**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      DC 20549





**FORM
      10-QSB**





[X]
            Quarterly
                Report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934For
                the quarterly period endedJune
                30, 2007[
                ]
            Transition
                Report pursuant to 13 or 15(d) of the Securities Exchange Act of
                1934For
                the transition period __________to__________Commission
                File Number:000-52001





Delta
      Oil & Gas, Inc.


(Exact
      name of small business issuer 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 T2P 3N4(Address
                of principal executive offices)





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





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the 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 [X] Yes
      [
      ] No





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





State
      the
      number of shares outstanding of each of the issuer’s classes of common stock, as
      of the latest practicable date: 45,940,506 common shares as of July 12,
      2007.





Transitional
      Small Business Disclosure Format (check one): Yes [ ] No [X]




Table
          of Contents


TABLE
                OF CONTENTS
            PagePART
                I - FINANCIAL INFORMATIONItem
                1.
            Financial
                Statements
            3Item
                2.
            Management’s
                Discussion and Analysis or Plan of
                Operation
            4Item
                3.
            Controls
                and Procedures
            13PART
                II - OTHER INFORMATIONItem
                1.
            Legal
                Proceedings
            14Item
                2.
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            14Item
                3.
            Defaults
                Upon Senior Securities
            14Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            14Item
                5.
            Other
                Information
            15Item
                6.
            Exhibits
            15


2
 Table
          of Contents


**PART
      I - FINANCIAL INFORMATION**





**Item1.**  **Financial
      Statements**





Our
                unaudited financial statements included in this Form 10-QSB are as
                follows:F-1
            Balance
                Sheet as of June 30, 2007;F-2
            Statements
                of Operations for the threeand
                six months ended June 30, 2007 and 2006;F-3
            Statements
                of Cash Flows for the six months ended June 30, 2007
                and 2006;F-4
            Notes
                to Financial
                Statements;








These
      unaudited 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-QSB. In the opinion
      of
      management, all adjustments considered necessary for a fair presentation have
      been included. Operating results for the interim period ended June 30, 2007
      are
      not necessarily indicative of the results that can be expected for the full
      year.


3
 Table
          of Contents


**DELTAOIL
&
GAS,
        INC.**


(A
        Development Stage Company)
 **Consolidated
        Balance Sheets**
 (Stated
        in U.S. Dollars)
  ****Unaudited****
                **June 30,**
                **2007**
              
              Audited
                    December
                      31,
                    2006**ASSETS****Current**Cash
                  and cash equivalents
              **$**
              **1,063,867**
              
              $
              1,668,758Accounts
                  receivable
              
              **149,210**
              
              
              88,451Prepaid
                  expenses
              
              **1,716**
              
              
              1,611**1,214,793**
              
              
              1,758,820**Natural
                  Gas And Oil Properties**Proved
                  property
              
              **879,178**
              
              
              812,717Unproved
                  property
              
              **2,082,308**
              
              
              1,816,007**2,961,486**
              
              
              2,628,724**Other
                  Equipment**Computer
                  equipment
              
              **3,492**
              
              
              3,492Less:
                  accumulated depreciation
              
              **(2,966)**
              
              
              (2,655)**526**
              
              
              837**$**
              **4,176,805**
              
              $
              4,388,381**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****LIABILITIES****Current**Accounts
                  payable and accrued liabilities
              **$**
              **89,329**
              
              $
              39,526Income
                  taxes payable
              
              **4,161**
              
              
              -**Long
                  Term**Asset
                  retirement obligation
              
              **40,635**
              
              
              40,635**134,125**
              
              
              80,161**STOCKHOLDERS'
                  EQUITY****Share
                  Capital**Preferred
                  Shares, 25,000,000 shares authorized of $0.001 par
                  value
                of
                  which none have been issuedCommon
                  stock, 100,000,000 shares authorized of $0.001 par
                  value,
                45,690,506
                  and 45,070,406 sharesissued
                  and
                  outstanding, respectively
              
              **45,691**
              
              
              45,071Additional
                  paid-in capital
              
              **6,083,061**
              
              
              5,411,761**Deficit
                  accumulated during the development stage**
              
              **(2,086,072)**
              
              
              (1,148,612)**4,042,680**
              
              
              4,308,220**$**
              **4,176,805**
              
              $
              4,388,381
  The
        accompanying notes are an integral part of these consolidated financial
        statements.
 F-1
 Table
            of Contents
 **DELTAOIL
&
GAS,
          INC.**
 (A
          Development Stage Company)
 **Consolidated
          Statements of Operations**
 (Stated
          in U.S. Dollars)
 Unaudited
  **THREE
                    MONTHS ENDED**
                  **JUNE
                    30,**
                
                **SIX
                    MONTHS ENDED**
                  **JUNE
                    30,**
                
                **CUMULATIVE
                            PERIOD**
                          **FROM**
                          **INCEPTION**
                          **JANUARY 9,**
                          **2001**
                          **TO**
                          **JUNE
                            30,****2007**
                
                2006
                
                **2007**
                
                2006
                
                **2007****Revenue**Natural
                    gas and oil sales
                **$**
                **260,139**
                
                $
                1,226
                
                **$**
                **407,643**
                
                $
                3,414
                
                **$**
                **1,018,773**Gain
                    on sale of oil property
                
                **-**
                
                
                -
                
                
                **-**
                
                
                -
                
                
                **1,061,159****260,139**
                
                
                1,226
                
                
                **407,643**
                
                
                3,414
                
                
                **2,079,932****Costs
                    And Expenses**Natural
                    gas and oil operating costs
                
                **47,517**
                
                
                924
                
                
                **83,261**
                
                
                1,685
                
                
                **219,311**General
                    and administrative
                
                **291,919**
                
                
                37,699
                
                
                **911,342**
                
                
                209,952
                
                
                **2,318,534**Depreciation
                    and depletion
                
                **194,970**
                
                
                161
                
                
                **328,949**
                
                
                314
                
                
                **834,452**Impairment
                    of natural gas and oil properties
                
                **40,589**
                
                
                -
                
                
                **40,589**
                
                
                -
                
                
                **717,470**Dry
                    well costs written off
                
                **-**
                
                
                -
                
                
                **-**
                
                
                -
                
                
                **118,690**Asset
                    retirement obligations
                
                **-**
                
                
                -
                
                
                **-**
                
                
                -
                
                
                **40,635****574,995**
                
                
                38,784
                
                
                **1,364,141**
                
                
                211,951
                
                
                **4,249,092****Net
                    Operating (Loss)**
                
                **(314,856)**
                
                
                (37,558)
                
                
                **(956,498)**
                
                
                (208,537)
                
                
                **(2,169,160)****Other
                    Income**Forgiveness
                    of debt
                
                **-**
                
                
                39,933
                
                
                **-**
                
                
                39,933
                
                
                **39,933**Interest
                    income
                
                **12,460**
                
                
                10,925
                
                
                **23,199**
                
                
                14,889
                
                
                **47,316****12,460**
                
                
                50,858
                
                
                **23,199**
                
                
                54,822
                
                
                **87,249****Income
                    (Loss) before income taxes**
                **$**
                **(302,396)**
                
                $
                13,300
                
                **$**
                **(933,299)**
                
                $
                (153,715)
                
                **$**
                **(2,081,911)**Income
                    tax
                
                **4,161**
                
                
                -
                
                
                **4,161**
                
                
                -
                
                
                **4,161****Net
                    Income (Loss)**
                **$**
                **(306,557)**
                
                $
                13,300
                
                **$**
                **(937,460)**
                
                $
                (153,715)
                
                **$**
                **(2,086,072)****Basic
                    (Loss) Per Common Share**
                **$**
                **(0.01)**
                
                $
                0.00
                
                **$**
                **(0.02)**
                
                $
                (0.00)**Weighted
                      Average Number OfCommon
                      Shares Outstanding**
                
                **45,670,066**
                
                
                44,870,706
                
                
                **44,706,871**
                
                
                44,571,646
  The accompanying notes are an integral
        part of
        these consolidated financial statements.
 F-2
 Table
            of Contents
 **DELTAOIL
&
GAS,
          INC.**
 (A
          Development Stage Company)
 **Consolidated
          Statements of Cash Flows**
 (Stated
          in U.S. Dollars)
 Unaudited
  **SIX
                    MONTHS ENDED**
                  **JUNE
                    30,**
                
                **CUMULATIVE
                            PERIOD**
                          **FROM
                            INCEPTION**
                          **JANUARY 9,
                            2001**
                          **TO**
                          **JUNE
                            30,****2007**
                
                2006
                
                **2007****Cash
                    Flows From Operating Activities:**Net
                    (loss) for the period
                **$**
                **(937,460)**
                
                $
                (153,715)
                
                **$**
                **(2,086,072)**Adjustments
                    to reconcile net loss to net cash used
                    in operating activities:Gain
                    on sale of property
                
                **-**
                
                
                -
                
                
                **(1,061,159)**Depreciation
                    and depletion
                
                **328,949**
                
                
                314
                
                
                **834,452**Impairment
                    of natural gas and oil properties
                
                **40,589**
                
                
                -
                
                
                **717,470**Interest
                    accrued on note payable
                
                **-**
                
                
                -
                
                
                **-**Dry
                    well costs written off
                
                **-**
                
                
                -
                
                
                **118,690**Stock-based
                    compensation expense
                
                **126,120**
                
                
                -
                
                
                **692,106**Shares
                    issued to President & CEO for servicess rendered
                
                **460,000**
                
                
                
                
                
                **460,000**Shares
                    issued to Investor Relations Services Inc for services
                
                **40,800**
                
                
                
                
                
                **40,800**Changes
                    in operating assets and liabilities:Accounts
                    receivable
                
                **(60,759)**
                
                
                (747)
                
                
                **(149,210)**Accounts
                    payable and accrued liabilities
                
                **49,803**
                
                
                (57,565)
                
                
                **89,329**Income
                    taxes payable
                
                **4,161**
                
                
                -
                
                
                **4,161**Asset
                    retirement obligations
                
                **-**
                
                
                -
                
                
                **40,635**Promissory
                    note payable
                
                **-**
                
                
                (39,397)
                
                
                **-**Prepaid
                    expenses
                
                **(105)**
                
                
                (6,006)
                
                
                **(1,716)****Net
                    Cash Generated/(Used) in Operating
                    Activities**
                
                **52,098**
                
                
                (257,116)
                
                
                **(300,514)****Cash
                    Flows From Investing Activities:**Purchase
                    of other equipment
                
                **-**
                
                
                -
                
                
                **(3,492)**Sale
                    proceeds of natural gas and oil working interests
                
                **-**
                
                
                -
                
                
                **1,500,000**Investment
                    in natural gas and oil working interests
                
                **(701,989)**
                
                
                (1,119,759)
                
                
                **(5,067,974)****Net
                    Cash Used in Investing Activities**
                
                **(701,989)**
                
                
                (1,119,759)
                
                
                **(3,571,466)****Cash
                    Flows From Financing Activities:**Proceeds
                    from issuance of common stock
                
                **45,000**
                
                
                2,167,596
                
                
                **4,935,847**Shares
                    subscriptions receivable
                
                **-**
                
                
                16,000
                
                
                **-****Net
                    Cash Provided by Financing Activities**
                
                **45,000**
                
                
                2,183,596
                
                
                **4,935,847****Net
                    Increase/(Decrease) In Cash And Cash Equivalents**
                
                **(604,891)**
                
                
                806,721
                
                
                **1,063,867****Cash
                      And Cash Equivalents At Beginning Of Period**
                    **(Excess of Checks
                      Issued Over Funds
                      On Deposit)**
                
                **1,668,758**
                
                
                343,004
                
                
                **-****Cash
                    And Cash Equivalents At End Of Period**
                **$**
                **1,063,867**
                
                $
                1,149,725
                
                **$**
                **1,063,867****Non-Cash
                    Financing Activities**500,000
                    shares issued to the President & CEO as part of his compensation
                    package
                
                460,000
                
                
                -
                
                
                460,00060,000
                    shares issued to Investor Relations Services Inc., forservices
                    rendered.
                
                40,800
                
                
                -
                
                
                40,800
  The accompanying notes are an integral
        part of
        these consolidated financial statements.
 F-3
 Table
            of Contents
 **DELTAOIL
&
GAS,
          INC.**
 **(A
          Development Stage Company)**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
          30, 2007**
 **(Stated
          in U.S. Dollars)**
 
  **1.**
              **BASIS
                  OF PRESENTATION**  The
          unaudited consolidated financial statements as of June 30, 2007 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, 2006
          audited
          financial statements and notes thereto. The results of the operations for
          the
          six months ended June 30, 2007 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.
  F-4
 Table
              of Contents
 **DELTA
          OIL & GAS, INC.**
 **(A
          Development Stage Company)**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
          30, 2007**
 **(Stated
          in U.S. Dollars)**
 
 **2.**
                **OPERATIONS
                    (Continued)**
  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 $2,086,072 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 and, if successful, to commence the
          sale of
          its products 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.
 
 **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.
  F-5
 Table
              of Contents
 **DELTA
          OIL & GAS, INC.**
 **(A
          Development Stage Company)**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
          30, 2007**
 **(Stated
          in U.S. Dollars)**
 
 **3.**
                **SIGNIFICANT
                    ACCOUNTING POLICIES
                    (Continued)**
  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 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.
  F-6
 Table
              of Contents
 **DELTA
          OIL & GAS, INC.**
 **(A
          Development Stage Company)**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
          30, 2007**
 **(Stated
          in U.S. Dollars)**
 
 **3.**
              **SIGNIFICANT
                  ACCOUNTING POLICIES (Continued)** 
 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 liability is 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)
              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 June 30, 2007 and 2006, the
          Company
          had no overproduced imbalances.
  F-7
 Table
              of Contents
 **DELTA
          OIL & GAS, INC.**
 **(A
          Development Stage Company)**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
          30, 2007**
 **(Stated
          in U.S. Dollars)**
 
 **3.**
                **SIGNIFICANT
                    ACCOUNTING POLICIES
                    (Continued)**
  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. At June 30, 2007 and 2006,
          the
          Company had no cash equivalents.
 
 h)
              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.
 
 i)
              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
          each year-end are included in statements of operations.
  F-8
 Table
              of Contents
 **DELTA
          OIL & GAS, INC.**
 **(A
          Development Stage Company)**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
          30, 2007**
 **(Stated
          in U.S. Dollars)**
 
 **3.**
                **SIGNIFICANT
                    ACCOUNTING POLICIES
                    (Continued)**
  j)
              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.
 
 k)
              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.
 
 l)
              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.
 
 m)
              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.
  F-9
 Table
              of Contents
 **DELTA
          OIL & GAS, INC.**
 **(A
          Development Stage Company)**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
          30, 2007**
 **(Stated
          in U.S. Dollars)**
 
 **3.**
                **SIGNIFICANT
                    ACCOUNTING POLICIES
                    (Continued)**
  n)
              Financial
                  Instruments 
 The
          Company’s financial instruments consist of cash and cash equivalent, accounts
          receivable, accounts payable and accrued liabilities.
  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 approximate 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. As at June 30, 2007 and 2006, the Company has no items that
          represent a comprehensive loss and, therefore, has not included a schedule
          of
          comprehensive loss in the financial statements.
 
 p)
                Stock-Based
                    Compensation
  The
          Company accounts for employee stock-based compensation using the intrinsic
          value
          method prescribed in Accounting Principles Board Opinion No. 25 - “Accounting
          for Stock Issued to Employees”, and related interpretations. Accordingly,
          compensation cost for stock options is measured as the excess, if any,
          of the
          fair value of the Company’s common stock at the date of the grant over the
          amount an employee must pay to acquire the common stock. Non-employee
          stock-based compensation is accounted for using the fair value method in
          accordance with SFAS No. 123 - “Accounting for Stock-Based Compensation”.
  F-10
 Table
              of Contents
 **DELTA
          OIL & GAS, INC.**
 **(A
          Development Stage Company)**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
          30, 2007**
 **(Stated
          in U.S. Dollars)**
 **4.**
                **NATURAL
                      GAS AND OIL
                      PROPERTIES**
 **a)
                    Proved Properties**
  **Properties**
                **December
                    31, 2006**
                
                **Addition**
                
                **Depletion
                    for the Period**
                
                **Write
                    down in carrying**
                  **Value**
                
                **June
                    30, 2007****USA
                    properties**
                $
                454,480
                
                $
                398,117
                
                $
                (202,569)
                
                $
                (39,337)
                
                $
                610,691**Canada
                    properties**
                
                358,237
                
                
                37,571
                
                
                (126,069)
                
                
                (1,252)
                
                
                **268,487****Total**
                $
                812,717
                
                $
                435,688
                
                $
                (328,638)
                
                $
                (40,589)
                
                $
                879,178
  a)
                Proved
                    Properties - Descriptions
  i)
                Liberty
                    Valance, California, USA
  In
          February 2001, the Company acquired and 8.9% working interest in a gas
          well
          located in California at a cost of $90,000. The well commenced production
          in
          February 2001 following a redrill.
  On
            January 1, 2007, the Company assigned all of its right, title and interest
            to
            Lario Oil & Gas. Lario Oil & Gas agreed to assume all costs and
            liability associated with the plugging and abandonment of the well.
 ii)
                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
          December
          31, 2006, the Company had advanced $210,606 as its share of the costs in
          this
          Agreement. Currently there is one producing well on this
          prospect.
  F-11
 Table
              of Contents
 **DELTA
          OIL & GAS, INC.**
 **(A
          Development Stage Company)**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
          30, 2007**
 **(Stated
          in U.S. Dollars)**
  
 **4.**
                **NATURAL
                    GAS AND OIL PROPERTIES
                    (Continued)**
    iii)
                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. The Company paid $22,911 in this period for capital
          expenditure. As of June 30, 2007, the cost to the Company for this assignment
          was $391,898.
  In
          July
          2006, the Company also elected to participate in Isbill #1-36, it was abandoned
          during the year. Its costs amounted to $80,738 was moved to the cost pool
          of
          proved properties 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.
  iv)
                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.
 v.
                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.
  F-12
 Table
              of Contents
 **DELTA
          OIL & GAS, INC.**
 **(A
          Development Stage Company)**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
          30, 2007**
 **(Stated
          in U.S. Dollars)**
 
 **4.**
              **NATURAL
                  GAS AND OIL PROPERTIES**(Continued)  v.
                Palmetto
                    Point Prospect, Mississippi, USA
                    (Continued)
  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.
  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
          June 30, 2007, seven wells were found to be proved wells, and two wells
          were
          written off.
 
 vi.
              Mississippi
                  II, 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 proposed
          wells are to be drilled is comprised of approximately 300,000 gross acres
          of
          land located between Southwest Mississippi and North East Louisiana. The
          proposed wells will be 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 $35,125 was added to the proved properties cost pool.
          Dixon#1 was abandoned
          in January 2007, its costs amounted to $40,605 was moved to the proved
          properties cost pool for depletion. Also, Randall#1 was abandon in June
          2007,
          its costs amounted to $26,918 was moved to the proved properties cost pool.
  **b)
            Unproved Properties**
  **Properties**
                **December
                    31, 2006**
                
                **Addition**
                
                **Cost
                    added to capitalized cost**
                
                **June
                    30, 2007****USA
                    properties**
                $
                497,500
                
                $
                458,972
                
                $
                (375,208)
                
                $
                581,264**Canada
                    properties**
                
                1,318,507
                
                
                182,537
                
                
                -
                
                
                **1,501,044****Total**
                $
                1,816,007
                
                $
                641,509
                
                $
                (375,208)
                
                $
                2,082,308
  F-13
 Table
              of Contents
 **DELTA
          OIL & GAS, INC.**
 **(A
          Development Stage Company)**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
          30, 2007**
 **(Stated
          in U.S. Dollars)**
 
 **4.**
                **NATURAL
                    GAS AND OIL PROPERTIES**(Continued)
  b)
                Unproved
                    properties - Description
                    (Continued)
  i.
              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.
          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. As at June 30, 2007, a cash call of $258,139 has been paid as
          share
          of costs for a proposed drilling program.
  ii.
                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.
 
 iii.
                Cache
                    Slough Prospect, California, USA
 In
          May
          2005, the Company entered into a participation agreement with Production
          Specialties Company (“PSC”) where the Company has been granted the right to earn
          a 68% working interest in a test well and a 12.50% working interest in
          certain
          lands located in Solano County, California, by paying 18.75% of the test
          well
          operations. During the year a cash call of $438,841 has been paid as share
          of
          costs for a proposed drilling program.
  Following
          these payments, the Company will be responsible for 12.5% of all additional
          expenditures for drilling and production on the property and be entitled
          to
          receive 8.5% of all revenue generate by the property, which is 12.5% of
          this
          California company’s 68% interest.
  On
          November 16, 2006, the Company assigned all of its interest in exchange
          for a
          cash amount of $1,500,000.
 F-14
 Table
                of Contents
 **DELTA
          OIL & GAS, INC.**
 **(A
          Development Stage Company)**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
          30, 2007**
 **(Stated
          in U.S. Dollars)**
 
 **4.**
                **NATURAL
                    GAS AND OIL PROPERTIES**(Continued)
  Unproved
                    Properties - Description
                    (Continued)
  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 June 30, 2007, the Company has advanced $347,431
          as its
          share of the costs in the Leduc formation property.
  v.
                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 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.
  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
          June 30, 2007, seven wells were found to be proved wells, and two wells
          were
          written off.
 F-15
 Table
              of Contents
 **DELTA
          OIL & GAS, INC.**
 **(A
          Development Stage Company)**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
          30, 2007**
 **(Stated
          in U.S. Dollars)**
 
 **4.**
                **NATURAL
                    GAS AND OIL PROPERTIES**(Continued)
  Unproved
                    Properties (Continued)
  vi.
                Mississippi
                    II, 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 proposed wells are to be drilled is comprised of approximately
          300,000
          gross acres of land located between Southwest Mississippi and North East
          Louisiana. The proposed wells will be 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 $35,125 was added to the proved properties cost pool.
          Also,
          Dixon#1 was abandoned
          in January 2007, its costs amounted to $40,605 was moved to the proved
          properties cost pool for depletion. Randall#1 was abandon in June 2007,
          its
          costs amounted to $26,918 was moved to the proved properties cost pool.
          Finally
          two further wells, TEC#1 and Buffalo River are awaiting testing.
  vii.
                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%.
  F-16
 Table
              of Contents
 **DELTA
          OIL & GAS, INC.**
 **(A
          Development Stage Company)**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
          30, 2007**
 **(Stated
          in U.S. Dollars)**
 
 **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.
 
 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.
  F-17
 Table
              of Contents
 **DELTA
          OIL & GAS, INC.**
 **(A
          Development Stage Company)**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
          30, 2007**
 **(Stated
          in U.S. Dollars)**
 
 **6.**
              **ASSET
                  RETIREMENT OBLIGATIONS** 
 The
          Company determined that the net effect of the ARO calculation to the Company’s
          income statement for the year ended December 31, 2006 is $40,635, (2005:
          $0).
          The ARO is calculated using the 5% value of proved properties as at December
          31,
          2006. The Company has not increased its ARO during this period, since the
          amount
          accrued to date is sufficient.
 
 **7.**
              **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.
                  
                  On
                    March 1, 2007, the Company issued 500,000 common shares to its
                    President
                    & 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.
                    
                    Preferred
                      Stock
                    The
                      Company did not issue any preferred stock during the quarter
                      ended June
                      30, 2007 (December 31, 2006 -
                      $Nil).
 F-18
 Table
                of Contents
 **DELTA
          OIL & GAS, INC.**
 **(A
          Development Stage Company)**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
          30, 2007**
 **(Stated
          in U.S. Dollars)**
 
 **7.**
                **SHARE
                    CAPITAL (continued)**
  **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
          of
          $126,120 was recorded during the six month ended June 30, 2007 (December
          31,
          2006 - $195,719) related to options granted during the year ended December
          31,
          2006 but vested during the six months ended June 30, 2007. The changes
          in stock
          options are as follows:
 ******NUMBER**
                  WEIGHTED
                    AVERAGE
                    EXERCISE
                      PRICEBalance
                    outstanding,
                    December 31, 2006
                  300,000
                  $
                      0.75Granted
                  300,000
                  0.75Exercised
                  (60,000)
                  (0.75)Balance
                    outstanding, June 30, 2007
                  540,000
                  $
                      0.75
  The
            weighted average assumptions used in calculating the fair value of stock
            options
            granted during the six month period ended June 30, 2007 and June 30,
            2006, using
            the Black-Scholes option pricing model are as follows:
 
 **June
                    30,**
                  **2007**
                June
                    30,
                  2006Rick-free
                    interest rate
                3.77%
                3.77%Expected
                    life of the option
                3
                    years
                1
                    yearExpected
                    volatility
                146.36%
                288.99%Expected
                    dividend yield
                -
                -
 
 The
          following table summarized information about the stock options outstanding
          at
          June 30, 2007:
 
 **OPTIONS
                    OUTSTANDING**
                
                **OPTIONS
                    EXERCISABLE****EXERCISE**
                  **PRICE**
                **NUMBER
                    OF**
                  **SHARES**
                **REMAINING
                    CONTRACTUAL LIFE (YEARS)**
                
                **NUMBER
                    OF**
                  **SHARES**$
                    0.75
                240,000
                1.72
                
                224,000$
                    0.75
                300,000
                2.59
                
                150,000
  F-19
 Table
              of Contents
 **DELTA
          OIL & GAS, INC.**
 **(A
          Development Stage Company)**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
          30, 2007**
 **(Stated
          in U.S. Dollars)**
 
 **7.**
                **SHARE
                    CAPITAL (continued)**
  **iii.**
                **Common
                    Stock Share Purchase
                    Warrants**
  As
          at
          June 30, 2007, share purchase warrants outstanding for the purchase of
          common
          shares as follows:
  **WARRANTS
                    OUTSTANDING****EXERCISE**
                  **PRICE**
                **NUMBER
                    OF**
                  **SHARES**
                **EXPIRY**
                  **DATE**$
                    1.50
                2,483,985
                February
                    1, 2010$
                    3.00
                727,271
                April
                    30, 2009
 
 **8.**
              **RELATED
                  PARTIES**  During
          the period ended June 30, 2007, the Company paid $ nil (June 30, 2006 -
          $15,197)
          for management fees and $52,868 for consulting fees (June 30, 2006 - $nil)
          to
          directors of the Company. Amounts paid to related parties are based on
          exchange
          amounts agreed upon by those related parties.
  On
          March
          1, 2007, we issued to Douglas Bolen 500,000 shares of our common stock
          in
          consideration for services rendered pursuant to the a consulting agreement
          with
          Last Mountain Management, Inc. (“LMM”). Douglas Bolen, our Chief Executive
          Officer, is the sole shareholder, officer, and director of LMM. These shares
          were issued pursuant to Section 4(2) of the Securities Act of 1933, as
          amended.
          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.
 
 **9.**
              **COMMITMENT
                  AND CONTRACTURAL OBLIGATIONS** 
 A
          lease
          agreement for the Vancouver, Canada office commenced June 1, 2007 and terminated
          on May 31, 2008. The lease agreement provides a fixed rental fee of $1,365
          per
          month plus additional charges for services supplied by the landlord or
          incurred
          on behalf of the client in the previous month.
  On
          March
          1, 2005, the Company also rented an office in Calgary, Canada on a month
          to
          month basis for $243 per month.
  F-20
 Table
              of Contents
 **DELTA
          OIL & GAS, INC.**
 **(A
          Development Stage Company)**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **JUNE
          30, 2007**
 **(Stated
          in U.S. Dollars)**
 
 **10.**
              **SUBSEQUENT
                  EVENT**  On
          July
          8, 2007, we cancelled all of the options previously granted to its Chief
          Financial Officer and, in consideration for the cancellation of these options
          and in compensation for Chief Financial Officer’s services rendered to the
          Company to date, we granted him 250,000 shares of common stock in the Company,
          all of which are considered by the Company’s Board of Directors to be fully paid
          and non assessable upon issuance.


F-21
 Table
          of Contents




**Item2.     Management’s
      Discussion and
      Analysis or Plan of Operation**





**Forward-Looking
      Statements**





Certain
      statements, other than purely historical information, including estimates,
      projections, statements relating to our business plans, objectives, and expected
      operating results, and the assumptions upon which those statements are based,
      are “forward-looking statements” within the meaning of the Private Securities
      Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933
      and Section 21E of the Securities Exchange Act of 1934. These
      forward-looking statements generally are identified by the words “believes,”
“project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,”
“may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and
      similar expressions. We
      intend
      such forward-looking statements to be covered by the safe-harbor provisions
      for
      forward-looking statements contained in the Private Securities Litigation Reform
      Act of 1995, and are including this statement for purposes of complying with
      those safe-harbor provisions. Forward-looking
      statements are based on current expectations and assumptions that are subject
      to
      risks and uncertainties which may cause actual results to differ materially
      from
      the forward-looking statements. Our
      ability to predict results or the actual effect of future plans or strategies
      is
      inherently uncertain. Factors which could have a material adverse affect on
      our
      operations and future prospects on a consolidated basis include, but are not
      limited to: changes in economic conditions, legislative/regulatory changes,
      availability of capital, interest rates, competition, and generally accepted
      accounting principles. These risks and uncertainties should also be considered
      in evaluating forward-looking statements and undue reliance should not be placed
      on such statements. We
      undertake no obligation to update or revise publicly any forward-looking
      statements, whether as a result of new information, future events or otherwise. Further
      information concerning our business, including additional factors that could
      materially affect our financial results, is included herein and in our other
      filings with the SEC.





**Overview**





We
      were
      incorporated under the laws of the State of Colorado on January 9, 2001 under
      the name Delta Oil & Gas, Inc. We are engaged in the exploration,
      development, acquisition and operation of oil and gas properties. Because oil
      and gas exploration and development requires significant capital and our assets
      and resources are limited, we participate in the oil and gas industry through
      the purchase of small interests in either producing wells or oil and gas
      exploration and development projects.





**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 highly prospective acreage in Palmetto Point,
      Mississippi; Southern Saskatchewan, Canada; the Southern Alberta Foothills
      area
      in Canada; and Garvin and McClain counties in Oklahoma.




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          of Contents





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 (“Liberty Valance” or the “well”). The
      well was located in the Rancho Capay Gas Field in Glenn County, California.
      We
      acquired this 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 well markets each non−operator's share of
      gas production from the 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 the 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 lands and 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 working interest in two prospective properties known
      as Todd Creek and 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
      (8800 acres) in Todd Creek for the purchase price of $597,263. We also have
      an
      option to acquire an additional 15% interest in 7 additional sections of land
      (4,480 acres). This option terminated on December 31, 2006.





Included
      in the acquisition is a test well that has been drilled and cased. Under the
      terms of this agreement, Win shall assume 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. As of June 30, 2007, we paid 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 and we will refer to this well as the “13-28 well.” The 13-28 well was
      evaluated and tested. The operator encountered gas reservoirs and concluded
      that
      this well is a potential gas well. This well was tied into a newly constructed
      gas processing plant and production commenced in September 2006. The revenue
      received from this well was $19,172 for the six months ended June 30, 2007.
      The
      revenue received from this well for the three months ended June 30, 2007 was
      $7,177.




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In
      January 2007, we completed the drilling of a second well in the Todd Creek
      Prospect located in 13-33-8-2 in Alberta, Canada and we will refer to this
      well
      as the “13-33 well.” Independent reserves reports we commissioned indicate that
      no economic hydrocarbons are present and therefore we have transferred the
      well
      costs to proved reserves and subsequently depleted the cost in accordance with
      our accounting policy.




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. It is now anticipated
      that a test well will be drilled on our property interest in 2007.




Our
      acquisition of an interest in Hillspring Prospect included an option to acquire
      an additional 10% working interest in 1.25 sections in the immediate area for
      the sum of $207,833 (US dollars). This option expired on July 1, 2005, but
      was
      later extended to December 29, 2006, and we decided not to extend this option
      further.





Strachan
      Prospect





On
      September 23, 2005, we entered into a Farmout Agreement (“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 has the right to acquire an oil and gas leasehold interests in certain
      lands located in Section 9, Township 38, Range 9, West of the 5 th Meridian, Alberta, Canada (“Section 9”) upon incurring expenditures for drilling
      and testing on the property. In exchange for us paying 4.0000% 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
              2.000% interest in the petroleum and natural gas below the base of
              the
              Mannville excluding natural gas in the Leduc formation; andii)
            a
              4.000% 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; andb)
            a
              1.600% 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 Leduc formation test well. Under the terms
      of the 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.




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Based
      on
      results indicating the presence of a potential gas well, the operator inserted
      casing into the total depth of the well and will perform a full testing program.
      We are awaiting information from the operator as to when the full testing
      program will be completed. If the additional testing returns positive results,
      this well will be tied a nearby pipeline to accommodate the natural gas
      production.





Palmetto
      Point Prospect - 12 Wells





On
      February 21, 2006, we entered into an agreement (the “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
      has
      been completed by Griffin. The prospect area owned or controlled by Griffin
      on
      which the initial ten wells was drilled, is comprised of approximately 1,273
      acres in Palmetto Point, Mississippi. To date, ten wells have been drilled,
      7 of
      which are producing, 3 of which are expected to produce but are currently
      waiting to be tied into the pipeline. and 2 of which were not commercially
      viable and were plugged and abandoned. We elected to participate in an
      additional two well program which has also been completed. With respect to
      the
      two additional wells at this same location, it appears that these well contains
      reserves suitable for commercial production. These wells are waiting to be
      tied
      into a nearby pipeline. Total revenue received from these wells for the year
      ended December 31, 2006 was $17,485. Total revenue received from these wells
      for
      the six months ended June 30, 2007 was $29,585. The revenue received from these
      wells for the three months ended June 30, 2007 was $22,323





Palmetto
      Point Prospect - 50 wells





During
      the fiscal quarter ended September 30, 2006, we entered into a joint venture
      agreement to acquire an interest in a drilling program comprising of up to
      50
      natural gas and/or oil wells. The area in which the proposed wells are to be
      drilled in approximately 300,000 gross acres location between Southwest
      Mississippi and Northeastern Louisiana. Drilling commenced in the first week
      of
      September 2006. The site of the first 20 proposed wells are located within
      range
      to tie into existing pipeline infrastructure should the wells be suitable for
      commercial production. The drilling program is being conducted by Griffin in
      its
      capacity as operator. We have 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 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 to be employed in the further
      development of prospects on lands in Mississippi and Louisiana in accordance
      with the terms of the operating agreement.




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We
      have
      drilled seven wells of which two have been abandoned (Dixon #1 and Randall
      #1).
      Of the successful 5 wells, Redbug #1 (CMR USA) and Faust #1 (TEC#1) are
      producing and Buffalo River #1, Redbug #2 and Buffalo River #2 are awaiting
      connection to the nearby pipeline for production. Total revenue received from
      these wells for the six months ended June 30, 2007 was $6,677. The revenue
      received from these wells for the three months ended June 30, 2007 was
      $2,885





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 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.





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 contains oil reserves suitable for commercial
      production. In June 2006, this initial well was producing as a flowing oil
      well.
      Revenue generated from this well for the year ended December 31, 2006 was
      $223,613. Revenue generated from this well for the six months ended June 30,
      2007 was $74,944. The revenue received from these wells for the three months
      ended June 30, 2007 was $27,201





The
      second horizontal well was drilled in May 2007. 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 will be abandoned.





The
      operator has indicated that based on the success to date, it expects to drill
      one additional well every quarter for the next year.





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.”




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Pursuant
      to the terms of the Assignment Agreement, we acquired a 20% working interest
      in
      an oil well drilled at the Owl Creek Prospect and we refer to 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 on the Powell
      #2 well, this well was completed and commercial production has commenced. 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
      well. Initially after the well was completed, the Powell #2 well began flowing
      natural oil and gas under its own pressure without the assistance of a pump.
      The
      flow rates of the Powell #2 well have fluctuated significantly. Revenue
      generated from this well for the year ended December 31, 2006 was $265,062.
      Revenue generated from this well for the six months ended June 30, 2007 was
      $237,408. The revenue received from these wells for the three months ended
      June
      30, 2007 was $160,805





Based
      upon the positive results of the Powell #2 well, an additional well we refer
      to
      as the “Isbill #1-36” was drilled and reached its targeted depth in September
      2006. However, test results showed that the well will not be commercially
      viable, therefore the well was abandoned and all costs were transferred to
      proved reserves and subsequently depleted in accordance with the our accounting
      policy.





We
      were
      also granted an option to earn a 20% working interest in any future wells to
      be
      drilled on the 1,120 acres of land in Garvin & McClain Counties, USA 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.





In
      January 2007, we commenced drilling of another well we will refer to as the
      “Isbill#2-36” well. Our 20% working interest in the Isbill#2-36 well cost
      $157,437. The Isbill#2-36 well 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 this well for the three
      months ended June 30, 2007 was $39,808.





2006-3
      Drilling Program - 5 Wells





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 have
      agreed to take a 10% working interest in this program. To date, we have
      paid the sum of $113,700 and anticipate that our total costs to successfully
      complete this drilling program will be approximately $618,330. Drilling is
      expected to commence during summer 2007.





**Results
      of Operations for the three and six months ended June 30, 2007 and
      2006**





For
      the
      three months ended June 30, 2007, our revenues generated from natural gas and
      oil sales




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increased
      to $260,139 from revenue of $1,226 for the three months ended June 30, 2006.
      For
      the six months ended June 30, 2007, our revenues generated from natural gas
      and
      oil sales increased to $407,643 from revenue of $3,414 for the six months ended
      June 30, 2006. Prior to the three months ended June 30, 2006, our Liberty
      Valance well was our only producing property. The increase in revenue is
      attributable to royalties received from the Wordsworth and Owl Creek prospects
      commencing in the third quarter of 2006 and royalties received from the
      Company’s Mississippi prospects.





We
      incurred costs and expenses in the amount of $574,995 for the three months
      ended
      June 30, 2007, compared to costs and expenses of $38,784 for the same reporting
      period in the prior year. We incurred costs and expenses in the amount of
      $1,364,141 for the six months ended June 30, 2007, compared to costs and
      expenses of $211,951 for the same reporting period in the prior year. The
      increase in expenses was caused by an increase in general and administrative
      expenses as a result of stock based compensation paid to our executive officers.
      We reported depreciation and depletion expenses of $194,970 during the three
      months ended June 30, 2007. Our costs and expenses for the three months ended
      June 30, 2006 consisted of general and administrative expenses of $291,919,
      natural gas and oil operating costs of $47,517, depreciation and depletion
      of
      $194,970, and impairment of natural gas and oil properties in the amount of
      $40,589.





We
      reported other income of $12,460 for the three months ended June 30, 2007 and
      other income of $50,858 for the three months ended June 30, 2006. We reported
      other income of $23,199 for the six months ended June 30, 2007 and other income
      of $54,822 for the six months ended June 30, 2006. Other income during the
      three
      and six months ended June 30, 2007 and 2006 consisted solely of interest income
      and forgiveness of debt.





Net
      loss
      for the three months ended June 30, 2007 was $306,557, compared to a net loss
      of
      $13,300 for the three months ended June 30, 2006. Net loss for the six months
      ended June 30, 2007 was $937,460, compared to a net loss of $153,715 for the
      six
      months ended June 30, 2006.





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.




10
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**Liquidity
      and Capital Resources**





As
      of
      June 30, 2007, we had total current assets of $1,214,793 and total current
      liabilities in the amount of $93,490. As a result, we had working capital of
      $1,121,303 as of June 30, 2007.





The
      revenue we currently generate from natural gas and oil sales does exceed our
      cash operating expenses. We will require additional funds to expand our
      acquisition, exploration and production of natural oil and gas properties.
      Our
      management anticipates that current cash on hand is 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 and implement
      our
      overall business strategy. It is uncertain whether we will be able to obtain
      financing when sought. If we are unable to obtain additional financing, the
      full
      implementation of our ability to expand our operations will be impaired.





Operating
      activities generated $52,098 in cash for the six months ended June 30, 2007.
      Our
      royalties received were the primary component of our positive operating cash
      flow. Investing activities during the six months ended June 30, 2007 consisted
      of $701,989 for the investment in natural gas and oil properties. Cash flows
      provided by financing activities during the six months ended June 30, 2007
      consisted of $45,000 related to the issuance of common stock.





The
      underlying drivers that resulted in material changes and the specific inflows
      and outflows of cash for the six months ended June 30, 2007 are as
      follows:





·
            Property
                acquisition costs,


·
            Financing
                from the issuance of common stock,
                and


**·**
            Royalties
                received from the Company’s oil and gas
                prospects





**Off
      Balance Sheet Arrangements**





As
      of
      June 30, 2007, there were no off balance sheet arrangements.





**Going
      Concern**




As
      shown
      in the accompanying financial statements, we have incurred a net loss of
      $2,086,072 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. Our
      management believes that sufficient funding will be available to meet our
      business objectives including anticipated cash needs for working capital and
      is
      currently evaluating several financing options. However, there can be no
      assurance that we will be able to obtain sufficient funds to continue the
      development of and, if successful, to commence the sale of our products under
      development. As a result of the foregoing, there exists substantial doubt about
      our ability to continue as a going concern.




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**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.





**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 June
      30, 2007 and 2006, we had no overproduced imbalances.




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**Item3.     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 June 30, 2007. 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 June 30, 2007, our disclosure controls and procedures
      are
      effective. There have been no changes in our internal controls over financial
      reporting during the quarter ended June 30, 2007.





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 the 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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**PART
      II - OTHER INFORMATION**





**Item1.     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.





**Item2.     Unregistered
      Sales of Equity
      Securities and Use of Proceeds**





The
      information set forth below relates to our issuances of securities without
      registration under the Securities Act during the reporting period which were
      not
      previously included in a Current Report on Form 8-K.





On
      January 18, 2007, we appointed Kulwant Sandher to serve as our Chief Financial
      Officer and Principal Financial Officer. In connection with his appointment,
      we
      granted Mr. Sandher options to purchase 300,000 shares of our common stock
      at
      the exercise price of $0.75 per share with an expiration date of January 17,
      2010. 75,000 of these options vested upon execution of a stock option agreement
      on January 18, 2007, 75,000 became vested and exercisable on June 30, 2007,
      75,000 were to become vested and exercisable on September 30, 2007, and the
      remaining 75,000 were to become vested and exercisable on December 31,
      2007.





On
      July
      8, 2007, we cancelled all of the options previously granted to Mr. Sandher
      and,
      in consideration for the cancellation of these options and in compensation
      for
      Mr. Sandher’s services rendered to the Company to date, we granted him 250,000
      shares of common stock in the Company, all of which are considered by our Board
      of Directors to be fully paid and non assessable upon issuance.





On
      March
      1, 2007, we issued to Douglas Bolen 500,000 shares of our common stock in
      consideration for services rendered pursuant to the a consulting agreement
      with
      Last Mountain Management, Inc. (“LMM”). Douglas Bolen, our Chief Executive
      Officer, is the sole shareholder, officer, and director of LMM. These shares
      were issued pursuant to Section 4(2) of the Securities Act of 1933, as amended.
      We did not engage in any general solicitation or advertising.





**Item3.     Defaults
      upon Senior
      Securities**





None





**Item4.     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 June
      30,
      2007.




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**Item5.     Other
      Information**





None





**Item6.      Exhibits**





**Exhibit
                Number**
            **Description**3.1
            Articles
                of Incorporation, as amended13.2
            By-laws,
                as amended110.1
            Agreement
                to Acquire Interest in Todd Creek210.2
            Agreement
                to Acquire Interest in Hillspring210.3
            Amendment
                to Todd Creek and Hillspring Agreements210.4
            Farmout
                Agreement relating to Cache Slough Prospect310.5
            Farmout
                Agreement with Odin Capital Inc. relating to Leduc formation test
                well410.6
            Drilling
                Program Agreement between Griffin & Griffin Exploration L.L.C. and
                0743608 B.C. Ltd.510.7
            Assignment
                Agreement between Delta Oil & Gas, Inc. and 0743608 B.C. Ltd510.8
            Assignment
                Agreement of Interests in Cache Slough Prospect710.9
            Assignment
                and Assumption Agreement for Owl Creek Prospect810.10
            Consulting
                Agreement with Last Mountain Management, Inc.914.1
            Code
                of Ethics631.1
            Certification
                of Chief Executive Officer pursuant to
                Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant
                to
                Section 302 of the Sarbanes-Oxley Act of 200231.2
            Certification
                of Chief Financial Officer pursuant to
                Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant
                to
                Section 302 of the Sarbanes-Oxley Act of 200232.1
            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





1 Incorporated
      by reference to Registration Statement on Form SB-2 filed on February 13,
      2002


2 Incorporated
      by reference to current report on Form 8-K filed on February 15,
      2005


3 Incorporated
      by reference to current report on Form 8-K filed on September 29,
      2005


4 Incorporated
      by reference to current report on Form 8-K filed on May 26, 2005


5 Incorporated
      by reference to current report on Form 8-K filed on February 27,
      2006


6 Incorporated
      by reference to annual report on Form 10-KSB for the year ended December 31,
      2004


7 Incorporated
      by reference to quarterly report on Form 10-QSB for the period ended September
      30, 2006 filed on November
      20, 2006


8 Incorporated
      by reference to current report on Form 8-K filed on June 2, 2006


9 Incorporated
      by reference to Amended Registration Statement on Form 10-SB filed on February
      27, 2007


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**SIGNATURES**





In
      accordance with 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:
            August
                14, 2007By:      
                /s/ Douglas Bolen
              Douglas
                Bolen
              Title:**Chief
                Executive Officer and
                Director**