolidated
      Balance Sheets(Stated
      in U.S. Dollars)(Audited)September
      30,
            
            
            December
      31,2008
            
            
            2007ASSETS
            
            (Unaudited)
            
            
            (Audited)CurrentCash
      and cash equivalents
            
            $
            1,072,012
            
            
            $
            71,115GIC
      receivable
            
            
            -
            
            
            
            236,112Accounts
      receivable
            
            
            73,586
            
            
            
            153,990Franchise
      tax prepaid
            
            
            6,912
            
            
            
            6,912Prepaid
      expenses
            
            
            57,409
            
            
            
            19,3641,209,919
            
            
            
            487,493Natural
      Gas And Oil PropertiesProved
      property
            
            
            1,575,936
            
            
            
            1,432,776Unproved
      property
            
            
            674,019
            
            
            
            1,368,2602,249,955
            
            
            
            2,801,036Other
      EquipmentComputer
      equipment
            
            
            4,483
            
            
            
            4,483Less:
      accumulated depreciation
            
            
            (4,098
            )
            
            
            (3,351
            )385
            
            
            
            1,132$
            3,460,259
            
            
            $
            3,289,661LIABILITIES AND
      STOCKHOLDERS' EQUITYLIABILITIESCurrentAccounts
      payable and accrued liabilities
            
            $
            26,566
            
            
            $
            166,217Long
      TermAsset
      retirement obligation
            
            
            121,866
            
            
            
            111,803148,432
            
            
            
            278,020STOCKHOLDERS'
      EQUITYShare
      CapitalPreferred
      Shares, 25,000,000 shares authorized of $0.001par
      value of which none have been issuedCommon
      stock, 100,000,000 shares authorized of $0.001par
      value, 46,840,506 and 45,940,506 shares issuedand
      outstanding, respectively
            
            
            46,841
            
            
            
            45,941Additional
      paid-in capital
            
            
            6,087,674
            
            
            
            6,136,288Cumulative
      other comprehensive income
            
            
            169,684
            
            
            
            187,348Deficit
      accumulated during the development stage
            
            
            (2,992,372
            )
            
            
            (3,357,936
            )3,311,827
            
            
            
            3,011,641$
            3,460,259
            
            
            $
            3,289,661The
      accompanying notes are an integral part of these consolidated financial
      statements




F -
1
 Table of Contents
  DELTA
      OIL & GAS, INC.(A
      Development Stage Company)Consolidated
      Statements of Operations(Stated
      in U.S. Dollars)(Unaudited)CUMULATIVE
      PERIODFROM
      INCEPTIONJANUARY
      9, 2001THREE
      MONTHS ENDED
              
              
              NINE
      MONTHS ENDED
              
              
              TOSEPTEMBER
      30,
              
              
              SEPTEMBER
      30,
              
              
              SEPTEMBER
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007
              
              
              2008RevenueNatural
      gas and oil sales
              
              $
              190,076
              
              
              $
              230,483
              
              
              $
              773,216
              
              
              $
              638,126
              
              
              $
              2,298,154Gain
      on sale of natural gas and oil properties
              
              
              719,146
              
              
              
              -
              
              
              
              719,146
              
              
              
              -
              
              
              
              1,780,305909,222
              
              
              
              230,483
              
              
              
              1,492,362
              
              
              
              638,126
              
              
              
              4,078,459Costs
      And ExpensesNatural
      gas and oil operating costs
              
              
              48,516
              
              
              
              44,040
              
              
              
              179,626
              
              
              
              127,301
              
              
              
              514,738General
      and administrative
              
              
              158,457
              
              
              
              163,918
              
              
              
              344,090
              
              
              
              1,075,260
              
              
              
              3,127,215Accretion
              
              
              3,354
              
              
              
              -
              
              
              
              10,062
              
              
              
              -
              
              
              
              14,938Depreciation
      and depletion
              
              
              39,820
              
              
              
              232,338
              
              
              
              200,767
              
              
              
              561,287
              
              
              
              1,373,783Impairment
      of natural gas and oil properties
              
              
              -
              
              
              
              -
              
              
              
              388,702
              
              
              
              40,589
              
              
              
              2,002,167Dry
      well costs written off
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              119,961250,147
              
              
              
              440,296
              
              
              
              1,123,247
              
              
              
              1,804,437
              
              
              
              7,152,802Net
      Operating Income (Loss)
              
              
              659,075
              
              
              
              (209,813
              )
              
              
              369,115
              
              
              
              (1,166,311
              )
              
              
              (3,074,343
              )Other
      Income and (Expense)Forgiveness
      of debt
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              39,933Interest
      income
              
              
              1,213
              
              
              
              9,364
              
              
              
              1,465
              
              
              
              32,563
              
              
              
              62,634Interest
      expense
              
              
              (1,598
              )
              
              
              -
              
              
              
              (5,016
              )
              
              
              -
              
              
              
              (5,016
              )(385
              )
              
              
              9,364
              
              
              
              (3,551
              )
              
              
              32,563
              
              
              
              97,551Income
      (Loss) before income taxes
              
              $
              658,690
              
              
              $
              (200,449
              )
              
              $
              365,564
              
              
              $
              (1,133,748
              )
              
              $
              (2,976,792
              )Income
      taxes
              
              
              -
              
              
              
              6,109
              
              
              
              -
              
              
              
              10,270
              
              
              
              15,580Net
      Income (Loss)
              
              $
              658,690
              
              
              $
              (206,558
              )
              
              $
              365,564
              
              
              $
              (1,144,018
              )
              
              $
              (2,992,372
              )Basic
      And Diluted Income (Loss) Per Common Share
              
              $
              0.01
              
              
              $
              (0.00
              )
              
              $
              0.01
              
              
              $
              (0.03
              )Weighted
      Average Number OfCommon
      Shares Outstanding
              
              
              46,840,506
              
              
              
              45,918,767
              
              
              
              46,098,170
              
              
              
              45,625,891The
      accompanying notes are an integral part of these consolidated financial
      statements
  F -
2
 Table of Contents


DELTA
      OIL & GAS, INC.(A
      Development Stage Company)Consolidated
      Statements of Cash Flows(Stated
      in U.S. Dollars)(Unaudited)CUMULATIVE
      PERIODFROM
      INCEPTIONJANUARY
      9, 2001NINE
      MONTHS ENDED
            
            
            TOSEPTEMBER
      30,
            
            
            SEPTEMBER
      30,2008
            
            
            2007
            
            
            2008Cash
      Flows From Operating Activities:Net
      income (loss) for the period
            
            $
            365,564
            
            
            $
            (1,144,018
            )
            
            $
            (2,992,372
            )Adjustments
      to reconcile net income (loss) to net cashgenerated
      (used) in operating activities:Gain
      on sale of natural gas and oil properties
            
            
            (719,146
            )
            
            
            -
            
            
            
            (1,780,305
            )Accretion
            
            
            10,062
            
            
            
            -
            
            
            
            14,938Depreciation
      and depletion
            
            
            200,767
            
            
            
            561,287
            
            
            
            1,373,783Impairment
      of natural gas and oil properties
            
            
            388,702
            
            
            
            40,589
            
            
            
            2,002,167Dry
      well costs written off
            
            
            -
            
            
            
            -
            
            
            
            119,961Stock-based
      compensation expense
            
            
            -
            
            
            
            134,754
            
            
            
            608,083Shares
      issued to President & CEO for servicess rendered
            
            
            26,500
            
            
            
            460,000
            
            
            
            486,500Shares
      issued to CFO for services rendered
            
            
            21,200
            
            
            
            44,843
            
            
            
            158,700Shares
      issued to Investor Relations Services Inc for services
      rendered
            
            
            -
            
            
            
            40,800
            
            
            
            40,800Realized
      foreign exchange loss
            
            
            (17,664
            )
            
            
            -
            
            
            
            166,472Changes
      in operating assets and liabilities:GIC
            
            
            236,112
            
            
            
            -
            
            
            
            -Accounts
      receivable
            
            
            80,404
            
            
            
            (47,832
            )
            
            
            (73,586
            )Accounts
      payable and accrued liabilities
            
            
            (139,651
            )
            
            
            30,139
            
            
            
            (89,457
            )Tax
      (Prepaid)
            
            
            -
            
            
            
            (6,912
            )
            
            
            (6,912
            )Prepaid
      expenses
            
            
            (38,045
            )
            
            
            (17,908
            )
            
            
            (57,409
            )Net
      Cash Generated/(Used) in Operating Activities
            
            
            414,805
            
            
            
            95,742
            
            
            
            (28,637
            )Cash
      Flows From (Used By) Investing Activities:Purchase
      of other equipment
            
            
            -
            
            
            
            -
            
            
            
            (4,483
            )Sale
      proceeds of natural gas and oil working interests
            
            
            1,309,826
            
            
            
            -
            
            
            
            2,809,826Investment
      in natural gas and oil working interests
            
            
            (628,320
            )
            
            
            (1,208,094
            )
            
            
            (6,545,127
            )Net
      Cash Used in Investing Activities
            
            
            681,506
            
            
            
            (1,208,094
            )
            
            
            (3,739,784
            )Cash
      Flows From (Used By) Financing Activities:Registration
      of shares under Form S-4
            
            
            (95,414
            )
            
            
            
            
            
            
            (95,414
            )Proceeds
      from issuance of common stock
            
            
            -
            
            
            
            45,000
            
            
            
            4,935,847Net
      Cash Provided by (Used By) Financing Activities
            
            
            (95,414
            )
            
            
            45,000
            
            
            
            4,840,433Net
      Increase/(Decrease) In Cash And Cash Equivalents
            
            
            1,000,897
            
            
            
            (1,067,352
            )
            
            
            1,072,012Cash
      And Cash Equivalents At Beginning Of Period(Excess
      Of Deposits  Over Checks Issued)
            
            
            71,115
            
            
            
            1,668,758
            
            
            
            -Cash
      And Cash Equivalents At End Of Period
            
            $
            1,072,012
            
            
            $
            601,406
            
            
            $
            1,072,012Supplemental
      Disclosures of Non-Cash Financing Activities500,000
      shares issued to the President & CEO as part of his
            
            $
            26,500
            
            
            $
            460,000
            
            
            $
            486,500compensation
      package400,000
      shares issued to the CFO for services rendered
            
            $
            21,200
            
            
            $
            137,500
            
            
            $
            158,70060,000
      shares issued to Investor Relations Services Inc., forservices
      rendered.
            
            $
            -
            
            
            $
            40,800
            
            
            $
            40,800Supplemental
      Disclosures of Cash Flow InformationInterest
      paid
            
            $
            5,016
            
            
            
            -
            
            
            $
            5,016Income
      taxes for 2006
            
            $
            -
            
            
            $
            6,109
            
            
            $
            -The
      accompanying notes are an integral part of these consolidated financial
      statements





F -
3
 Table of Contents





DELTA
      OIL & GAS INC.(A
      Development Stage Company)CONSOLIDATED
      STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITYAND COMPREHENSIVE
      INCOMEPERIOD
      FROM INCEPTION, JANUARY 9, 2001, TO SEPTEMBER 30, 2008(Stated
      in U.S. Dollars)(Unaudited)DEFICITCOMMON
      STOCK
            
            
            ACCUMULATEDNUMBER
            
            
            
            
            
            
            
            
            SHARE
            
            
            SHARE
            
            
            DURING
      THE
            
            
            CUMULATIVEOF
      COMMON
            
            
            PAR
            
            
            ADDITIONAL
            
            
            SUBSCRIPTIONS
            
            
            SUBSCRIPTIONS
            
            
            DEVELOPMENT
            
            
            COMPREHENSIVESHARES
      VALUE
            
            
            VALUE
            
            
            PAID-IN
      CAPITAL
            
            
            RECEIVED
            
            
            RECEIVABLE
            
            
            STAGE
            
            
            INCOME
            
            
            TOTALShares
      issued for cash at $0.00018
            
            
            13,750,000
            
            
            $
            13,750
            
            
            $
            (11,250
            )
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            2,500Shares
      issued for cash at $0.0036
            
            
            27,500,000
            
            
            
            27,500
            
            
            
            72,500
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            100,000Shares
      issued for cash at $0.045
            
            
            46,750
            
            
            
            47
            
            
            
            2,078
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,125Net
      (loss) for the period ended
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (184,407
            )
            
            
            -
            
            
            
            (184,407
            )Balance,
      December 31, 2001
            
            
            41,296,750
            
            
            
            41,297
            
            
            
            63,328
            
            
            
            -
            
            
            
            -
            
            
            
            (184,407
            )
            
            
            -
            
            
            
            (79,782
            )Net
      (loss) for the year
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (62,760
            )
            
            
            -
            
            
            
            (62,760
            )Balance,
      December 31, 2002
            
            
            41,296,750
            
            
            
            41,297
            
            
            
            63,328
            
            
            
            -
            
            
            
            -
            
            
            
            (247,167
            )
            
            
            -
            
            
            
            (142,542
            )Net
      (loss) for the year
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (24,423
            )
            
            
            -
            
            
            
            (24,423
            )Balance,
      December 31, 2003
            
            
            41,296,750
            
            
            
            41,297
            
            
            
            63,328
            
            
            
            -
            
            
            
            -
            
            
            
            (271,590
            )
            
            
            -
            
            
            
            (166,965
            )Share
      subscriptions received
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            160,000
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            160,000Net
      (loss) for the year
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (31,574
            )
            
            
            -
            
            
            
            (31,574
            )Balance,
      December 31, 2004
            
            
            41,296,750
            
            
            
            41,297
            
            
            
            63,328
            
            
            
            160,000
            
            
            
            -
            
            
            
            (303,164
            )
            
            
            -
            
            
            
            (38,539
            )Units
      issued for cash at $1.00,
            
            
            2,483,985
            
            
            
            2,484
            
            
            
            2,481,241
            
            
            
            (160,000
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,323,725net
      of share issuance costOptions
      exercised for cash at $0.8
            
            
            245,000
            
            
            
            245
            
            
            
            195,755
            
            
            
            -
            
            
            
            (16,000
            )
            
            
            -
            
            
            
            -
            
            
            
            180,000Stock-based
      compensation
            
            
            -
            
            
            
            -
            
            
            
            370,267
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            370,267Net
      (loss) for the year
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (570,050
            )
            
            
            -
            
            
            
            (570,050
            )Balance,
      December 31, 2005
            
            
            44,025,735
            
            
            
            44,026
            
            
            
            3,110,591
            
            
            
            -
            
            
            
            (16,000
            )
            
            
            (873,214
            )
            
            
            -
            
            
            
            2,265,403Subscriptions
      receivable
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            16,000
            
            
            
            -
            
            
            
            -
            
            
            
            16,000Options
      exercised for cash at $0.8
            
            
            305,000
            
            
            
            305
            
            
            
            243,695
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            244,000Options
      exercised for cash at $1.00
            
            
            12,500
            
            
            
            13
            
            
            
            12,488
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            12,501Shares
      issued for cash at $2.75,
            
            
            727,271
            
            
            
            727
            
            
            
            1,849,268
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,849,995net
      of finders feeStock-based
      compensation
            
            
            -
            
            
            
            -
            
            
            
            195,719
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            195,719Net
      (loss) for the year
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (234,763
            )
            
            
            -
            
            
            
            (234,763
            )Balance,
      December 31, 2006
            
            
            45,070,506
            
            
            
            45,071
            
            
            
            5,411,761
            
            
            
            -
            
            
            
            -
            
            
            
            (1,107,977
            )
            
            
            -
            
            
            
            4,348,855Options
      exercised for cash at $0.75
            
            
            60,000
            
            
            
            60
            
            
            
            44,940
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            45,000Shares
      issued to President & CEO as
            
            
            500,000
            
            
            
            500
            
            
            
            459,500
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            460,000part
      of his compensation package at $0.92Shares
      issued to Investor Relations
            
            
            60,000
            
            
            
            60
            
            
            
            40,740
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            40,800Services,
      Inc. as part of the agreementShares
      issued to CFO for services rendered
            
            
            250,000
            
            
            
            250
            
            
            
            137,250
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            137,500Stock-based
      compensation
            
            
            -
            
            
            
            -
            
            
            
            42,097
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            42,097Comprehensive
      (loss):Cumulative
      translation adjustment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            187,348
            
            
            
            187,348Net
      (loss) for the year
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (2,249,959
            )
            
            
            -
            
            
            
            (2,249,959
            )Comprehensive
      (loss)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,062,611
            )Balance,
      December 31, 2007
            
            
            45,940,506
            
            
            
            45,941
            
            
            
            6,136,288
            
            
            
            -
            
            
            
            -
            
            
            
            (3,357,936
            )
            
            
            187,348
            
            
            
            3,011,641Shares
      issued to President & CEO & CFO as
            
            
            900,000
            
            
            
            900
            
            
            
            46,800
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            47,700part
      of their compensation package at $0.053Registration
      of shares under Form S-4
            
            
            -
            
            
            
            -
            
            
            
            (95,414
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (95,414
            )Comprehensive
      income:Cumulative
      translation adjustment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (17,664
            )
            
            
            (17,664
            )Net
      income for the period
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            365,564
            
            
            
            -
            
            
            
            365,564Comprehensive
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            347,900Balance,
      September 30, 2008
            
            
            46,840,506
            
            
            $
            46,841
            
            
            $
            6,087,674
            
            
            $
            -
            
            
            $
            -
            
            
            $
            (2,992,372
            )
            
            $
            169,684
            
            
            $
            3,311,827The
      accompanying notes are an integral part of these consolidated financial
      statements





F -
4
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(Stated
in U.S. Dollars)




1. BASIS
OF PRESENTATION


The
unaudited consolidated financial statements as of September 30, 2008 included
herein have been prepared without audit pursuant to the rules and regulations of
the Securities and Exchange Commission.  Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with United States generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations.  In the
opinion of management, all adjustment (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.  It
is suggested that these consolidated financial statements be read in conjunction
with the December 31, 2007 audited financial statements and notes
thereto.  The results of the operations for the nine months ended
September 30, 2008 are not indicative of the results that may be expected for
the year.




2. OPERATIONS




a) Organization





Delta Oil
& Gas, Inc. (“the Company”) was incorporated as a Colorado corporation on
January 9, 2001.





The
Company is a development stage, independent natural gas and oil company engaged
in the exploration, development and acquisition of natural gas and oil
properties in the United States and Canada.  The Company’s entry into
the natural gas and oil business began on February 8, 2001.





During
the year ended December 31, 2004, the Company completed a forward stock split on
the basis of 5 1⁄2 common shares for every one previously held common share;
common shares outstanding have been adjusted retroactively.





b)
            Development
      Stage Activities





The
Company is a development stage enterprise engaged in the exploration for and
production of natural gas and oil in the United States and Canada.





The
Company is subject to several categories of risk associated with its development
stage activities.  Natural gas and oil exploration and production is a
speculative business, and involves a high degree of risk.  Among the
factors that have a direct bearing on the Company’s prospects are uncertainties
inherent estimating  natural gas and oil reserves, future hydrocarbon
production, and cash flows, particularly with respect to wells that have not
been fully tested and with wells having limited production histories; access to
additional capital; changes in the price of natural gas and oil; availability
and cost of services and equipment; and the presence of competitors with greater
financial resources and capacity.





c)
            Going
      Concern





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.





As shown
in the accompanying consolidated financial statements, the Company has incurred
a net loss of $2,992,372 since inception.  To achieve profitable
operations, the Company requires additional capital for obtaining producing oil
and gas properties through either the purchase of producing wells or successful
exploration activity.  Management believes that sufficient funding
will be available to meet its business objectives including anticipated cash
needs for working capital and is currently evaluating several financing
options.  However, there can be no assurance that the Company will be
able to obtain sufficient funds to continue the development of its properties
and, if successful, to commence the sale of its projects under
development.  As a result of the foregoing, there exists substantial
doubt the Company’s ability to continue as a going concern.  These
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.





F -
5
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(Stated
in U.S. Dollars)





3.           SIGNIFICANT
ACCOUNTING POLICIES





a)
            Basis
      of Consolidation





The
consolidated financial statements include the financial statements of the
Company and its wholly-owned subsidiary, Delta Oil & Gas (Canada)
Inc.  All significant inter-company balances and transactions have
been eliminated.





b)
            Use
      of Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting periods.  Actual results could differ from those
estimates.  Significant estimates with regard to these financial
statements include the estimate of proved natural gas and oil reserve quantities
and the related present value of estimated future net cash flows there
from.





c)
            Natural
      Gas and Oil Properties





The
Company accounts for its oil and gas producing activities using the full cost
method of accounting as prescribed by the United States Securities and Exchange
Commission (“SEC”).  Accordingly, all costs associated with the
acquisition of properties and exploration with the intent of finding proved oil
and gas reserves contribute to the discovery of proved reserves, including the
costs of abandoned properties, dry holes, geophysical costs, and annual lease
rentals are capitalized.  All general corporate costs are expensed as
incurred.  In general, sales or other dispositions of oil and gas
properties are accounted for as adjustments to capitalized costs, with no gain
or loss recorded.  Amortization of evaluated oil and gas properties is
computed on the units of production method based on all proved reserves on a
country-by-country basis.  Unevaluated oil and gas properties are
assessed at least annually for impairment either individually or on an aggregate
basis.  The net capitalized costs of evaluated oil and gas properties
(full cost ceiling limitation) are not to exceed their related estimated future
net revenues from proved reserves discounted at 10%, and the lower of cost or
estimated fair value of unproved properties, net of tax
considerations.  These properties are included in the amortization
pool immediately upon the determination that the well is dry.





Unproved
properties consist of lease acquisition costs and costs on wells currently being
drilled on the properties.  The recorded costs of the investment in
unproved properties are not amortized until proved reserves associated with the
projects can be determined or until they are impaired.





d)
            Asset
      Retirement Obligations





The
Company has adopted Statement of Financial Accounting Standards No. 143 (“SFAS
143”), “Accounting for Asset Retirement Obligations”, which requires that asset
retirement obligations (“ARO”) associated with the retirement of a tangible
long-lived asset, including natural gas and oil properties, be recognized as
liabilities in the period in which it is incurred and becomes determinable, with
an offsetting increase in the carrying amount of the associated assets. The cost
of tangible long-lived assets, including the initially recognized ARO, is
depleted, such that the cost of the ARO is recognized over the useful life of
the assets. The ARO is recorded at fair value, and accretion expense is
recognized over time as the discounted cash flows are accreted to the expected
settlement value. The fair value of the ARO is measured using expected future
cash flow, discounted at the Company’s credit-adjusted risk-free interest
rate.





e)
            Joint
      Ventures





All
exploration and production activities are conducted jointly with others and,
accordingly, the accounts reflect only the Company’s proportionate interest in
such activities.





F -
6
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(Stated
in U.S. Dollars)





3. SIGNIFICANT
ACCOUNTING POLICIES (Continued)





f)
            Revenue
      Recognition





Revenue
from sales of crude oil, natural gas and refined petroleum products are recorded
when deliveries have occurred and legal ownership of the commodity transfers to
the customers.  Title transfers for crude oil, natural gas and bulk
refined products generally occur at pipeline custody points or when a tanker
lifting has occurred.  Revenues from the production of oil and natural
gas properties in which the Company shares an undivided interest with other
producers are recognized based on the actual volumes sold by the Company during
the period.  Gas imbalances occur when the Company’s actual sales
differ from its entitlement under existing working interests.  The
Company records a liability for gas imbalances when it has sold more than its
working interest of gas production and the estimated remaining reserves make it
doubtful that the partners can recoup their share of production from the field.
At September 30, 2008 and 2007, the Company had no overproduced
imbalances.





g)
            Cash
      and Cash Equivalent





Cash
consists of cash on deposit with high quality major financial institutions, and
to date has not experienced losses on any of its balances.  The
carrying amounts approximated fair market value due to the liquidity of these
deposits.  For purposes of the balance sheet and statements of cash
flows, the Company considers all highly liquid instruments with maturity of
three months or less at the time of issuance to be cash
equivalents.





h)  GIC Receivable





GIC
Receivable is non-redeemable until October 9, 2008 and bears an interest rate of
2.1%.





i)
            Environmental
      Protection and Reclamation Costs





The
operations of the Company have been, and may be in the future be affected from
time to time in varying degrees by changes in environmental regulations,
including those for future removal and site restorations costs.  Both
the likelihood of new regulations and their overall effect upon the Company may
vary from region to region and are not predictable.





The
Company’s policy is to meet or, if possible, surpass standards set by relevant
legislation, by application of technically proven and economically feasible
measures.  Environmental expenditures that relate to ongoing
environmental and reclamation programs will be charged against statements of
operations as incurred or capitalized and amortized depending upon their future
economic benefits.  The Company does not currently anticipate any
material capital expenditures for environmental control facilities because all
property holdings are at early stages of exploration.  Therefore,
estimated future removal and site restoration costs are presently considered
minimal.





j)
            Foreign
      Currency Translation





United
States funds are considered the Company’s functional
currency.  Transaction amounts denominated in foreign currencies are
translated into their United States dollar equivalents at exchange rates
prevailing at the transaction date.  Monetary assets and liabilities
are adjusted at each balance sheet date to reflect exchange rates prevailing at
that date, and non-monetary assets and liabilities are translated at the
historical rate of exchange.  Gains and losses arising from
restatement of foreign currency monetary assets and liabilities at period end
are included in other comprehensive income.





k)
            Other
      Equipment





Computer
equipment is stated at cost.  Provision for depreciation on computer
equipment is calculated using the straight-line method over the estimated useful
life of three years.





F -
7
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(Stated
in U.S. Dollars)





3.
            SIGNIFICANT
      ACCOUNTING POLICIES (Continued)





l)
            Impairment
      of Long-Lived Assets





In the
event that facts and circumstances indicate that the costs of long-lived assets,
other than oil and gas properties, may be impaired, and evaluation of
recoverability would be performed.  If an evaluation is required, the
estimated future undiscounted cash flows associated with the asset would be
compared to the asset’s carrying amount to determine if a write-down to market
value or discounted cash flow value is required.  Impairment of oil
and gas properties is evaluated subject to the full cost ceiling as described
under Natural Oil and Gas Properties.





m)
            Loss
      Per Share





In
February 1997, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (“SFAS
128”).  Under SFAS 128, basic and diluted earnings per share are to be
presented.  Basic earnings per share is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding in the period.  Diluted earnings per share takes into
consideration common shares outstanding (computed under basic earnings per
share) and potentially dilutive common shares.





n)
            Income
      Taxes





The
Company follows the liability method of accounting for income taxes under which
deferred tax assets and liabilities are recognized for the future tax
consequences of (i) temporary differences between the tax bases of assets and
liabilities, and their reported amounts in the financial statements, and (ii)
operating loss and tax credit carryforwards for tax
purposes.  Deferred tax assets are reduced by a valuation allowance
when, based upon management’s estimates, it is more likely than not that a
portion of the deferred tax assets will not be realized in a future
period.





o)
            Financial
      Instruments





The
Company’s financial instruments consist of cash and cash equivalent, GIC
receivable, accounts receivable, franchise tax prepaid, accounts payable,
accrued liabilities and loan payable.





It is
management’s opinion that the Company is not exposed to significant interest or
credit risks arising from these financial instruments.  The fair value
of these financial instruments is approximated to their carrying
values.





o)      Comprehensive
Loss





SFAS No.
130, “Reporting Comprehensive Income,” establishes standards for the reporting
and display of comprehensive loss and its components in the financial
statements. The Company is disclosing this information on its Consolidated
Statements of Changes in Stockholders’ Equity.





p)      Stock-Based
Compensation





The
Company records stock-based compensation in accordance with SFAS 123(R), “Share-Based Payments,” which
requires the measurement and recognition of compensation expense based on
estimated fair values for all share-based awards made to employees and
directors, including stock options. In March 2005, the Securities and Exchange
Commission issued SAB 107 relating to SFAS 123(R). The Company applied the
provisions of SAB 107 in its adoption of SFAS 123(R).





F -
8
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(Stated
in U.S. Dollars)





3.
            SIGNIFICANT
      ACCOUNTING POLICIES (Continued)





p)
            Stock-Based
      Compensation (Continued)





SFAS
123(R) requires companies to estimate the fair value of share-based awards on
the date of grant using an option-pricing model. The Company uses the
Black-Scholes option-pricing model as its method of determining fair value. This
model is affected by the Company’s stock price as well as assumptions regarding
a number of subjective variables. These subjective variables include, but are
not limited to the Company’s expected stock price volatility over the term of
the awards, and actual and projected employee stock option exercise behaviors.
The value of the portion of the award that is ultimately expected to vest is
recognized as an expense in the statement of operations over the requisite
service period.




All
transactions in which goods or services are the consideration received for the
issuance of equity instruments are accounted for based on the fair value of the
consideration received or the fair value of the equity instrument issued,
whichever is more reliably measurable.





4.           NATURAL
GAS AND OIL PROPERTIES





a)   Proved
Properties





Properties
            
            December
      31,
              2007
            
            
            Addition
            
            
            Depletion
              for
      the
              period
            
            
            Impairment
            
            
            September
      30,
              2008USA
      properties
            
            $
            1,197,630
            
            
            $
            337,107
            
            
            $
            (137,621
            )
            
            $
            -
            
            
            $
            1,397,116Canada
      properties
            
            
            235,146
            
            
            
            394,774
            
            
            
            (62,398
            )
            
            
            (388,702
            )
            
            
            178,820Total
            
            $
            1,432,776
            
            
            $
            731,881
            
            
            $
            (200,019
            )
            
            $
            (388,702
            )
            
            $
            1,575,936





a)
            Proved
      Properties - Descriptions





Properties
in U.S.A.





i.
            Owl
      Creek Prospect, Oklahoma, USA





In June
2006, the Company entered into an agreement to accept the assignment of an
undivided 20% working interest in a potential oil well known as the Powell#2 and
an option to purchase a 20% interest in all future wells drilled on the land
surrounding Powell#2.  In addition the Company has an option to
participate in any lands of mutual interest that may be acquired in the future
by the Owl Creek participating partners.  As of June 30, 2008, the
cost to the Company for this assignment was $394,499.  On August 20,
2008, the Company assigned all of its interest in exchange for a cash amount of
$760,438.





In July
2006, the Company also elected to participate in Isbill #1-36, which was
abandoned during the year.  Its costs amounted to $80,738 was moved to
the proven cost pool for depletion.





In
January 2007, the Company elected to participate in Isbill #2-36
well.  The Company paid $187,559 for its 20% of working
interest.  Isbill #2-36 started production from April
2007.  As of July 31, 2008, the Company expended $196,181 on Isbill
#2-36.  On August 20, 2008, the Company assigned all o its interest in
exchange for a cash amount of $549,388.





In April
2007, the Company entered into the 2006-3 Drilling Program for a buy-in cost of
$113,700 which will provide 12.5% Before Casing Point (“BCP”) working interest
and After Casing Point (“ACP”) working interest of 10%.  In September
2007, Wolf#1-7 was abandoned. Its costs amount to $68,118 was moved to the
proven cost pool for depletion.  In October 2007, Ruggles #1-15 was
also abandoned and the cost of $84,328 was moved to the proven cost pool for
depletion.





F -
9
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(Stated
in U.S. Dollars)





4.           
NATURAL GAS AND OIL PROPERTIES (Continued)





a)
            Proved
      Properties - Descriptions





Properties in
U.S.A.





i. Owl Creek
Prospect, Oklahoma, USA (Continued)





In
October 2007, the Company elected to participate in Powell #3-25 and paid
$112,319 for the estimated drilling costs.  Powell #3-25 was abandoned
on November 9, 2007.  Its costs amounted to $81,998 was moved to the
proven cost pool for depletion.  The unused estimated drilling costs
were applied to operating costs of other wells.





In the
2006-3 Drilling Program, Elizabeth #1-25 was plugged abandoned on February 7,
2008.  Its cost amounted to $127,421 was moved to the proven cost pool
for depletion.  Plaster #1-11 and Dale #1-15 started producing in
January and February 2008, respectively, total cost of $205,064 was moved to the
proven cost pool.





In the
2007-1 Drilling Program, Pollack #1-35 was plugged and abandoned on January 19,
2008.  Its cost amounted to $150,841 was moved to the proven cost pool
for depletion.  Hulsey #1-8 started producing in February 2008; the
cost of $161,039 was moved to the proven cost pool.  River #1-28
started producing in June 2008; the cost of $150.582 was moved to the proven
cost pool.





ii.  
 Palmetto Point Prospect, Mississippi, USA


On
February 21, 2006, the Company entered into an agreement (the “Agreement”) with
0743608 B.C. Ltd., (“Assignor”) a British Columbia, Canada based oil and gas
exploration company, in order to accept an assignment of the Assignor’s ten
percent (10%) gross working and revenue interest in a ten-well drilling program
(the “Drilling Program”) to be undertaken by Griffin & Griffin Exploration
L.L.C., (“Griffin”) a Mississippi based exploration company.  Under
the terms of the Agreement, the Company paid the Assignor $425,000 as payment
for the assignment of the Assignor’s 10% gross working and revenue interest in
the Drilling Program.  The Company also entered into a joint Operating
Agreement directly with Griffin on February 24, 2006.





The
Drilling Program on the acquired property interests was initiated by Griffin in
May 2006 and was substantially completed by Griffin by December 31,
2006.  The prospect area owned or controlled by Griffin on which the
ten wells were drilled, is comprised of approximately 1,273 acres in Palmetto
Point, Mississippi.





As of
December 31, 2007, eight wells were found to be proved wells, and two wells, PP
F-7 and PP F-121 were abandoned due to no apparent gas or oil shows
present.  The costs of abandon properties were added to the
capitalized cost in determination of the depletion expense.




On August
4, 2006, the Company elected to participate in additional two wells program in
Mississippi owned by Griffin & Griffin Exploration and paid
$70,000.  As of December 31, 2007, both wells were found to be proved
wells.




On
October 10, 2007, the Company elected to participate in the drilling of PP F-12
and PP F-12-3 in Mississippi operated by Griffin & Griffin
Exploration.  The Company’s 10% of the estimated drilling costs was
$88,783. PP F-12 started production from October 2007, and PP F-12-3 started
production from November 2007.  Additional AFE in the amount of
$36,498 for workovers on the PP F-12, PP F-12-3 was paid on January 31,
2008.




On
January 11, 2008, the Company paid $11,030 for PP F-41salt water disposal
well.







F -
10
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(Stated
in U.S. Dollars)




4.          
 NATURAL GAS AND OIL PROPERTIES (Continued)





a)
            Proved
      Properties - Descriptions





Properties in
U.S.A.





iii.
            Mississippi
      II, Mississippi, USA





In August
2006, the Company entered into a joint venture agreement with Griffin &
Griffin Exploration, LLC. to acquire an interest in a drilling program comprised
of up to 50 natural gas and/or oil wells.  The area in which the wells are
to be drilled is comprised of approximately 300,000 gross acres of land located
between Southwest Mississippi and North East Louisiana. The wells are targeting
the Frio and Wilcox Geological formations. The Company has agreed to pay
10% of all prospect fees, mineral leases, surface leases and drilling and
completion costs to earn a net 8% share of all production zones to the base of
the Frio formation and 7.5% of all production to the base of the Wilcox
formation.  In January 2007, the well CMR USA 39-14 was found to be
proved.  The cost of $35,126 was added to the proven cost
pool.  Dixon#1 was abandoned in January 2007, its costs amounted to
$40,605 was moved to the proven cost pool for depletion.  Randall#1
was abandoned in June 2007, its costs amounted to $26,918 was moved to the
proven cost pool for depletion.  BR F-24 was abandoned and its cost
amounted to $41,999 was moved to the proven cost pool for
depletion.  Faust #1, USA 1-37 and BR F-33 were found to be proven and
the total cost of $129,360 was added to the proven cost pool.





iv.    Mississippi
      III, Mississippi, USA





During
August to December 2007, five additional wells, PP F-90, PP F-100, PP F-111, PP
F-6A, and PP F-83 were drilled in the area.  These wells were
abandoned due to modest gas shows and a total drilling cost of $110,729 was
added to the capitalized costs in determination of depletion
expense.





Properties
      in Canada





v.
            Wordsworth
      Prospect, Saskatchewan, Canada





On April
10, 2006, the Company entered into an agreement (the “Agreement”) with Petrex
Energy Ltd., for a participation and Farmout agreement where the Company will
participate for 15% gross working interest before payout (BPO) and 7.5% gross
working interest after pay out (APO) in a proposed four well horizontal drilling
program in the Wordsworth area in Southeast Saskatchewan, Canada.  As
at September 30, 2008, the Company had advanced $228,761 as its share of the
costs in this Agreement.  Currently there is one producing well on
this prospect.





vi.       Todd
Creek, Alberta, Canada





In
January 2005, the Company acquired a 20% working interest in 13.75 sections
(8,800 acres) of land in Todd Creek, Alberta, Canada, at a cost of
$597,263.  One of the well 13-28-9-2W5M has production since October
2006.





The
Company paid $314,959 (CDN$352,376) on October 27, 2006 for well
13-33-8-2W5M.  It was abandoned and the cost was moved to the proved
properties cost pool for depletion.  During the year ended of December
31, 2007, the remaining wells at Todd Creek were abandoned and the cost was
moved to proven cost pool for depletion.





vii.       Hillspring,
Alberta, Canada





In
January 2005, the Company acquired a 10% working interest in 1 section (64
acres) of land in Hillspring, Alberta, Canada, at a cost of
$414,766.   During the year ended of December 31, 2007, it was
abandoned and the cost was moved to proven cost pool for depletion.





F -
11
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(Stated
in U.S. Dollars)





4. NATURAL
GAS AND OIL PROPERTIES (Continued)





b)     Unproved
Properties





Properties
            
            December
      31,
              2007
            
            
            Addition
            
            
            Cost
      added to
              capitalized
      cost
            
            
            September
      30,
              2008USA
      properties
            
            $
            781,446
            
            
            $
            419,332
            
            
            $
            (805,977
            )
            
            $
            394,801Canada
      properties
            
            
            586,814
            
            
            
            81,066
            
            
            
            (388,662
            )
            
            
            279,218Total
            
            $
            1,368,260
            
            
            $
            500,398
            
            
            $
            (1,194,639
            )
            
            $
            674,019





b)
            Unproved
      Properties - Descriptions





Properties
      in U.S.A.





i.     Owl
Creek Prospect, Oklahoma, USA





In June
2006, the Company entered into an agreement to accept the assignment of an
undivided 20% working interest in a potential oil well known as the Powell#2 and
an option to purchase a 20% interest in all future wells drilled on the land
surrounding Powell#2.  In addition the Company has an option to
participate in any lands of mutual interest that may be acquired in the future
by the Owl Creek participating partners.





In April
2007, the Company entered into the 2006-3 Drilling Program for a buy-in cost of
$113,700 which will provide 12.5% Before Casing Point (“BCP”) working interest
and After Casing Point (“ACP”) working interest of 10%.





In
September 2007, the Company entered into the 2007-1 Drilling Program for a
buy-in cost of $77,100 which will provide 25% Before Casing Point (“BCP”)
working interest and 20% After Casing Point (“ACP”) working
interest.  On December 12, 2007, estimated drilling costs of $116,023
for Pollack #1-35 was accrued to the year end of December 31, 2007 and paid on
January 14, 2008.





The
Company also paid estimated completion cost of $56,734 for the well, Hulsey
#1-8, on January 18, 2008; paid estimated drilling cost of $92,593 for the well,
River #1-28, on February 12, 2008 and estimated completion costs of $63,111 on
April 16, 2008.  During August to September 2008, the Company paid
estimated drilling costs of $82,830 and estimated completion costs of $80,905
for the well, Hulsey #2-8.  All of the wells are for the 2007-1
Drilling Program.





ii.     Mississippi
II, Mississippi, USA





In
August, 2006, the Company entered into a joint venture agreement with
Griffin & Griffin Exploration, LLC. to acquire an interest in a drilling
program comprised of up to 50 natural gas and/or oil wells.  The area in
which the wells are to be drilled is comprised of approximately 300,000 gross
acres of land located between Southwest Mississippi and North East Louisiana.
The wells are targeting the Frio and Wilcox Geological formations. The
Company has agreed to pay 10% of all prospect fees, mineral leases, surface
leases and drilling and completion costs to earn a net 8% share of all
production zones to the base of the Frio formation and 7.5% of all production to
the base of the Wilcox formation.








F -
12
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(Stated
in U.S. Dollars)





4.          
 NATURAL GAS AND OIL PROPERTIES (Continued)





b)    Unproved
Properties - Descriptions





Properties
in Canada





iii.
            Wordsworth
      Prospect, Saskatchewan, Canada





In April
2007, the Company entered into an agreement (the “Agreement”) with Petrex Energy
Ltd., for a participation and Farmout agreement where the Company will
participate for 15% gross working interest before payout (BPO) and 7.5% gross
working interest after pay out (APO) in a proposed four well horizontal drilling
program in the Wordsworth area in Southeast Saskatchewan, Canada.  As
at September 30, 2008, the Company had expended $162,996 of the well
3B9-23/3A11.  In March 2008, the Company joined the drilling of a new
well, 2 HZ 3B9 LEG.  As at September 30, 2008, the Company had
expended $37,070 on this well.  In September 2008, the Company joined
the drilling of a new well, HZ 1C2-23 and paid a cash call of $79,152
(CAD$84,233).





iv.   
Strachan Prospect, Alberta, Canada





In
September 2005, the Company entered into a participation and farmout agreement
with Odin Capital Inc. (“Odin”) where the Company will participate for 4% share
of the costs of drilling a test well in certain lands located in the Leduc
formation, Alberta, Canada.  In exchange for the participation costs,
the Company will earn interests in certain petroleum and natural gas wells
ranging from 1.289% to 4.0%.  As at December 31, 2007, the Company has
advanced $388,662 as its share of the costs in the Leduc formation
property.  The well was abandoned in the three month ended of March
31, 2008; the cost of $388,662 was moved to the proven cost pool for
depletion.





5. NATURAL
GAS AND OIL EXPLORATION RISK





a) Exploration
Risk





The
Company’s future financial condition and results of operations will depend upon
prices received for its natural gas and oil production and the cost of finding,
acquiring, developing and producing reserves.  Substantially all of
its production is sold under various terms and arrangements at prevailing market
prices.  Prices for natural gas and oil are subject to fluctuations in
response to changes in supply, market uncertainty and a variety of other factors
beyond its control.  Other factors that have a direct bearing on the
Company’s prospects are uncertainties inherent in estimating natural gas and oil
reserves and future hydrocarbon production and cash flows, particularly with
respect to wells that have not been fully tested and with wells having limited
production histories; access to additional capital; changes in the price of
natural gas and oil; availability and cost of services and equipment; and the
presence of competitors with greater financial resources and
capacity.





b)        Distribution Risk





The
Company is dependent on the operator to market any oil production from its wells
and any subsequent production which may be received from other wells which may
be successfully drilled on the Prospect.  It relies on the operator’s
ability and expertise in the industry to successfully market the
same.  Prices at which the operator sells gas/oil both in intrastate
and interstate commerce; will be subject to the availability of pipe lines,
demand and other factors beyond the control of the operator.  The
Company and the operator believe any oil produced can be readily sold to a
number of buyers.





c)
            Credit
      Risk





A
substantial portion of the Corporation’s accounts receivable is with joint
venture partners in the oil and gas industry and is subject to normal industry
credit risks.





F -
13
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(Stated
in U.S. Dollars)





5.           NATURAL
GAS AND OIL EXPLORATION RISK (Continued)





d)
            Foreign
      Operations Risk





The
Company is exposed to foreign currency fluctuations, political risks, price
controls and varying forms of fiscal regimes or changes thereto which may impair
its ability to conduct profitable operations as it operates internationally and
holds foreign denominated cash and other assets.





6. NOTE
PAYABLE





On
February 12, 2008, the Company used a promissory note in exchange for proceeds
of $90,000 from Venture Capital Asset Management.  The loan is
unsecured and bears an interest rate of 10% per annum.  On September
3, 2008, the Company paid back the promissory note of $90,000 and the accrued
interest of $5,016.





7. ASSET
RETIREMENT OBLIGATIONS





The ARO
is calculated using the 5% value of proved properties as at December 31,
2007.  Revisions to the liability could occur due to changes in
plugging and abandonment costs, well useful lives or if federal or state
regulators enact new guidance on the plugging and abandonment of wells. The
Company amortizes the amount added to oil and gas properties and recognizes
accretion expense in connection with the discounted liability over the remaining
useful lives of the respective wells.





The
information below reflects the change in the asset retirement obligations during
the period ended September 30, 2008 and year ended December 31,
2007:





September
      30,
            
            
            December
      31,2008
            
            
            2007Balance,
      beginning of period
            
            $
            111,803
            
            
            $
            40,635Liabilities
      assumed
            
            
            -
            
            
            
            66,292Accretion
      expense
            
            
            10,063
            
            
            
            4,876Balance,
      end of period
            
            $
            121,866
            
            
            $
            111,803





8. SHARE
CAPITAL





i.
            Common
      Stock





On
January 11, 2006, the Company issued 75,000 common shares for exercise of stock
options at $0.80 per share.





On
January 24, 2006, the Company issued 230,000 common shares for exercise of stock
options at $0.80 per share.





On
January 25, 2006, the Company issued 12,500 common shares for exercise of stock
options at $1.00 per share.





On April
25, 2006, the Company issued 727,271 common shares pursuant to a private
placement at $2.75 per share.





On
January 23, 2007, the Company issued 60,000 common shares for exercise of stock
options at $0.75 per share.








F -
14
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(Stated
in U.S. Dollars)





8. SHARE
CAPITAL (Continued)





On March
1, 2007, the Company issued 500,000 common shares to the President and CEO as
part of his compensation package.  The price of the share as of March
1, 2007 was $0.92.





On May 1,
2007, the Company issued 60,000 common shares to Investor Relations Services,
Inc. as part of the investor relation services and consulting
agreement.  The price of the share as of May 1, 2007 was
$0.68.





On July
8, 2007, the Company issued 250,000 common shares to its Chief Financial Officer
as part of his services rendered and in lieu of cancellation of stock
options.  The price of the share was $0.55.  It was the
average of the share price of July 6 and July 9, 2007.





On August
13, 2008, the Company issued 500,000 common shares to the President and CEO and
400,000 common shares to the CFO as part of their compensation
package.  The price of the share as of August 13, 2008 was
$0.053.





Preferred
Stock




The
Company did not issue any preferred stock during the period ended September 30,
2008 (December 31, 2007 - $ Nil).





ii.
            Stock
      Options





Compensation
expense related to stock options granted is recorded at their fair value as
calculated by the Black-Scholes option pricing model.  Options
exercised for the nine-month ended September 30, 2008 was nil (Year ended
December 31, 2007 - $42,097, related to options granted during the year ended
December 31, 2007).  The changes in stock options are as
follows:





Number
            Weighted
      average
              exercise
      priceBalance
      outstanding, December 31, 2007
              Granted
              Forfeited
              Exercised
              Balance
      outstanding, September 30, 2008
            240,000
              -
              -
              -
            $                      0.75
              -
              -
              -240,000
            $                      0.75





The
weighted average assumptions used in calculating the fair value of stock options
granted and vested during the year ended December 31, 2007 using the
Black-Scholes option pricing model are as follows:





Risk-fee
      interest rate
            3.77%Expected
      life of the option
            3
      yearsExpected
      volatility
            69.03%Expected
      dividend yield
            -





The
following table summarized information about the stock options outstanding as at
September 30, 2008:





Options
      outstanding
            
            Options
      exercisableExercise
      price
            Number
      of shares
            Remaining
              contractual
      life (years)
            
            Number
      of shares$
      0.75
            240,000
            0.47
            
            240,000








F -
15
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(Stated
in U.S. Dollars)





8.
            SHARE
      CAPITAL (Continued)





iii.
            Common
      Stock Share Purchase Warrants




As at
September 30, 2008, share purchase warrants outstanding for the purchase of
common shares as follows:





Warrants
outstanding


Exercise
      price
            Number
      of shares
            Expiry
      date$
      1.50
              $
      3.00
            2,483,985
              727,271
            February
      1, 2010
              April
      30, 2009




9.
            RELATED
      PARTIES





During
the nine-month period ended September 30, 2008, the Company paid $129,564
(September 30, 2007 - $81,596) for consulting fee and $30,919 for accounting
services to Companies controlled by directors and officers of the
Company.  Amounts paid to related parties are based on exchange
amounts agreed upon by those related parties.





On August
13, 2008, the Company issued to Douglas Bolen 500,000 shares of common stock and
Kulwant Sandher 400,000 shares of common stock in consideration for services
rendered.  The price of the share as of August 13, 2008 was
$0.053.  The total cost of $47,700 was recorded in the compensation
expense for shares granted and was included in the general and administration
expense.





On March
1, 2007, the Company issued to Douglas Bolen 500,000 shares of common stock in
consideration for services rendered pursuant to the consulting agreement with
Last Mountain Management, Inc. (“LMM”).  Douglas Bolen, Chief
Executive Officer of the Company, is the sole shareholder, officer, and director
of LMM. The price of the share as of March 1, 2007 was $0.92.  Total
cost of $460,000 was included in the general and administration
expense.





On July
8, 2007, the Company issued to Kulwant Sandher 250,000 shares of common stock in
consideration for services rendered as Chief Financial Officer as well as in
consideration for cancelling options previously granted.  The price of
the share as of July 8, 2007 was $0.55.  The cost is $137,500, which
was recorded in the compensation expense for shares granted and was included in
the general and administration expense.





These
shares were issued pursuant to Section 4(2) of the Securities Act of 1933, as
amended.





10.
            COMPARATIVE
      FIGURES





Certain
comparative figures have been reclassified to conform to the financial statement
presentation adopted in the current year.





11.
            COMMITMENT
      AND CONTRACTURAL OBLIGATIONS





A lease
agreement for the Vancouver, Canada office commenced June 1, 2008 and terminates
on May 31, 2009.  The lease agreement provides a fixed rental fee of
$1,425 per month plus additional charges for services supplied by the landlord
or incurred on behalf of the Company in the previous month.





On March
1, 2005, the Company also rented an office in Calgary, Canada on a month to
month basis for $295 per month.





F -
16
 Table of Contents





Delta
Oil & Gas, Inc.


(A
Development Stage Company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2008


(Stated
in U.S. Dollars)





12.
            SUBSEQUENT
      EVENT





On
October 7, 2008, the Company announce that it has filed a Form S-4 with the
Securities and Exchange Commission in order to register 27,168,832 of its common
shares, which will form part of the consideration being offered to shareholders
of The Stallion Group ("Stallion") in a proposed offer to acquire at least 80%
of the shares of Stallion on a fully-diluted basis. Subject to the terms and
conditions of the offer as contained in the Form S-4, it is anticipated that the
consideration for each Stallion common share tendered in the offer and accepted
would be 0.333 of a share of Delta common stock, and cash in the amount of
$0.0008.














F -
17
 Table of Contents





Item 2.    Management’s
Discussion and Analysis of Financial Condition and Results
ofOperations




This
Quarterly Report on Form 10-Q contains forward-looking statements regarding our
business, financial condition, results of operations and prospects. Words such
as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,”
“estimates” and similar expressions or variations of such words are intended to
identify forward-looking statements, but are not deemed to represent an
all-inclusive means of identifying forward-looking statements as denoted in this
Quarterly Report on Form 10-Q. Additionally, statements concerning future
matters are forward-looking statements.




Although
forward-looking statements in this Quarterly Report on Form 10-Q reflect the
good faith judgment of our management, such statements can only be based on
facts and factors currently known by us. Consequently, forward-looking
statements are inherently subject to risks and uncertainties and actual results
and outcomes may differ materially from the results and outcomes discussed in or
anticipated by the forward-looking statements.  We caution the reader
that numerous important factors, including those factors discussed in our Annual
Report on Form 10-KSB for the fiscal year ended December 31, 2007,
which are incorporated herein by reference, could affect our actual results and
could cause our actual consolidated results to differ materially from those
expressed in any forward-looking statement made by, or on behalf of, Delta
Oil.  Readers are urged not to place undue reliance on these
forward-looking statements, which speak only as of the date of this Quarterly
Report on Form 10-Q.  We file reports with the Securities and Exchange
Commission (the “SEC” or “Commission”).  We make available on our
website under "Investors/SEC Filings,” free of charge, our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports as soon as reasonably practicable after we
electronically file such materials with or furnish them to the SEC. Our website
address is www.deltaoilandgas.com.  You
can also read and copy any materials we file with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, NW, Washington, DC 20549. You can obtain
additional information about the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330.  In addition, the SEC maintains an
internet site (www.sec.gov) that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC, including us.




We
undertake no obligation to revise or update any forward-looking statements in
order to reflect any event or circumstance that may arise after the date of this
Quarterly Report on Form 10-Q.  Readers are urged to carefully
review and consider the various disclosures made throughout the entirety of this
Quarterly Report, which attempt to advise interested parties of the risks and
factors that may affect our business, financial condition, results of operations
and prospects.




As used
in this Quarterly Report, the terms “we,” “us,” “our,” and “Delta Oil” mean
Delta Oil & Gas, Inc. and our subsidiaries unless otherwise
indicated.







- 4
-
 Table of Contents







Business
of Issuer




We are an
exploration company focused on developing North American oil and natural gas
reserves.  Our current focus is on the exploration of our land
portfolio comprised of working interests in acreage in Palmetto Point,
Mississippi; Southern Saskatchewan, Canada; the Southern Alberta Foothills area
in Canada; and South Central, Oklahoma.




Liberty Valance
Well




On
February 7, 2001, we acquired an 8.9% working interest in a production gas well
called the Liberty Valance RD1 Gas Unit (the “Liberty Valance Well”), which is
located in the Rancho Capay Gas Field in Glenn County, California.  We
acquired the Liberty Valance Well for $90,000.




Based
upon a reserve report, reserves in the Liberty Valance Well were estimated at
1,032 (MCF) on December 31, 2006, translating in an estimate of $123 for the
standardized measure of discounted cash flows remaining from reserves as of
December 31, 2006.  The operator of the Liberty Valance Well markets
each non−operator's share of gas production from this well and deducts all
royalty burdens and operating expenses prior to the distribution of
revenues.  The Liberty Valance Well generated revenue of $2,870 during
the year ended December 31, 2006.  On January 1, 2007, we sold our
remaining interest in the Liberty Valance Well for forgiveness of abandonment
costs associated with this well.




Todd Creek Prospect and
Hillspring Prospect




On
November 26, 2004, through our wholly-owned Canadian subsidiary, Delta Oil &
Gas (Canada), Inc., we entered into two agreements (the "Agreements") with Win
Energy Corporation, ("Win"), an Alberta based Oil & Gas Exploration Company,
in order to acquire an interest in leases owned by Win.  On or about
January 25, 2005, we paid Win the full purchase price set forth in the
Agreements and acquired a 20% working interest in a property known as Todd Creek
and a 10% working interest in a property known as Hillspring.  Both
properties are located approximately 90 miles south of Calgary, Alberta in the
Southern Alberta Foothills belt.




Todd Creek
Prospect




On
January 25, 2005, we acquired a 20% working interest in 13.75 sections of land
(8,800 acres) in Todd Creek for the purchase price of $597,263 from
Win.  Included in the acquisition was a test well that has been
drilled and cased.  Under the terms of this agreement, Win has assumed
all costs of drilling and completing or abandoning the test well up to gross
costs of $1,330,000.  Thereafter, we will assume responsibility for
20% of all costs, risks, and expenses relating to the test
well.  During the second quarter of 2007, we paid a cash call of
$258,139 as our share of costs for the proposed drilling program.




During
the second quarter of 2005, a well located in Todd Creek property was drilled to
a specifically targeted depth.  This well is located in 13-28-9-2W5 in
Alberta, Canada (the “13-28 well”) and it was evaluated and
tested.  The operator encountered gas reservoirs and this well was
tied into a newly constructed gas processing plant and production commenced in
September 2006.  The revenue received from this well was $18,088 for
the year ended December 31, 2007.






- 5
-
 Table of Contents






Our
monthly costs related to our interest in the 13-28 well exceeded the royalties
we received and as a result, we abandoned our interest in this well in the
fourth quarter of 2007.




In
October 2006, we completed the drilling of a second well in the Todd Creek
Prospect located in 13-33-8-2 in Alberta, Canada (the “13-33 well”) at a cost of
$314,954.  Independent reserves reports we commissioned indicate that
no economic hydrocarbons were present.  As a result, the 13-33 well
was plugged and abandoned.




Hillspring
Prospect




On
January 25, 2005, we acquired a 10% working interest in one section of land (640
acres) in Hillspring for the purchase price of $414,766 from Win.  We
previously had anticipated that a test well would have been drilled on our
property interest during the second quarter of 2008, but no date has been
scheduled at the present time.




Strachan
Prospect




On
September 23, 2005, we entered into the Farmout Agreement with Odin Capital Inc.
(“Odin”), a Calgary, Alberta corporation.  A former member of our
board of directors, Mr. Philipchuk, maintains a 50% ownership interest in
Odin.  Odin had the right to acquire an oil and gas leasehold
interests in certain lands located in Section 9, Township 38, Range 9, West of
the 5th
Meridian, Alberta, Canada (“Section 9”) upon incurring expenditures for drilling
and testing on the property.  In exchange for us paying 4.0% of all
costs associated with drilling, testing, and completing the test well on the
property which we refer to as the Leduc formation test well, we will have
earned:




(a)
            In
      the Spacing Unit for the Earning Well:(i)
            a
      2.0% interest in the petroleum and natural gas below the base of the
      Mannville, excluding natural gas in the Leduc formation; and(ii)
            a
      4.0% interest in the natural gas in the Leduc formation before payout,
      subject to payment of the Overriding Royalty which is convertible upon
      payout at royalty owners option to 50% of our Interest; and(b)
            a
      1.6% interest in the rights below the base of the Shunda formation in
      Section 10, Township 38, Range 9W5M.(c)
            a
      1.289% interest in the rights below the base of the Shunda formation in
      Section 15 and 16, Township 38, Range 9W5M, down to the base of the
      deepest formation penetrated.




On
October 6, 2005, drilling commenced on the Leduc formation test
well.  Under the terms of the Farmout Agreement, we advanced 110% of
the anticipated costs prior to drilling.  The total costs advanced by
us prior to drilling were $347,431.  The well was drilled to the
targeted depth of 13,650 feet.  During the three month period ended
September 30, 2007, we paid additional drilling costs of $41,231 and have since
incurred no additional drilling costs.






- 6
-
 Table of Contents






Based on
results indicating the presence of a potential gas well, the operator inserted
casing into the total depth of the well in July 2006 and have committed to
perform a full testing program.  During the three months ended March
31, 2008, testing showed that no economic hydrocarbons were present, thus the
costs of $388,662 was transferred to the proven cost pool for
depletion.





Palmetto Point Prospect - 12
Wells Phase - I





On
February 21, 2006, we entered into an agreement with 0743608 B.C. Ltd.,
(“Assignor”), a British Columbia based oil and gas exploration company, in order
to accept an assignment of the Assignor’s ten percent (10%) gross working and
revenue interest in a ten-well drilling program (the “Drilling Program”) to be
undertaken by Griffin & Griffin Exploration L.L.C. (“Griffin”), a
Mississippi based exploration company.  Under the terms of the
agreement, we paid the Assignor $425,000 as payment for the assignment of the
Assignor’s 10% gross working and revenue interest in the Drilling
Program.  We also entered into a Joint Operating Agreement directly
with Griffin on February 24, 2006.





The
Initial Drilling Program on ten (10) wells on the acquired property interest was
completed by Griffin.  On August 4, 2006, we paid $70,000 in exchange
for our participation in an additional two well program, which has also been
completed.  The prospect area owned or controlled by Griffin on which
the wells were drilled is comprised of approximately 1,273 acres in Palmetto
Point, Mississippi.  All twelve wells have been drilled and currently
seven wells are producing, we anticipate that three wells will be producing and
are currently waiting to be tied into the pipeline, and two wells were not
commercially viable and were plugged and abandoned. We refer to this drilling
program as Palmetto Point Phase I.  Total revenue received from these
wells for the three months ended September 30, 2008 was $10,425, as compared
with $21,990 in revenues for the three months ended September 30,
2007.  Total revenue received from these wells for the nine months
ended September 30, 2008 was $35,842, as compared with $51,575 in revenues for
the nine months ended September 30, 2007.  The decrease in revenue was
caused by a temporary halt in production of these wells during the reporting
period due to water contamination of these wells.  Remedial actions
were taken by the installation of a salt water disposal well which was
successful in eliminating the water contamination.  These wells have
recommenced production and are currently producing.





In
October 2007, as part of Phase I, we drilled a well (the "PP F-12") on the
prospect.  Subsequent testing revealed that the PP F-12 well contained
oil reserves suitable for commercial production.  The PP F-12 well
began producing on October 2, 2007.   This well is situated in
what is known as the Belmont Lake Oil Field.  Based on the positive
results from the PP F-12 well, the operator suggested drilling an additional two
development wells in the immediate vicinity in which we would
participate.  In November 2007, we participated in the drilling of a
step-out well from the PP F-12 (the “PP F-12 #2”).  This well was
drilled to total depth, logged, tested and cased.   The PP F-12
#2 encountered approximately three feet of hydrocarbon showings and as such the
operator recommended re-entering the well and directionally drilling on an angle
toward the PP F-12.  Upon completion and testing of this re-entry (the
“PP F-12 #2-3”), the operator encountered approximately 32 feet of hydrocarbon
pay and the well was connected to a nearby pipeline and is currently producing
oil.  Total revenue received from these






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two oil
wells was $0 for the three months ended September 30, 2008 and $60,959 for the
nine months ended September 30, 2008.  These two wells did not
generate any revenue prior to 2008.  The revenue generated from these
wells has been less than we anticipated as a result of a halt in production of
these wells during the reporting period due to the flooding of the Mississippi
basin where these wells are located.  We anticipate that these wells
will recommence production during the quarter ended December 31,
2008.





Palmetto Point Prospect - 50
wells – Phase II





During
the fiscal quarter ended September 30, 2006, we entered into a joint venture
agreement to acquire an interest in a drilling program comprised of up to fifty
natural gas and/or oil wells. The area in which the wells are being drilled is
approximately 300,000 gross acres located between Southwest Mississippi and
Northeastern Louisiana. Drilling commenced in September 2006.  The
site of the first twenty wells is located within range to tie into existing
pipeline infrastructure should the wells be suitable for commercial
production.  The drilling program was conducted by Griffin in its
capacity as operator.  We agreed to pay 10% of all prospect fees,
mineral leases, surface leases, and drilling and completion costs to earn a net
8.0% share of all production zones to the base of a geological formation
referred to as the Frio formation and 7.5% of all production to the base of a
geological formation referred to as the Wilcox formation.  The cost
during the quarter ending September 30, 2006 amounted to
$100,000.  During the fourth quarter of fiscal 2006, we made
additional payments of $300,000 that was employed in the further development of
prospects on lands in Mississippi and Louisiana in accordance with the terms of
the operating agreement.  We did not incur any additional payments
other than drilling costs for these prospects in 2007.  We do not
anticipate that we will incur any additional payments other than drilling costs
for these prospects going forward.





We
drilled seven wells, of which two have been abandoned (the Dixon #1 and the
Randall #1).  Our costs attributable to these two abandoned wells was
$67,523.  Of the successful four wells, the Redbug #1, Redbug #2 and
the Buffalo River #1 began producing in the three months ended March 31, 2007
and the Faust #1, is awaiting connection to the nearby pipeline for
production.  The revenue received from these wells for the three
months ended September 30, 2008 was $22,028, as compared to $2,389 for the three
months ended September 30, 2007.  The revenue received from these
wells for the nine months ended September 30, 2008 was $73,837, compared to
$9,066 for the nine months ended September 30, 2007.  The increase in
revenue was caused by ongoing production for the entire nine month period ended
September 30, 2008, as opposed to partial production commencing during the nine
months ended September 30, 2007.





Wordsworth
Prospect





On April
10, 2006, we entered into a farmout, option and participation letter agreement
(“FOP Agreement”) where we acquired a 15% working interest in certain leasehold
interests located in southeast Saskatchewan, Canada, referred to as the
Wordsworth area, for the purchase price of $152,724.  We are
responsible for our proportionate share of the costs associated with drilling,
testing, and completing the first test well on the property.  In
exchange for us paying our proportionate share of the costs associated with
drilling, testing, and completing the first test well on the property, we earned
a 15% working interest before payout and a 7.5% working interest




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after
payout on the Wordsworth prospect.  Payout refers to the return of our
initial investment in the property.  In addition, we also acquired an
option to participate and acquire a working interest in a vertical test well
drilled to 1200 meters to test the Mississippian (Alida) formation in LSD 13 of
section 24, township 7, range 3 W2.  Our total costs as at December
31, 2007 was $222,649.





During
June 2006, the first well was drilled to a horizontal depth of 2033 meters in
the Wordsworth prospect.  The initial drilling of this well and
subsequent testing revealed that this well contained oil reserves suitable for
commercial production.  In June 2006, this initial well began
producing as an oil well.  The revenue received from this well for the
three months ended September 30, 2008 was $33,406, as compared to $29,174 for
the three months ended September 30, 2007.  The revenue received
from this well for the nine months ended September 30, 2008 was $88,921, as
compared to $104,118 for the nine months ended September 30,
2007.  The reduction in revenue was caused by the reduction in our
working interest from 15% to 7.5% after payout and partially offset by an
increase in commodity prices.  We do not expect the increase in
commodity prices to continue for the remainder of the current fiscal
year.





The
second horizontal well was drilled in May 2007 at a cost of
$198,152.  Initial logs indicated hydrocarbon showings in an
oil-bearing zone estimated to be approximately 770 feet in the horizontal
section.  However, due to the high water content in fluid removed from
this well, the operator determined that it was not commercially productive and
it was plugged and abandoned.





In April
2008, the operator recommended re-entering the second horizontal well with a
view to drilling horizontally in a different direction starting at the base of
the vertical portion of that well.  We elected to participate in this
re-entry on the same terms and conditions as the previous wells.  This
well was drilled at a cost of $33,812.  No economic hydrocarbons were
found and this well was plugged and abandoned.





Owl Creek
Prospect





On June
1, 2006, we entered into an Assignment Agreement with Brinx Resources, Ltd.,
(“Brinx”), a Nevada Oil & Gas Exploration Company, in order to acquire a
working interest in lands and leases owned by Brinx.  The purchase
price of $300,000 for the assignment and options to acquire future interests has
been paid in full.  We paid a further $68,987 for our proportion of
costs associated with the completion of the first well.  The lands are
located in Garvin & McClain Counties, Oklahoma and we refer to the lands as
the “Owl Creek Prospect.”





Pursuant
to the terms of the Assignment Agreement, we acquired a 20% working interest in
an oil well drilled at the Owl Creek Prospect (the “Powell #2”).  The
Powell #2 was drilled to total depth of 5,617 feet on May 18, 2006 and underwent
testing.  Based upon the positive result of the testing of the Powell
#2, this well was completed and commercial production commenced in August
2006.  Under the terms of the Assignment Agreement, we are responsible
for our proportionate share of the costs of completion and tie-in for production
of the Powell #2 which was $68,987.  Initially, the Powell #2 began
flowing oil and natural gas under its own pressure




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without
the assistance of a pump.  Revenue generated from the Powell #2 for
the three months ended September 30, 2008 was $18,533, as compared to $129,567
for the three months ended September 30, 2007.  Revenue generated from
the Powell #2 for the nine months ended September 30, 2008 was $173,577, as
compared to $366,975 for the nine months ended September 30,
2007.  The reduction in revenue was caused by the Powell #2 being
temporarily taken out of production in order to address maintenance issues and a
reduction in oil production from the well.





As part
of the Assignment Agreement, we were granted an option to earn a 20% working
interest in any future wells drilled on the 1,120 acres of land, which make up
the Owl Creek Prospect.  Lastly, we received an option to earn a 20%
working interest in any future wells to be drilled on any land of mutual
interest acquired by the Owl Creek participants in and around the same
area.  The working interest in future wells is earned by paying 20% of
the costs of drilling and completing each additional well.  Prior to
drilling, we are provided an invoice for the anticipated costs of each proposed
well and given the option to participate.





Based
upon the positive results of the Powell #2, an additional well (the “Isbill
#1-36”) was drilled and reached targeted depth in September
2006.  However, test results showed that the well was not commercially
viable and it was plugged and abandoned in September 2006.  Costs of
$80,738 were transferred to proved reserves and subsequently depleted in
accordance with our accounting policy.





In
January 2007, we commenced drilling of another well (the “Isbill #2-36”). Our
20% working interest in the Isbill #2-36 cost $157,437 for both drilling and
completion.  The Isbill #2-36 was drilled to approximately 5,900 feet
and encountered two potential pay zones and is a direct offset well to the
Powell #2 which is currently producing.  The revenue received from the
Isbill #2-36 for the three months ended September 30, 2008 was $0, as compared
to $40,777 for the three months ended September 30, 2007.  The revenue
received from the Isbill #2-36 for the nine months ended September 30, 2008 was
$122,970, as compared to $80,585 for the nine months ended September 30,
2007.  We attribute the increased revenues from the Isbill #2-36 in
the current reporting period to an increase in the price of a barrel of
oil.  Our operator has experienced some maintenance difficulties in
operating this well and this resulted in no revenue being generated from the
Isbill #2-36 during the three months ended September 30, 2008.





In July
2008, we sold both the Powell #2 and Isbill #2-36 wells and all interest in the
Owl Creek Prospect for gross proceeds of $1,309,826.  We realized a
gain on sale of the property of $719,145.  We decided to dispose of
the property based on the declining rates of production experienced by the
operator and the reasonable offer for the both wells and the surrounding lands
of 1,120 acres.





2006-3 Drilling
Program





On April
17, 2007, we entered into an agreement with Ranken Energy Corporation to
participate in a five well drilling program at Garvin and Murray Counties,
Oklahoma (the “2006-3 drilling Program”).  The leases secured and/or
lands to be pooled for this drilling program total approximately 820 net
acres.  We agreed to take a 10% working interest in this
program. To date, we have paid the sum of $514,619.






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Three
wells drilled (the "Wolf #1-7", the "Loretta #1-22" and the “Ruggles #1-15")
were deemed by the operator to not be commercially viable and as such, were
plugged and abandoned.  The proportionate costs associated with these
abandoned wells amounted to  $244,989, which were moved to the proved
properties cost pool for depletion.





Three
other wells drilled (the “Elizabeth #1-25”, the “Plaster #1-1” and the “Dale #1
re-entry”) were deemed by the operator to be commercially viable and production
casing was set in each.  The Elizabeth #1-25 located in the Meridian
Prospect cost $99,129, the Plaster #1-1 located in the Plaster Prospect cost
$116,581, and re-entry into the Dale #1 located in the Dale Prospect cost
$18,150.  Subsequent to the completion of these wells, two remain
economically viable at this time.  The Plaster #1 encountered
hydrocarbon showings and is producing natural gas with amounts of associated oil
as of January, 2008. The Dale #1 re-entry has been producing in the range of 2
to 3 barrels of oil per day.  The Elizabeth #1-25 has been plugged and
abandoned.  Total revenue received from these wells for the three
months ended September 30, 2008 was $638 and $46,430 for the nine months ended
September 30, 2008.  These two wells did not generate any revenue
prior to 2008.





The
operator, Ranken Energy, is reviewing the productivity levels from these wells
and may propose the drilling of additional wells in the Dale Prospect and the
Crazy Horse Prospect.  We anticipate that we would participate in
these wells to the same extent as in the original Drilling Program, which is a
10% working interest.





2007-1 Drilling Program - 3
Wells





On
September 10, 2007, we entered into an agreement with Ranken Energy Corporation
to participate in a three well drilling program in Garvin County, Oklahoma (the
“2007-1 Drilling Program”).  We purchased a 20% working interest in
the 2007-1 Drilling Program for $77,100. Drilling of the first and second wells
(the “Pollock #1-35” and the “Hulsey #1”) has been completed in the N.E. Anitoch
Prospect and the Washington Creek Prospect respectively.  The Pollock
#1-35 did not prove to be commercially viable but the Hulsey #1 has been
producing in the range of 50 to 60 barrels of oil per day with approximately 50
Mcf of natural gas per day.  Drilling of the third well in this
drilling program (the “River #1”) was completed during the three months ended
September 30, 2008.  River #1 commenced production and the total
revenue received for the three and nine month period ended September 30, 2008
was $75,231.  Hulsey #1-8 started producing during the first quarter
of 2008 and the total revenue received for the three month period ended
September 30, 2008 was $38,273.  The total revenue from this well for
the nine month period ended September 30, 2008 was $95,451.








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Results
of Operations for the three and nine months ended September 30, 2008 and
2007





Our gross
revenue generated for the three months ended September 30, 2008 was $909,222, an
increase of approximately 294% from revenues of $230,483 for the three months
ended September 30, 2007.  Our gross revenue generated for the nine
months ended September 30, 2008 was $1,492,362, an increase of approximately
134% from revenues of $638,126 for the nine months ended September 30,
2007.  The increase in gross revenue for the three and nine months
ended September 30, 2008, when compared the three and nine months ended
September 30, 2007, is attributable to the sale of our working interest in the
Owl Creek Prospect during the three months ended September 30, 2008 for a gain
of $719,146.





Revenue
generated from natural gas and oil sales was $190,076 for the three months ended
September 30, 2008, a decrease of approximately 18% from $230,483 for the three
months ended September 30, 2007.  The decrease in revenue from natural
gas and oil sales for the three months ended September 30, 2008, when compared
the three months ended September 30, 2007, is primarily attributable to our
wells in the Owl Creek Prospect not generating revenue for the entire three
month period ended September 30, 2008 due to a temporary suspension of
production in order to address maintenance issues and the sale of our working
interest in the Owl Creek Prospect in July 2008.





Revenue
generated from natural gas and oil sales was $773,216 for the nine months ended
September 30, 2008, an increase of approximately 21% from $638,126 for the nine
months ended September 30, 2007.  The increase in revenue from natural
gas and oil sales for the nine months ended September 30, 2008, when compared
the nine months ended September 30, 2007, is primarily attributable to revenues
received from the additional wells from the Owl Creek and Palmetto prospects
which started to produce revenue during the reporting period and an increase in
commodity prices achieved on sales of hydrocarbons.





We incurred costs and expenses in the
amount of $250,147 for the three months ended September 30, 2008, a 43% decrease
from costs and expenses of $440,296 for the three months ended September 30,
2007.  We incurred costs and expenses in the amount of $1,123,247 for
the nine months ended September 30, 2008, a 38% decrease from costs and expenses
of $1,804,437 for the nine months ended September 30, 2008.





The
decrease in costs and expenses for the three and nine months ended September 30,
2008, when compared the three and nine months ended September 30, 2007, is
primarily attributable to the following factors:





·
            General
      and administrative costs for the three months ended September 30, 2008
      decreased to $158,457 from $163,918 for the three months ended September
      30, 2007, a decreaseof
      3%.  General and administrative costs for the nine months ended
      September 30, 2008 decreased to $344,090 from $1,075,260 for the nine
      months ended September 30, 2007, a decreaseof
      68%.  The decrease in general and administrative costs was
      caused by a reduction in stock based compensation expense attributable to
      the issuances of stock options and shares of common
      stock.  Stock based compensation expense for the three months
      ended September 30, 2008 was $47,700 as compared to $53,477 for the
      three months ended September 30, 2007.  Stock based compensation
      expense for the nine months ended September 30, 2008 was $47,700, as
      compared to $680,397 for the nine months ended September 30,
      2007.






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·
            Natural
      gas and oil operating costs for the three months ended September 30, 2008
      increased to $48,516 from $44,040 for the three months ended September 30,
      2007, an increase of 10%.  Natural gas and oil operating costs
      for the nine months ended September 30, 2008 increased to $179,626 from
      $127,301 for the nine months ended September 30, 2007, an increase of
      41%.  The increase in natural gas and oil operating costs is
      attributable to an increase in the number of producing wells in the three
      and nine months ended September 30, 2008, as compared to the same
      reporting periods in the prior
year.





·
            Depreciation
      and depletion expensefor the three
      months ended September 30, 2008 decreased to $39,820 from $232,338 for the
      three months ended September 30, 2007, a decrease of
      83%.  Depreciation and depletion expensefor the nine
      months ended September 30, 2008 decreased to $200,767 from $561,287 for
      the nine months ended September 30, 2007, a decrease of
      64%.  The decrease in depreciation and depletion expense is
      attributable to an increase in the estimated recoverable reserves and a
      reduction is uneconomic wells in the three and nine months ended September
      30, 2008, as compared to the same reporting periods in the prior year;
      and





·
            We
      recorded no impairment of natural gas and oil properties expense for the
      three months ended September 30, 2008 or 2007.  Impairment of
      natural gas and oil properties expense for the nine months ended September
      30, 2008 increased to $388,702 from $40,589 for the nine months ended
      September 30, 2007, an increase of 858%.  The substantial
      increase in impairment of natural gas and oil properties expense for the
      nine months ended September 30, 2008, as compared to the nine months ended
      September 30, 2007, is attributable to the impairment of our working
      interests in Strachan, Alberta, Canada resulting from our evaluation that
      the costs associated with these prospects are highly unlikely to be
      recovered.





The net
operating income for the three months ended September 30, 2008 was $659,075,
compared to a net operating loss of $209,813 for the three months ended
September 30, 2007.  The net operating income for the nine months
ended September 30, 2008 was $369,115, compared to an operating net loss of
$1,166,311 for the nine months ended September 30, 2007.





We
reported other expenses of $385 for the three months ended September 30, 2008,
as compared to other income of $9,364 in the three months ended September 30,
2007.  We reported other expenses of $3,551 for the nine months ended
September 30, 2008 and other income of $32,563 for the nine months ended
September 30, 2007.  Other expenses were attributable to interest
expenses for a note payable which was paid in full during the reporting
period.






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Net
income for the quarter ended September 30, 2008 was $658,690, compared to a net
loss of $206,558 for the quarter ended September 30, 2007. Net income for the
nine months ended September 30, 2008 was $365,564, compared to a net loss of
$1,114,018 for the nine months ended September 30,
2007.  Profitability during the three and nine months ended September
30, 2008 was attributable to an increase in revenues from new and existing
wells, a reduction in operating expenses and the sale of the Owl Creek
Prospect.





There are
material events and uncertainties which could cause our reported financial
information to not to be indicative of future operating results or financial
condition.  Our inability to successfully identify, execute or
effectively integrate future acquisitions may negatively affect our results of
operations.  The success of any acquisition depends on a number of
factors beyond our control, including the ability to estimate accurately the
recoverable volumes of reserves, rates of future production and future net
revenues attainable from the reserves and to assess possible environmental
liabilities.  Drilling for oil and natural gas may also involve
unprofitable efforts, not only from dry wells but also from wells that are
productive but do not produce sufficient net reserves to return a profit after
deducting operating and other costs. In addition, wells that are profitable may
not achieve our targeted rate of return.  Our ability to achieve our
target results are also dependent upon the current and future market prices for
crude oil and natural gas, costs associated with producing oil and natural gas
and our ability to add reserves at an acceptable cost.  We do not
operate the properties in which we have an interest and we have limited ability
to exercise influence over operations for these properties or their associated
costs.  Our dependence on the operator and other working interest
owners for these projects and our limited ability to influence operations and
associated costs could materially adversely affect the realization of our
returns on capital in drilling or acquisition activities and our targeted
production growth rate. As a result, our historical results should not be
indicative of future operations.





Liquidity
and Capital Resources





As of
September 30, 2008, we had total current assets of $1,209,909 and total current
liabilities in the amount of $26,566.  As a result, we had working
capital of $1,183,353 as of September 30, 2008.





The
revenue we currently generate from natural gas and oil sales does not exceed our
operating expenses.  As such, we will require additional financing
activities including issuance of our equity or debt securities to fund our
operations and proposed drilling activities beyond the year ended December 31,
2008.  During the three months March 31, 2008, we received $90,000
from financing activities involving loan issuance.  We repaid this
loan during the quarter ended September 30, 2008, including interest charges of
$5,016.





We will
require additional funds to expand our acquisition, exploration and production
of natural oil and gas properties.  Our management also anticipates
that the current cash on hand may not be sufficient to fund our continued
operations at the current level for the next twelve
months.  Additional capital will be required to effectively expand our
operations through the acquisition and drilling of new prospects and to
implement our overall business strategy.  It is uncertain whether we
will be able to obtain financing when sought or obtain it on terms acceptable to
us.  If we are unable to obtain additional financing, the full
implementation of our ability to expand our operations will be
impaired.  Any additional equity financing may involve substantial
dilution to our then existing shareholders.






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Operating
activities generated $414,805 in cash for the nine months ended September 30,
2008.  Our positive cash flow for the nine months ended September 30,
2008 was caused by the redemption of certain cash equivalents.





Cash
flows provided by investing activities during the nine months ended September
30, 2008 was $681,506.  Our positive cash flow for the nine months
ended September 30, 2008 was primarily caused by sale proceeds of natural gas
and oil working interests in the amount of $1,309,826.





Cash
flows provided by financing activities during the nine months ended
September 30, 2008 primarily consisted of $95,414 related to the
registration of shares under Form S-4.





The
underlying drivers that resulted in material changes and the specific inflows
and outflows of cash for the nine months ended September 30, 2008 are as
follows:





·
            Revenue
      received as a result of royalties from natural gas and oil producing
      properties;




·
            Property
      acquisition costs; and




·
            Sale
      of the Owl Creek Prospect.




Off
Balance Sheet Arrangements





We do not
have any off-balance sheet debt nor did we have any transactions, arrangements,
obligations (including contingent obligations) or other relationships with any
unconsolidated entities or other persons that may have material current or
future effect on financial conditions, changes in the financial conditions,
results of operations, liquidity, capital expenditures, capital resources, or
significant components of revenue or expenses.





Going
Concern





As shown
in the accompanying financial statements, we have incurred a net loss of
$2,992,372 since inception.  To achieve profitable operations, we
require additional capital for obtaining producing oil and gas properties
through either the purchase of producing wells or successful exploration
activity.  We believe that we will be able to obtain sufficient
funding to meet our business objectives, including anticipated cash needs for
working capital and are currently evaluating several financing
options.  However, there can be no assurances offered in this
regard.  As a result of the foregoing, there exists substantial doubt
about our ability to continue as a going concern.





Critical
Accounting Policies





In
December 2001, the SEC requested that all registrants list their most “critical
accounting polices” in the Management Discussion and Analysis.  The
SEC indicated that a “critical accounting policy” is one which is both important
to the portrayal of a company’s financial condition and results, and requires
management’s most difficult, subjective or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain. We believe that the following accounting policies fit this
definition.




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Joint
Ventures





All
exploration and production activities are conducted jointly with others and,
accordingly, the accounts reflect only our proportionate interest in such
activities.





Natural
Gas and Oil Properties





We
account for our oil and gas producing activities using the full cost method of
accounting as prescribed by the United States Securities and Exchange Commission
(“SEC”).  Accordingly, all costs associated with the acquisition of
properties and exploration with the intent of finding proved oil and gas
reserves contribute to the discovery of proved reserves, including the costs of
abandoned properties, dry holes, geophysical costs, and annual lease rentals are
capitalized.  All general corporate costs are expensed as incurred. In
general, sales or other dispositions of oil and gas properties are accounted for
as adjustments to capitalized costs, with no gain or loss
recorded.  Amortization of evaluated oil and gas properties is
computed on the units of production method based on all proved reserves on a
country-by-country basis.  Unevaluated oil and gas properties are
assessed at least annually for impairment either individually or on an aggregate
basis.  The net capitalized costs of evaluated oil and gas properties
(full cost ceiling limitation) are not to exceed their related estimated future
net revenues from proved reserves discounted at 10%, and the lower of cost or
estimated fair value of unproved properties, net of tax
considerations.  These properties are included in the amortization
pool immediately upon the determination that the well is dry.





Unproved
properties consist of lease acquisition costs and costs on well currently being
drilled on the properties.  The recorded costs of the investment in
unproved properties are not amortized until proved reserves associated with the
projects can be determined or until they are impaired.





Revenue
Recognition





Revenue
from sales of crude oil, natural gas and refined petroleum products are recorded
when deliveries have occurred and legal ownership of the commodity transfers to
the customers. Title transfers for crude oil, natural gas and bulk refined
products generally occur at pipeline custody points or when a tanker lifting has
occurred.  Revenues from the production of oil and natural gas
properties in which we share an undivided interest with other producers are
recognized based on the actual volumes sold by us during the
period.  Gas imbalances occur when our actual sales differ from its
entitlement under existing working interests.  We record a liability
for gas imbalances when we have sold more than our working interest of gas
production and the estimated remaining reserves make it doubtful that the
partners can recoup their share of production from the field.  At
September 30, 2008 and 2007, we had no overproduced imbalances.






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Item 3.     Quantitative and
Qualitative Disclosures About Market Risk





Not
Applicable.





Item 4T.   Controls and
Procedures





Evaluation
of Disclosure Controls and Procedures





We
carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) as of September 30, 2008.  This evaluation
was carried out under the supervision and with the participation of our Chief
Executive Officer, Mr. Douglas Bolen, and our Chief Financial Officer, Mr.
Kulwant Sandher.  Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that, as of September 30, 2008,
our disclosure controls and procedures are effective.





Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act are recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and
forms.  Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed in our reports filed under the Exchange Act is accumulated and
communicated to management, including our Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required
disclosure.





Limitations on the
Effectiveness of Internal Controls





Our
management does not expect that our disclosure controls and procedures or our
internal control over financial reporting will necessarily prevent all fraud and
material error.  Our disclosure controls and procedures are designed
to provide reasonable assurance of achieving our objectives and our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective at that reasonable assurance
level.  Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs.  Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within our company have been detected.  These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or
mistake.  Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the internal control.  The design of any system of
controls also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future
conditions.  Over time, control may become inadequate because of
changes in conditions, or the degree of compliance with the policies or
procedures may deteriorate.






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Changes in Internal Control
Over Financial Reporting





There
have been no changes in our internal controls over financial reporting during
the quarter ended September 30, 2008 that have materially affected or are
reasonably likely to materially affect such controls.





PART
II – OTHER INFORMATION





Item 1.       Legal
Proceedings





We are
not a party to any pending legal proceeding.  We are not aware of any
pending legal proceeding to which any of our officers, directors, or any
beneficial holders of 5% or more of our voting securities are adverse to us or
have a material interest adverse to us.





Item 1A.     Risk
Factors





Not
Applicable.





Item 2.   
Unregistered Sales of Equity Securities and Use of Proceeds





Other
than as set forth below, we did not issue any securities without registration
under the Securities Act during the reporting period.





On March
1, 2006, we entered into a consulting agreement with Last Mountain Management,
Inc. (“LMM”) to provide consulting services to us (the “LMM Consulting
Agreement”). Douglas Bolen, our Chief Executive Officer, is the sole
shareholder, officer, and director of LMM.  Pursuant to the terms of
the LMM Consulting Agreement, we issued to Mr. Bolen 500,000 shares of our
common stock during the reporting period.  These shares were issued
pursuant to Section 4(2).  We did not engage in any general
solicitation or advertising.  The stock certificate was issued with
the appropriate legends affixed to the restricted stock.





On
January 1, 2008, we entered into a consulting agreement with Hurricane Corporate
Services Ltd.  (“Hurricane”) to provide consulting services to us (the
“Hurricane Consulting Agreement”). Kulwant Sandher, our Chief Financial Officer,
is the sole shareholder, officer, and director of Hurricane.  Pursuant
to the terms of the Hurricane Consulting Agreement, we issued to Mr. Sandher
400,000 shares of our common stock during the reporting period.  These
shares were issued pursuant to Section 4(2).  We did not engage in any
general solicitation or advertising.  The stock certificate was issued
with the appropriate legends affixed to the restricted stock.





Item 3.     Defaults upon Senior
Securities




None.








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Item 4.   Submission of Matters to a Vote
of Security Holders





No
matters have been submitted to our security holders for a vote, through the
solicitation of proxies or otherwise, during the quarterly period ended
September 30, 2008.





Item 5.    Other Information





None





Item 6. Exhibits





See the
Exhibit Index following the signatures page of this report, which is
incorporated herein by reference.











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SIGNATURES





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





Delta
      Oil & Gas, Inc.Date:
            November
      7, 2008By:
      /s/ Douglas
      Bolen
              Douglas
      Bolen
              Title:Chief
      Executive Officer and DirectorDate:
            November
      7, 2008By:
      /s/ Kulwant
      Sander
              Kulwant
      Sandher
              Title:Chief
      Financial Officer and Director











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DELTA
OIL & GAS, INC.


(the
“Registrant”)


(Commission
File No. 000-52001)


Exhibit Index


to


Quarterly
Report on Form 10-Q


for
the Quarter Ended September 30, 2008





Exhibit
              No.
            Description
            Filed
      Herewith31.1
            Certification of Chief Executive Officer pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002
            X31.2
            Certification of Chief Financial Officer pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002
            X32.1
            Certification of Chief Executive Officer and Chief
      Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to Section 906 of the Sarbanes-Oxley Act of 2002
            X





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