UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
DC 20549
 
 FORM
10-Q
 
 x
              Quarterly
      Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the quarterly period ended June 30,
      2010o
              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 registrant as specified in its charter)
 
 Colorado
              91-2102350(State
      or other jurisdiction of incorporation or organization)
              (I.R.S.
      Employer Identification No.)
 
 Suite 604 – 700 West Pender Street, Vancouver,
      British Columbia, Canada V6C 1G8(Address
      of principal executive offices)
 
 866-355-3644(Registrant’s
      telephone number, including area code)_______________________________________________________________(Former
      name, former address and former fiscal year, if changed since last
      report)
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the issuer was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.  x Yes   o No
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).   ý
Yes    ̈ No
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer,” “non-accelerated filer,” and “a smaller reporting company”
in Rule 12b-2 of the Exchange Act.
 
 Large
accelerated filer  o                                                                                          Accelerated
filer                 
o
 Non-accelerated
filer    o                                                                                        Smaller
reporting company  x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  o 
Yes  o  No
 
 Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date:
  Class
              
              Outstanding
      at August 10, 2010Common
      Stock, $0.001 par value
              
              13,857,107
    Table of Contents
  
 
   TABLE OF
      CONTENTS
              PagePART I – FINANCIAL INFORMATIONItem
      1.
              Financial
      Statements.
              3Item
      2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.
              4Item
      3.
              Quantitative
      and Qualitative Disclosures About Market Risk.
              15Item
      4T.
              Controls
      and Procedures.
              15PART II – OTHER INFORMATIONItem
      1.
              Legal
      Proceedings.
              17Item
      1A.
              Risk
      Factors.
              17Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds.
              17Item
      3.
              Defaults
      Upon Senior Securities.
              17Item
      4.
              (Removed
      and Reserved).
              17Item
      5.
              Other
      Information.
              17Item
      6.
              Exhibits.
              17SignaturesExhibitsCertifications
 
 
  
 - 2
-
 Table of Contents
 
 PART
I - FINANCIAL INFORMATION
 
 Item
1.         Financial
Statements.
 
 Our
      unaudited consolidated financial statements included in this Form 10-Q for
      the three and six months ended June 30, 2010 are as follows:F-1
              Unaudited
      Consolidated Balance Sheet as of  June 30, 2010 and December 31,
      2009 (audited);F-2
              Unaudited
      Consolidated Statements of Operations for the three and six months ended
      June 30, 2010 and 2009;F-3
              Unaudited
      Consolidated Statements of Cash Flows for the six months ended June 30,
      2010 and 2009;F-4
              Unaudited Consolidated Statement of Changes in
      Stockholders' Equity from inception on January 9, 2001 toJune 30,
      2010;F-5
              Notes
      to Unaudited Consolidated Financial
Statements;
 
 These
unaudited consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and the SEC instructions to Form
10-Q.  In the opinion of management, all adjustments considered
necessary for a fair presentation have been included.  Operating
results for the interim period ended June 30, 2010 are not necessarily
indicative of the results that can be expected for the full
year.













- 3
-
 Table of Contents




DELTA
      OIL & GAS, INC.Consolidated
      Balance Sheets(Stated
      in U.S. Dollars)June
      30,
            
            
            December
      31,2010
            
            
            2009ASSETS
            
            (Unaudited)
            
            (Audited)CurrentCash
      and cash equivalents
            
            $
            33,829
            
            
            $
            446,808Restricted
      cash
            
            
            216,294
            
            
            
            -Accounts
      receivable
            
            
            87,448
            
            
            
            70,496Franchise
      tax prepaid
            
            
            -
            
            
            
            1,004Prepaid
      expenses
            
            
            25,195
            
            
            
            17,464Advancement
      for oil and gas exploration costs
            
            
            -
            
            
            
            49,898362,766
            
            
            
            585,670Natural
      Gas And Oil PropertiesProved
      property
            
            
            498,556
            
            
            
            380,483Unproved
      property
            
            
            659,359
            
            
            
            484,8871,157,915
            
            
            
            865,370Property,
      Plant and Equipment (net)
            
            
            2,320
            
            
            
            3,499TOTAL
      ASSETS
            
            $
            1,523,001
            
            
            $
            1,454,539LIABILITIES AND STOCKHOLDERS'
      EQUITYLIABILITIESCurrentAccounts
      payable and accrued liabilities
            
            $
            34,743
            
            
            $
            37,882Project
      cost advanced received
            
            
            130,071
            
            
            
            -Due
      to related party
            
            
            -
            
            
            
            1,527164,814
            
            
            
            39,409Long
      TermAsset
      retirement obligation
            
            
            22,776
            
            
            
            21,487TOTAL
      LIABILITIES
            
            
            187,590
            
            
            
            60,896STOCKHOLDERS'
      EQUITYShare
      CapitalPreferred
      Shares, 25,000,000 shares authorized of $0.001par
      value of which none have been issuedCommon
      stock, 100,000,000 shares authorized of $0.001par
      value, 13,857,107 and 13,557,107 shares issuedand
      outstanding, respectively
            
            
            13,857
            
            
            
            13,557Additional
      paid-in capital
            
            
            7,173,508
            
            
            
            7,115,308Accumulative
      Other Comprehensive Income
            
            
            100,700
            
            
            
            94,418Accumulated
      Deficit
            
            
            (6,035,037
            )
            
            
            (5,911,527
            )1,253,028
            
            
            
            1,311,756Noncontrolling
      Interest
            
            
            82,383
            
            
            
            81,887TOTAL
      STOCKHOLDERS' EQUITY
            
            
            1,335,411
            
            
            
            1,393,643TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
            
            $
            1,523,001
            
            
            $
            1,454,539The
      accompanying notes are an integral part of these consolidated financial
      statements




F -
1
 Table of Contents


DELTA
      OIL & GAS, INC.Consolidated
      Statements Of Operations(Stated
      in U.S. Dollars)(Unaudited)THREE
      MONTHS ENDED
            
            
            SIX
      MONTHS ENDEDJUNE
      30,
            
            
            JUNE
      30,2010
            
            
            2009
            
            
            2010
            
            
            2009RevenueNatural
      gas and oil sales
            
            $
            206,319
            
            
            $
            64,040
            
            
            $
            331,751
            
            
            $
            132,091Gain
      on sale of natural gas and oil properties
            
            
            -
            
            
            
            142,481
            
            
            
            -
            
            
            
            142,481206,319
            
            
            
            206,521
            
            
            
            331,751
            
            
            
            274,572Costs
      And ExpensesNatural
      gas and oil operating costs
            
            
            41,529
            
            
            
            36,403
            
            
            
            81,562
            
            
            
            73,176General
      and administrative
            
            
            131,426
            
            
            
            199,897
            
            
            
            329,294
            
            
            
            292,222Accretion
            
            
            645
            
            
            
            813
            
            
            
            1,289
            
            
            
            1,548Depreciation
      and depletion
            
            
            28,340
            
            
            
            4,941
            
            
            
            39,635
            
            
            
            25,704Impairment
      of natural gas and oil properties
            
            
            -
            
            
            
            71,794
            
            
            
            -
            
            
            
            202,486Loss
      on sale of natural gas and oil properties
            
            
            -
            
            
            
            750,305
            
            
            
            -
            
            
            
            750,305201,940
            
            
            
            1,064,153
            
            
            
            451,780
            
            
            
            1,345,441Net
      Operating Income/(Loss)
            
            
            4,378
            
            
            
            (857,632
            )
            
            
            (120,029
            )
            
            
            (1,070,869
            )Other
      IncomeInterest
      income
            
            
            51
            
            
            
            2,713
            
            
            
            192
            
            
            
            5,67251
            
            
            
            2,713
            
            
            
            192
            
            
            
            5,672Loss
      Before Income Taxes
            
            
            4,430
            
            
            
            (854,919
            )
            
            
            (119,837
            )
            
            
            (1,065,197
            )Income
      taxes
            
            
            (2,427
            )
            
            
            -
            
            
            
            (3,177
            )
            
            
            (5,205
            )Net
      Loss
            
            
            2,003
            
            
            
            (854,919
            )
            
            
            (123,014
            )
            
            
            (1,070,402
            )Less:
      Net loss attributable to the noncontrolling interest
            
            
            (308
            )
            
            
            4,175
            
            
            
            (496
            )
            
            
            4,321Net
      Loss Attributable to Delta Oil & Gas, Inc.
            
            $
            1,695
            
            
            $
            (850,744
            )
            
            $
            (123,510
            )
            
            $
            (1,066,081
            )Basic
      And Diluted Loss Per Common Share
            
            $
            -
            
            
            $
            (0.06
            )
            
            $
            (0.01
            )
            
            $
            (0.09
            )Weighted
      Average Number OfCommon
      Shares Outstanding
            
            
            13,857,107
            
            
            
            13,538,645
            
            
            
            13,746,058
            
            
            
            11,572,877Consolidated
      Statement of Comprehensive LossComprehensive
      LossNet
      Income/(Loss)
            
            $
            2,003
            
            
            $
            (854,919
            )
            
            $
            (123,014
            )
            
            $
            (1,070,402
            )Other
      Comprehensive Income (Loss)Foreign
      Currency Translation
            
            
            (6,738
            )
            
            
            67,250
            
            
            
            6,282
            
            
            
            31,924Comprehensive
      Loss
            
            $
            (4,735
            )
            
            $
            (787,669
            )
            
            $
            (116,732
            )
            
            $
            (1,038,478
            )The
      accompanying notes are an integral part of these consolidated financial
      statements




F -
2
 Table of Contents




DELTA
      OIL & GAS, INC.Consolidated
      Statements Of Cash Flows(Stated
      in U.S. Dollars)(Unaudited)SIX
      MONTHS ENDEDJUNE
      30,2010
              
              
              2009Cash
      Flows From Operating Activities:Net
      loss for the period
              
              $
              (123,510
              )
              
              $
              (1,066,081
              )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Accretion
              
              
              1,289
              
              
              
              1,548Depreciation
      and depletion
              
              
              39,635
              
              
              
              25,704Impairment
      of natural gas and oil properties
              
              
              -
              
              
              
              202,486Loss
      on sale of natural gas and oil properties
              
              
              -
              
              
              
              750,305Stock-based
      compensation expense
              
              
              -
              
              
              
              13,750Shares
      issued to President & CEO for servicess rendered
              
              
              39,000
              
              
              
              30,000Shares
      issued to CFO for services rendered
              
              
              19,500
              
              
              
              12,000Realized
      foreign exchange loss
              
              
              6,282
              
              
              
              32,194Net
      loss attributable to the noncontrolling interest
              
              
              496
              
              
              
              (4,321
              )Gain
      on sale of natural gas and oil properties
              
              
              -
              
              
              
              (142,481
              )Changes
      in operating assets and liabilities:Accounts
      receivable
              
              
              (16,952
              )
              
              
              26,884Accounts
      payable and accrued liabilities
              
              
              (3,139
              )
              
              
              (2,189
              )Project
      cost advance received
              
              
              130,071
              
              
              
              -Due
      to related party
              
              
              (1,527
              )
              
              
              -Franchise
      tax prepaid
              
              
              1,004
              
              
              
              (1,004
              )Prepaid
      expenses
              
              
              (7,731
              )
              
              
              3,512Advancement
      for oil and gas exploration costs
              
              
              49,898
              
              
              
              -Net
      Cash Generated/(Used) In Operating Activities
              
              
              134,316
              
              
              
              (117,693
              )Cash
      Flows From Investing Activities:Purchase
      of other equipment
              
              
              -
              
              
              
              (4,886
              )Sale
      proceeds of natural gas nad oil working interests
              
              
              -
              
              
              
              407,629Investment
      in natural gas and oil working interests
              
              
              (331,001
              )
              
              
              (324,143
              )Net
      Cash Generated /(Used) In Investing Activities
              
              
              (331,001
              )
              
              
              78,600Cash
      Flows From Financing Activities:Restricted
      Cash
              
              
              (216,294
              )
              
              
              -Share
      issue expenses
              
              
              -
              
              
              
              (48,045
              )Net
      Cash Provided/(Used) By Financing Activities
              
              
              (216,294
              )
              
              
              (48,045
              )Net
      Increase/(Decrease) In Cash And Cash Equivalents
              
              
              (412,978
              )
              
              
              (87,138
              )Cash
      And Cash Equivalents At Beginning Of Period(Excess
      Of Deposits Over Checks Issued)
              
              
              446,808
              
              
              
              980,562Cash
      And Cash Equivalents at end of Period
              
              $
              33,830
              
              
              $
              893,424Supplemental
      Disclosures Of Non-Cash, Investing and Financing
Activities200,000
      shares issued to the President & CEO as part of their
              
              $
              39,000
              
              
              $
              -compensation
      package100,000
      shares issued to the CFO for services rendered
              
              $
              19,500
              
              
              $
              -3,909,005
      shares issued for the acquisition of Oil and Gas
properties
              
              $
              -
              
              
              $
              879,526Supplemental
      DisclosuresIncome
      taxes paid
              
              $
              3,177
              
              
              $
              5,205The
      accompanying notes are an integral part of these consolidated financial
      statements


F -
3
 Table of Contents




DELTA
      OIL & GAS INC.Consolidated
      Statements Of Changes In Stockholders' EquityPeriod
      From Inception, January 9, 2001, to June 30, 2010(Stated
      in U.S. Dollars)(Unaudited)COMMON
      STOCKNUMBER
              
              
              
              
              
              SHARE
              
              
              SHARE
              
              
              
              
              
              CUMULATIVEOF
      COMMON
              
              PAR
              
              
              ADDITIONAL
              
              
              SUBSCRIPTIONS
              
              
              SUBSCRIPTIONS
              
              
              DEFICIT
              
              
              COMPREHENSIVE
              
              
              NONCONTROLLINGSHARES
      VALUE
              
              VALUE
              
              PAID-IN
      CAPITAL
              
              
              RECEIVED
              
              
              RECEIVABLE
              
              
              ACCUMULATED
              
              
              INCOME/(LOSS)
              
              
              INTEREST
              
              
              TOTALShares
      issued for cash at $0.00018
              
              
              2,750,000
              
              
              $
              2,750
              
              
              $
              (250
              )
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              2,500Shares
      issued for cash at $0.0036
              
              
              5,500,000
              
              
              
              5,500
              
              
              
              94,500
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              100,000Shares
      issued for cash at $0.045
              
              
              9,350
              
              
              
              9
              
              
              
              2,116
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,125Net
      (loss) for the period ended
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (184,407
              )
              
              
              -
              
              
              
              -
              
              
              
              (184,407
              )Balance,
      December 31, 2001
              
              
              8,259,350
              
              
              
              8,259
              
              
              
              96,366
              
              
              
              -
              
              
              
              -
              
              
              
              (184,407
              )
              
              
              -
              
              
              
              -
              
              
              
              (79,782
              )Net
      (loss) for the year
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (62,760
              )
              
              
              -
              
              
              
              -
              
              
              
              (62,760
              )Balance,
      December 31, 2002
              
              
              8,259,350
              
              
              
              8,259
              
              
              
              96,366
              
              
              
              -
              
              
              
              -
              
              
              
              (247,167
              )
              
              
              -
              
              
              
              -
              
              
              
              (142,542
              )Net
      (loss) for the year
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (24,423
              )
              
              
              -
              
              
              
              -
              
              
              
              (24,423
              )Balance,
      December 31, 2003
              
              
              8,259,350
              
              
              
              8,259
              
              
              
              96,366
              
              
              
              -
              
              
              
              -
              
              
              
              (271,590
              )
              
              
              -
              
              
              
              -
              
              
              
              (166,965
              )Share
      subscriptions received
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              160,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              160,000Net
      (loss) for the year
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (31,574
              )
              
              
              -
              
              
              
              -
              
              
              
              (31,574
              )Balance,
      December 31, 2004
              
              
              8,259,350
              
              
              
              8,259
              
              
              
              96,366
              
              
              
              160,000
              
              
              
              -
              
              
              
              (303,164
              )
              
              
              -
              
              
              
              -
              
              
              
              (38,539
              )Units
      issued for cash at $1.00,

                  net
      of share issuance cost
              
              
              496,797
              
              
              
              497
              
              
              
              2,483,228
              
              
              
              (160,000
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,323,725Options
      exercised for cash at $0.8
              
              
              49,000
              
              
              
              49
              
              
              
              195,951
              
              
              
              -
              
              
              
              (16,000
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              180,000Stock-based
      compensation
              
              
              -
              
              
              
              -
              
              
              
              370,267
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              370,267Net
      (loss) for the year
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (570,050
              )
              
              
              -
              
              
              
              -
              
              
              
              (570,050
              )Balance,
      December 31, 2005
              
              
              8,805,147
              
              
              
              8,805
              
              
              
              3,145,812
              
              
              
              -
              
              
              
              (16,000
              )
              
              
              (873,214
              )
              
              
              -
              
              
              
              -
              
              
              
              2,265,403Subscriptions
      receivable
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              16,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              16,000Options
      exercised for cash at $0.8
              
              
              61,000
              
              
              
              61
              
              
              
              243,939
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              244,000Options
      exercised for cash at $1.00
              
              
              2,500
              
              
              
              3
              
              
              
              12,498
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              12,501Shares
      issued for cash at $2.75,

                  net
      of finders fee
              
              
              145,455
              
              
              
              145
              
              
              
              1,849,850
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,849,995Stock-based
      compensation
              
              
              -
              
              
              
              -
              
              
              
              195,719
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              195,719Net
      (loss) for the year
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (234,763
              )
              
              
              -
              
              
              
              -
              
              
              
              (234,763
              )Balance,
      December 31, 2006
              
              
              9,014,102
              
              
              
              9,014
              
              
              
              5,447,818
              
              
              
              -
              
              
              
              -
              
              
              
              (1,107,977
              )
              
              
              -
              
              
              
              -
              
              
              
              4,348,855Options
      exercised for cash at $0.75
              
              
              12,000
              
              
              
              12
              
              
              
              44,988
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              45,000Shares
      issued to President & CEO as part
      of his compensation

                  package
      at $0.92
              
              
              100,000
              
              
              
              100
              
              
              
              459,900
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              460,000Shares
      issued to Investor Relations Services,
      Inc. as part of the agreement
              
              
              12,000
              
              
              
              12
              
              
              
              40,788
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              40,800Shares
      issued to CFO for services rendered
              
              
              50,000
              
              
              
              50
              
              
              
              137,450
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              137,500Stock-based
      compensation
              
              
              -
              
              
              
              -
              
              
              
              42,097
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              42,097Comprehensive
      Income/(loss):Cumulative
      translation adjustment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              187,348
              
              
              
              -
              
              
              
              187,348Net
      (loss) for the year
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2,249,959
              )
              
              
              -
              
              
              
              -
              
              
              
              (2,249,959
              )Comprehensive
      (loss)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,062,611
              )Balance,
      December 31, 2007
              
              
              9,188,102
              
              
              
              9,188
              
              
              
              6,173,041
              
              
              
              -
              
              
              
              -
              
              
              
              (3,357,936
              )
              
              
              187,348
              
              
              
              -
              
              
              
              3,011,641Shares
      issued to President & CEO & CFO as part
      of their compensation package at $0.053
              
              
              180,000
              
              
              
              180
              
              
              
              47,520
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              47,700Registration
      of shares under Form S-4
              
              
              -
              
              
              
              -
              
              
              
              (132,289
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (132,289
              )Comprehensive
      Income/(Loss):Cumulative
      translation adjustment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (181,370
              )
              
              
              -
              
              
              
              (181,370
              )Net
      loss for the year
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (215,826
              )
              
              
              -
              
              
              
              -
              
              
              
              (215,826
              )Comprehensive
      loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (397,196
              )Balance,
      December 31, 2008
              
              
              9,368,102
              
              
              
              9,368
              
              
              
              6,088,272
              
              
              
              -
              
              
              
              -
              
              
              
              (3,573,762
              )
              
              
              5,978
              
              
              
              -
              
              
              
              2,529,856Shares
      issued for acquisition of oil & gas properties
              
              
              3,909,005
              
              
              
              3,909
              
              
              
              875,616
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              879,525Registration
      of shares under Form S-4
              
              
              -
              
              
              
              -
              
              
              
              (48,045
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (48,045
              )Noncontrolling
      interest in subsidiary
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              100,631
              
              
              
              100,631Shares
      issued to President, CEO & CFO as

                  part
      of his compensation package at $0.15
              
              
              280,000
              
              
              
              280
              
              
              
              41,720
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              42,000Options
      issued to IR consultant
              
              
              -
              
              
              
              -
              
              
              
              35,998
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              35,998Options
      issued to CEO, CFO & director
              
              
              -
              
              
              
              -
              
              
              
              121,747
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              121,747Comprehensive
      Income/(Loss):Cumulative
      translation adjustment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              88,440
              
              
              
              -
              
              
              
              88,440Net
      loss for the year
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2,337,765
              )
              
              
              -
              
              
              
              (18,744
              )
              
              
              (2,356,509
              )Comprehensive
      loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,268,069
              )Balance,
      December 31, 2009
              
              
              13,557,107
              
              
              
              13,557
              
              
              
              7,115,308
              
              
              
              -
              
              
              
              -
              
              
              
              (5,911,527
              )
              
              
              94,418
              
              
              
              81,887
              
              
              
              1,393,643Shares
      issued to President, CEO & CFO as part
      of his compensation package at $0.195
              
              
              300,000
              
              
              
              300
              
              
              
              58,200
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              58,500Comprehensive
      Income/(Loss):Cumulative
      translation adjustment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              6,282
              
              
              
              -
              
              
              
              6,282Net
      loss for the period
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (123,510
              )
              
              
              -
              
              
              
              496
              
              
              
              (123,014
              )Comprehensive
      loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (116,732
              )Balance,
      June 30, 2010
              
              
              13,857,107
              
              
              $
              13,857
              
              
              $
              7,173,508
              
              
              $
              -
              
              
              $
              -
              
              
              $
              (6,035,037
              )
              
              $
              100,700
              
              
              $
              82,383
              
              
              $
              1,335,411The
      accompanying notes are an integral part of these consolidated financial
      statements


F -
4
 Table of Contents


Delta
Oil & Gas, Inc.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010


(Stated
in U.S. Dollars)





1.     
      BASIS OF PRESENTATION





The
unaudited consolidated financial statements as of June 30, 2010 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 adjustments (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, 2009 audited consolidated financial statements and notes
thereto.  The results of the operations for the six months ended June
30, 2010 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 an 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.  Prior to the fiscal
year ended December 31, 2009, the Company was designated as a development stage
enterprise.





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 in 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.





The oil
and gas industry is subject, by its nature, to environmental hazards and
clean-up costs.  At this time, management knows of no substantial
costs from environmental accidents or events for which the Company may be
currently liable.  In addition, the Company’s oil and gas business
makes it vulnerable to changes in prices of crude oil and natural
gas.  Such prices have been volatile in the past and can be expected
to be volatile in the future.  By definition, proved reserves are
based on current oil and gas prices and estimated probable
reserves.  Price declines reduce the estimated quantity of proved and
probable reserves and increase annual depletion expense (which is based on
proved and probable reserves).





b) Business
acquisition





On March
26, 2009, the Company acquired 80.31% of The Stallion Group (“Stallion”), a
Nevada corporation, whose principal business is in the identification,
acquisition and exploration of oil and gas properties. To fund the acquisition
of the Common Stock, the Company issued 3,909,005 shares of common stock and
paid $46,908 in cash to the holders of the Stallion’s common stock that was
tendered for a value of $0.04.  Each common share of Stallion was
exchangeable for 0.333333 of the Company’s common shares and $0.0008 in
cash.  As of March 26, 2009, the Company owned 58,635,139 shares of
Common Stock, which represents approximately 80.31% of the shares of Common
Stock issued and outstanding.  Following is a summary of purchase
price allocation:








F -
5
 Table of Contents





Delta
Oil & Gas, Inc.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010


(Stated
in U.S. Dollars)







2.           OPERATIONS
(continued)




b) Business
acquisition





March
      26, 2009Purchase
      price:Share
      consideration – issued 3,909,005 common shares at $0.225 per
      share
            
            $
            879,526Cash
      payment - $0.0008 for 58,653,139 common shares
            
            
            46,908Fair
      value of Non-Controlling Interests
            
            
            100,631Total
            
            $
            1,027,065Represented
      By:
              Net
      assets purchased
            
            
            (45,399
            )Increase
      in Oil and Gas Properties
            
            
            (970,535
            )Net
      Assets attributable to Non-Controlling Interests
            
            
            (11,131
            )$                                 NilPurchase
      Price Allocation:Share
      capital
            
            $
            3,495,046Accumulated
      deficit
            
            
            (3,452,287
            )Cumulative
      translation adjustment
            
            
            13,771Total
            
            $
            56,530Investment
      in Subsidiary – 80.31%
            
            $
            45,399Non-Controlling
      Interest – 19.69%
            
            $
            11,131





As the
acquisition was completed on March 26, 2009, the net loss of $76,453 of Stallion
was included in the   consolidated financial statements as of
December 31, 2009.




The
following table summarizes the net assets acquired upon the acquisition of The
Stallion Group:





Cash
      andCash Equivalents
            
            $
            565Accounts
      Receivable
            
            
            13,712Prepaid
      Expenses
            
            
            3,001Natural
      Gas and Oil properties
            
            
            194,670Capital
      Assets
            
            
            4,190Net
      Total
      Assets
            
            $
            216,138Accounts
      Payable
            
            $
            (144,144
            )Asset
      Retirement Obligation
            
            
            (15,464
            )Total
      Net Assets
            
            $
            56,530Total
      Net Assets purchased - 80.31%
            
            $
            45,399





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 $6,035,037 since inception.  To achieve profitable
operations, the Company requires additional capital for obtaining producing oil
and gas properties through either the purchase of producing wells or successful
exploration activity.  Management believes that sufficient funding
will be available to meet its business objectives including anticipated cash
needs for working capital and is currently evaluating several financing
options.  However, there can be no assurance that the Company will be
able to obtain sufficient funds to continue the development of its properties
and, if successful, to commence the sale of its projects under
development.  As a result of the foregoing, there exists substantial
doubt the Company’s ability to continue as a going concern.  These
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.





F -
6
 Table of Contents





Delta
Oil & Gas, Inc.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010


(Stated
in U.S. Dollars)





3.           
SIGNIFICANT ACCOUNTING POLICIES





a) Basis of
Consolidation





The
consolidated financial statements are presented in accordance with accounting
principles generally accepted in the United States and include the financial
statements of the Company and its wholly-owned subsidiary, Delta Oil & Gas
(Canada) Inc. and 80.31% of The Stallion Group.  All significant
inter-company balances and transactions have been eliminated.





b) Use of
Estimates





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





c) Natural
Gas and Oil Properties





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





Unproved
properties consist of lease acquisition costs and costs on wells currently being
drilled on the properties.  The recorded costs of the investment in
unproved properties are not amortized until proved reserves associated with the
projects can be determined or until they are impaired.Unevaluated oil and gas
properties are assessed at least annually for impairment either individually or
on an aggregate basis.





d) Asset
Retirement Obligations




The
Company has adopted “Accounting for Asset Retirement Obligations” of the FASB
Accounting Standards Codification, which requires that asset retirement
obligations (“ARO”) associated with the retirement of a tangible long-lived
asset, including natural gas and oil properties, be recognized as liabilities in
the period in which it is incurred and becomes determinable, with an offsetting
increase in the carrying amount of the associated assets. The cost of tangible
long-lived assets, including the initially recognized ARO, is depleted, such
that the cost of the ARO is recognized over the useful life of the assets. The
ARO is recorded at fair value, and accretion expense is recognized over time as
the discounted cash flows are accreted to the expected settlement value. The
fair value of the ARO is measured using expected future cash flow, discounted at
the Company’s credit-adjusted risk-free interest rate.





F -
7
 Table of Contents





Delta
Oil & Gas, Inc.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010


(Stated
in U.S. Dollars)





3. SIGNIFICANT
ACCOUNTING POLICIES (continued)





e) Oil and
Gas 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.
As at June 30, 2010 and 2009, the Company had no overproduced
imbalances.





g) Cash and
Cash Equivalent





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





h) Restricted
Cash





Restricted
cash consists of funds deposited in a trust account for the Texas Prospect,
which can only be used for drilling and completion costs associated with the
first well that is being drilled at this location.




i)  
  Concentration of Credit Risk


Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash and
cash equivalents and accounts receivable.  The Company
maintains cash at two financial institutions.  The Company
periodically evaluates the credit worthiness of financial institutions, and
maintains cash accounts only in large high quality financial institutions,
thereby minimizing exposure for deposits in excess of federally insured
amounts.  The Company believes credit risk associated with cash and
cash equivalents to be minimal.  Deposits are insured up to $93,932,
the amount that may be subject to credit risk for the six months ended June 30,
2010 is $nil.





The
Company has recorded trade accounts receivable from the business operations.
Management periodically evaluates the collectability of the trade receivables
and believes that the Company’s receivables are fully collectable and that the
risk of loss is minimal.





j) 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





F -
8
 Table of Contents





Delta
Oil & Gas, Inc.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010


(Stated
in U.S. Dollars)





3.            SIGNIFICANT
ACCOUNTING POLICIES (continued)





j) Environmental
Protection and Reclamation Costs (continued)





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.





k) 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 other comprehensive income/(loss).





l) 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.





m) 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.





n) Loss Per
Share





As
required by the “Earnings Per Share” Topic of the FASB Accounting Standards
Codification, 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.





o) 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.





p) Financial
Instruments





The FASB
Accounting Standards CodificationFinancial Instruments requires an entity to
maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. The standard establishes a fair value
hierarchy based on the level of independent, objective evidence surrounding the
inputs used to measure fair value. A financial instrument’s categorization
within the fair value hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. The standard prioritizes the inputs
into three levels that may be used to measure fair value:





F -
9
 Table of Contents





Delta
Oil & Gas, Inc.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010


(Stated
in U.S. Dollars)








3.            
SIGNIFICANT ACCOUNTING POLICIES (continued)





p) Financial
Instruments (continued)





Level
1






Level 1
applies to assets or liabilities for which there are quoted prices in active
markets for identical assets or liabilities.






Level
2






Level 2
applies to assets or liabilities for which there are inputs other than quoted
prices that are observable for the asset or liability such as quoted prices for
similar assets or liabilities in active markets; quoted prices for identical
assets or liabilities in markets with insufficient volume or infrequent
transactions (less active markets); or model-derived valuations in which
significant inputs are observable or can be derived principally from, or
corroborated by, observable market data.






Level
3






Level 3
applies to assets or liabilities for which there are unobservable inputs to the
valuation methodology that are significant to the measurement of the fair value
of the assets or liabilities.





The
Company’s financial instruments consist of cash and cash equivalent, accounts
receivable, franchise tax prepaid, accounts payable and accrued liabilities and
project cost advance received.





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





p)    Comprehensive
Loss





Reporting
Comprehensive Income Topic of the FASB Accounting Standards Codification
establishes standards for the reporting and display of comprehensive loss and
its components in the financial statements. The Company is disclosing this
information on its Consolidated Statements of Changes in Stockholders’ Equity
and Consolidated Statement of Operations.





q)    Stock-Based
Compensation





The
Company records stock-based compensation in accordance with Share-Based Payments
of the FASB Accounting Standards Codification, which requires the measurement
and recognition of compensation expense based on estimated fair values for all
share-based awards made to employees and directors, including stock
options.





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





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





F -
10
 Table of Contents





Delta
Oil & Gas, Inc.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010


(Stated
in U.S. Dollars)





4.           NATURAL
GAS AND OIL PROPERTIES





a)   Proved
Properties





Properties
            
            December
      31, 2009
            
            
            Additions
            
            
            Disposals
            
            
            Transfer
              from
              unproved
              properties
            
            
            Depletion
              for
      the
              period
            
            
            Impairment
            
            
            June
      30,
              2010USA
      properties
            
            $
            317,857
            
            
            $
            29.444
            
            
            
            -
            
            
            $
            122,893
            
            
            $
            (33,098
            )
            
            
            -
            
            
            $
            437,096Canada
      properties
            
            
            62,626
            
            
            
            4,192
            
            
            
            -
            
            
            
            -
            
            
            
            (5.358
            )
            
            
            -
            
            
            
            61,460Total
            
            $
            380,483
            
            
            $
            33,636
            
            
            
            -
            
            
            $
            122,893
            
            
            $
            (38.456
            )
            
            
            -
            
            
            $
            498.556




a)   
Proved Properties – Descriptions





Properties
in U.S.A.





i.
            Oklahoma,
      USA





2006-3
Drilling Program





In April
2007, the Company entered into the 2006-3 Drilling Program for a buy-in cost of
$113,700 which will provide 12.5% Before Casing Point (“BCP”) working interest
and After Casing Point (“ACP”) working interest of 10%.  In September
2007, Wolf#1-7 was abandoned. Its costs amount to $70,495 was moved to the
proven cost pool for depletion.  In October 2007, Ruggles #1-15 was
also abandoned and the cost of $84,506 was moved to the proven cost pool for
depletion.





In the
2006-3 Drilling Program, Elizabeth #1-25 was plugged and abandoned on February
7, 2008.  Its cost amounted to $127,421 was moved to the proven cost
pool for depletion.  Plaster #1-11 and Dale #1-15 started producing in
January and February 2008, respectively, total cost of $205,064 was moved to the
proven cost pool.  Loretta #1-22 was plugged and abandoned in 2009,
its cost amounted to $139,334 was moved to the proved cost pool.





2007-1
Drilling Program





In
September 2007, the Company entered into the 2007-1 Drilling Program for a
buy-in cost of $77,100 which will provide 25% Before Casing Point (“BCP”)
working interest and 20% After Casing Point (“ACP”) working
interest.





In the
2007-1 Drilling Program, Pollack #1-35 was plugged and abandoned on January 19,
2008.  Its cost amounted to $152,101 was moved to the proven cost pool
for depletion.  Hulsey #1-8 started producing in February 2008; the
cost of $200,382 was moved to the proven cost pool.  River #1-28
started producing in June 2008; the cost of $169,159 was moved to the proven
cost pool.  Hulsey #2-8 started producing in January 2009; its cost
amounted to $139,674 was moved to the proven cost pool for
depletion.








F -
11
 Table of Contents





Delta
Oil & Gas, Inc.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010


(Stated
in U.S. Dollars)





4.           NATURAL
GAS AND OIL PROPERTIES (continued)





a)
            Proved
      Properties – Descriptions





Properties
in U.S.A.





i.
            Oklahoma,
      USA (continued)





2009-1
Drilling Program





On July
27, 2009, the Company entered into the 2009-1 Drilling Program for five wells
which will provide 5.714286% Before Casing Point (“BCP”) working interest and
5.00% After Casing Point (“ACP”) working interest.  The Company’s
buy-in costs for each well is $2,625.  During the three months to
September 2009, the Company had paid buy-in, estimated drilling and completion
costs for three wells, Saddle #1-28, Saddle #2-28 and Saddle
#3-28.  Saddle #1-28 and Saddle #2-28 started producing in November
2009 and Saddle #3-28 in December 2009, the total cost amounted to $96,633 was
moved to the proven cost pool for depletion.





2009-3
Drilling Program - 4 Wells




On August
7, 2009, the Company entered into an agreement with Ranken Energy to participate
in a four well drilling program in Garvin County, Oklahoma (the “2009-3 Drilling
Program”).  The Company purchased a 6.25% working interest before
casing point and 5.0% working interest after casing point in the 2009-3 Drilling
Program for $37,775.  In addition to the total buy-in cost, the
Company will be responsible for our proportionate share of the drilling and
completion costs.  During the year endedDecember 31, 2009, the Company
paid additional drilling costs in the amount of $115,017.Jackson #1-18 started
producing in January 2010, the total cost amounted to $62,956 was moved to the
proven cost pool for depletion.  Brewer #1-20 was plugged and
abandoned on June 2, 2010.  Its cost amounted to $64,922 was moved to
the proven cost pool for depletion





ii.    Palmetto
Point Prospect, Mississippi, USA





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





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





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




On August
4, 2006, the Company elected to participate in additional two wells program in
Mississippi owned by Griffin & Griffin Exploration and paid
$70,000.  These wells were found to be proved in December
2008.







F -
12
 Table of Contents





Delta
Oil & Gas, Inc.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010


(Stated
in U.S. Dollars)





4.          
 NATURAL GAS AND OIL PROPERTIES (continued)





a)  
 Proved Properties – Descriptions





Properties
in U.S.A.




On
October 10, 2007, the Company elected to participate in the drilling of PP F-12
and PP F-12-3 in Mississippi operated by Griffin & Griffin
Exploration.  The Company’s 10% of the estimated drilling costs was
$88,783. PP F-12 started production from October 2007, and PP F-12-3 started
production from November 2007.  Additional AFE in the amount of
$36,498 for work over’s on the PP F-12, PP F-12-3 was paid on January 31, 2008.
On January 11, 2008, the Company paid $11,030 for PP F-41salt water disposal
well.




iii.   Mississippi II,
Mississippi, USA




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





In
connection with the acquisition of Stallion, the Company acquired an additional
30% of the drilling programs.





iv.    Mississippi
III, Mississippi, USA





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





On April
3, 2009, the Company sold its Working Interest in the Mississippi project and
the surrounding lands for $200,367 plus a monthly $500 payment for 48 months of
production.





v.
            Willows
      Gas Field, California, U.S.A





Through
the Company’s subsidiary, Stallion, the Company acquired a well working interest
in California, U.S.A.  On October 15, 2007, Stallion agreed to
participate in the drilling program to be conducted by Production Specialties
Company (“PSC”).  Stallion shall pay for the initial test well, 12.5%
of 100% of all costs and expenses of drilling, completing, testing and equipping
the Wilson Creek #1-27, to earn 6.25% working interest.  As of
December 31, 2009, Stallion has expended $195,971 for the costs of Wilson Creek
#1-27 and $60,000 for 3D seismic in the prospect area.  Wilson Creek
#1-27 started producing gas from April 2008.  The well has been
temporarily shut in pending an increase in natural gas commodity
prices.





F -
13
 Table of Contents





Delta
Oil & Gas, Inc.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010


(Stated
in U.S. Dollars)





4.
            NATURAL
      GAS AND OIL PROPERTIES (continued)





a)   
Proved Properties- Descriptions





Properties
in Canada





vi.  Wordsworth
Prospect, Saskatchewan, Canada





On April
10, 2007, the Company entered into an agreement (the “Agreement”) with Petrex
Energy Ltd., for a participation and Farm-out 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. The well, HZ
1C2-23 was drilled in September 2008 also started production from November
2008.  In June 2009, the Company joined the drilling of a new well, HZ
1B1-23/3B8, and paid CAD$49,826 for 5% working interest.





On
      June 1, 2009, the Company sold 2.5% of its 7.5% Working Interest for
      CAD$250,000.





As
      at June 30, 2010, the Company had advanced $291,023 as its share of the
      costs in this Agreement.





b)   
Unproved Properties





Properties
            
            December
      31,
              2009
            
            
            Addition
            
            
            Disposals
            
            
            Transfer
              to
      proved
              properties
            
            
            June
      30,
              2010USA
      properties
            
            $
            332,541
            
            
            $
            296,998
            
            
            $
            -
            
            
            $
            (122,893
            )
            
            $
            506,646Canada properties
            
            
            152,346
            
            
            
            367
            
            
            
            -
            
            
            
            -
            
            
            
            152,713Total
            
            $
            484,887
            
            
            $
            297,365
            
            
            $
            -
            
            
            $
            (122,893
            )
            
            $
            659,359




c) Costs
not being amortized







The
following table sets forth a summary of oil and gas property costs not being
amortized at June 30, 2010, by the year in which such costs were incurred. There
are no individually significant properties or significant development projects
included in costs not being amortized. The majority of the evaluation activities
are expected to be completed within five to ten years.





Total
            
            
            2010
            
            
            2009
            
            
            2008
            
            
            2007
              and
              PriorProperty
      acquisition costs and Transfer to Proved Property Pool
            
            
            18,312
            
            
            
            (19,463
            )
            
            
            17,900
            
            
            
            -
            
            
            
            19,875Exploration
      and development
            
            
            641,047
            
            
            
            193,935
            
            
            
            (163,389
            )
            
            
            -
            
            
            
            610,501Capitalized
      interest
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
            
            
            659,359
            
            
            
            174,472
            
            
            
            (145,489
            )
            
            
            -
            
            
            
            630,376








F -
14
 Table of Contents





Delta
Oil & Gas, Inc.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010


(Stated
in U.S. Dollars)





4.
            NATURAL
      GAS AND OIL PROPERTIES (continued)





c)   
Costs not being amortized (continued)





Properties
in U.S.A.





i.  
 Mississippi II, Mississippi, USA





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





On April
3, 2009, the Company sold its Working Interest in the Mississippi project and
the surrounding lands for $200,367 and $500 per month for 48 months of
production.





ii.   King City, California,
USA





On May
25, 2009, the Company entered into a Farm-out agreement with Sunset Exploration
(“Sunset”) to participate in a drilling and exploration of lands located in
California, USA.  The Company paid $100,000 to Sunset towards the
permitting and processing of lands and the costs of a gravity survey and a 2D
seismic program.  The Company shall pay 66.67% pro rata share of 100%
of all costs associated in the initial test well.  If the test well is
capable of producing hydrocarbons, then the Company shall pay its working
interest pro rata share of all completion costs.  The Company’s
working interest is 40% of 100% in the Area of Mutual Interest.





iii.   Texas
Prospect, Texas, USA





On July
15, 2009, the Company successfully obtained the leases on certain lands in
Texas, USA.  These leases will provide the Company with the ability to
drill up to 3 exploration wells.  In December 2009, the Company
desired to convey a sixty (60%) percent interest in the leases to Hillcrest
Resources Ltd and received $111,424 in December 2009.  As at June 30,
2010, the costs of the leases were $270,613.





iv.  2009-3
Drilling Program - 4 Wells




On August
7, 2009, the Company entered into an agreement with Ranken Energy to participate
in a four well drilling program in Garvin County, Oklahoma (the “2009-3 Drilling
Program”).  The Company purchased a 6.25% working interest before
casing point and 5.0% working interest after casing point in the 2009-3 Drilling
Program for $37,775.  In addition to the total buy-in cost, the
Company will be responsible for our proportionate share of the drilling and
completion costs.  During the year endedDecember 31, 2009, the Company
paid additional drilling costs in the amount of $115,017.




Properties
in Canada





v.  
Wordsworth Prospect, Saskatchewan, Canada





In April
2007, the Company entered into an agreement (the “Agreement”) with Petrex Energy
Ltd., for a participation and Farm-out 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 June 30, 2010, the Company had expended $152,714of the well 3B9-23/3A11 and 2
HZ 3B9 LEG.





F -
15
 Table of Contents





Delta
Oil & Gas, Inc.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010


(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’sprospects 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 wellshaving 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 Company’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.





6.
            CURRENT
      LIABILITIES





The
Company received $130,071 as at June 30, 2010, from Hillcrest Resources Ltd., as
its share in the Texas project.  The Company will expend these funds
for drilling the first exploration hole.





7. ASSET
RETIREMENT OBLIGATIONS





The
Company follows the Accounting for Asset Retirement Obligations Topic of the
FASB Accounting standards Codification.  This addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement
costs.  It also requires recognition of the present value of
obligations associated with the retirement of tangible long-lived assets in the
period in which it is incurred.  As of June 30, 2010 andDecember 31,
2009, the Company recognized the future cost to plug and abandon the gas wells
over the estimated useful lives of the wells in accordance with Asset retirement
Obligations of the FASB Accounting Standards Codification.  The
liability for the fair value of an asset retirement obligation with a
corresponding increase in the carrying value of the related long-lived asset is
recorded at the time a well is completed and ready for
production.  The Company amortizes the amount added to the oil and gas
properties and recognizes accretion expense in connection with the discounted
liability over the remaining life of the respective well.  The
estimated liability is based on historical experience in plugging and abandoning
wells, estimated useful lives based on engineering studies, external estimates
as to the cost to plug and abandon wells in the future and federal and state
regulatory requirements.  The liability is a discounted liability
using a credit-adjusted risk-free rate of 12%.





F -
16
 Table of Contents





Delta
Oil & Gas, Inc.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010


(Stated
in U.S. Dollars)





7. ASSET
RETIREMENT OBLIGATIONS (continued)





Revisions
to the liability could occur due to changes in plugging and abandonment costs,
well useful lives or if federal or state regulators enact new guidance on the
plugging and abandonment of wells.





The
Company amortizes the amount added to oil and gas properties and recognizes
accretion expense in connection with the discounted liability over the remaining
useful lives of the respective wells.





The
information below reflects the change in the asset retirement obligations during
the six months ended June 30, 2010 and year ended December 31,
2009:





June
      30, 2010
            
            
            December
      31, 2009Balance,
      beginning of period
            
            $
            21,487
            
            
            $
            23,604Liabilities
      assumed
            
            
            -
            
            
            
            6,138Revisions
            
            
            -
            
            
            
            (10,491
            )Accretion
      expense
            
            
            1,289
            
            
            
            2,236Balance,
      end of period
            
            $
            22,776
            
            
            $
            21,487





8.            
SHARE CAPITAL





On
September 25, 2009, the Company’s shareholders voted for a 1 for 5 reverse
split.  On October 21, 2009 the Company changed its Articles of
Incorporation to reflect the 1 for 5 reverse share split.  The
Company’s financial statements reflect the changes in its share capital
retroactively and prospectively.  Hence the Company’s outstanding
warrants and options have been adjusted accordingly.





i. Common
Stock





On
January 11, 2006, the Company issued 15,000 common shares for exercise of stock
options at $4.00 per share.





On
January 24, 2006, the Company issued 46,000 common shares for exercise of stock
options at $4.00 per share.





On
January 25, 2006, the Company issued 2,500 common shares for exercise of stock
options at $5.00 per share.





On April
25, 2006, the Company issued 145,455 common shares pursuant to a private
placement at $13.75 per share.





On
January 23, 2007, the Company issued 12,000 common shares for exercise of stock
options at $3.75 per share.





On March
1, 2007, the Company issued 100,000 common shares to the President and CEO as
part of his compensation package.  The price of the share as of March
1, 2007 was $4.60.





On May 1,
2007, the Company issued 12,000 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
$6.40.





On July
8, 2007, the Company issued 50,000 common shares to its Chief Financial Officer
as part of his services rendered and in lieu of cancellation of stock
options.  The price of the share was $2.75.  It was the
average of the share price of July 6 and July 9, 2007.





On August
13, 2008, the Company issued 180,000 common shares to theOfficers of the Company
as part of their compensation package.  The price of the share as of
August 13, 2008 was $0.265.





F -
17
 Table of Contents





Delta
Oil & Gas, Inc.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010


(Stated
in U.S. Dollars)








8. SHARE
CAPITAL (continued)





On March
26, 2009, the Company issued 3,909,005 common shares for the acquisition of
80.31% for oil and gas properties.





On April
6, 2009, the Company issued 280,000 common shares to theOfficers of the Company
as part of their compensation package.  The price of the shares as of
April 6, 2009 was $0.15.





On March
8, 2010, the Company issued 300,000 common shares to the Officers of the Company
as part of their compensation package.  The price of the shares as of
March 8, 2010 was $0.195.





Preferred
Stock





The
Company did not issue any preferred stock during the six months period ended
June 30, 2010 (December 31, 2009 - Nil).





ii. Stock
Options





Compensation
expense related to incentive stock options granted is recorded at their fair
value as calculated by the Black-Scholes option pricing
model.  Compensation expense was nil for the six months period ended
June 30, 2010 and $157,746 for the year ended December 31, 2009 related to
options granted during the year ended December 31, 2009.  The changes
in stock options are as follows:





NUMBER
            
            
            WEIGHTED
      AVERAGE
              EXERCISE
      PRICEBalance
      outstanding, December 31, 2009
            
            
            900,000
            
            
            $
            0.12Granted
            
            
            -
            
            
            
            -Expired
            
            
            -
            
            
            
            -Exercised
            
            
            -
            
            
            $
            0.12Balance
      outstanding, June 30, 2010
            
            
            900,000





The
weighted average assumptions used in calculating the fair value of stock options
granted and vested using the Black-Scholes option pricing model are as
follows:





June
      30,
              2010
            
            
            December
      31,
              2009Risk-fee
      interest rate
            
            
            -
            
            
            
            2.50
            %Expected
      life of the option
            
            
            -
            
            
            3
      yearExpected
      volatility
            
            
            -
            
            
            
            199.13
            %&
      476.13
            %Expected
      dividend yield
            
            
            -
            
            
            
            -





The
following table summarized information about the stock options outstanding as at
June 30, 2010:





Options
      outstanding
            
            Options
      exercisableExercise
      price
            Number
      of shares
            Remaining
      contractual
              life
      (years)
            
            Number
      of shares$0.15
            100,00
            1.77
            
            100,000$0.12
            800,000
            2.42
            
            800,000








F -
18
 Table of Contents





Delta
Oil & Gas, Inc.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010


(Stated
in U.S. Dollars)





8. SHARE
CAPITAL (continued)





iii.   
Common Stock Share Purchase Warrants





During
the three months ended March 31, 2010, 496,797 share purchase warrants expired
on February 1, 2010.  As at June 30, 2010, there were no share
purchase warrants outstanding for the purchase of common
shares.





9.
            RELATED
      PARTIES





During
the period ended June 30, 2010, the Company paid $131,934 (June 30, 2009 -
$89,952) for consulting fees and $21,256 (June 30, 2009 - $18,032) for
accounting services to Companies controlled by directors and officers of the
Company.  Amounts paid to related parties are based on exchange
amounts agreed upon by those related parties.





On March
8, 2010, the Company issued 300,000 shares of common stock in consideration for
services rendered to Officers of the Company at a price of
$0.195.  The cost of $58,500 was recorded in the compensation expense
for shares granted and was included in the general and administration
expenses.





10.
            COMMITMENT
      AND CONTRACTURAL OBLIGATIONS





For Kings
City Farm-out Modification, the Company is responsible for 40% (i.e.$8,000) of
additional expense on a seismic survey.





The
Company contracted with its executive officers to pay each of the executive
officers $85,632 per year and issue 100,000 common shares of the Company on the
anniversary of the executive agreement.  The agreement automatically
renews after one year for a further 12 months.





11.           SUBSEQUENT
EVENT





On July
22, 2010, the Company received an unsolicited offer to purchase the 5% Working
Interest in the Wordsworth prospect for $704,490.  The Company
finalized the negotiations on July 28, 2010 and the transaction was executed on
August 3, 2010, with an effective date of July 1, 2010.







F -
19
 Table of Contents





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




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




Although
forward-looking statements in this Quarterly Report on Form 10-Q reflect the
good faith judgment of our management, such statements can only be based on
facts and factors currently known by us. Consequently, forward-looking
statements are inherently subject to risks and uncertainties and actual results
and outcomes may differ materially from the results and outcomes discussed in or
anticipated by the forward-looking statements.  We caution the reader
that numerous important factors, including those factors discussed in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2009, which
are incorporated herein by reference, could affect our actual results and could
cause our actual consolidated results to differ materially from those expressed
in any forward-looking statement made by, or on behalf of, the
Company.  Readers are urged not to place undue reliance on these
forward-looking statements, which speak only as of the date of this Quarterly
Report on Form 10-Q.  We file reports with the Securities and Exchange
Commission (the “SEC” or “Commission”).  We make available on our
website under "Investors/SEC Filings,” free of charge, our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports as soon as reasonably practicable after we
electronically file such materials with or furnish them to the SEC. Our website
address is www.deltaoilandgas.com.  You
can also read and copy any materials we file with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, NW, Washington, DC 20549. You can obtain
additional information about the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330.  In addition, the SEC maintains an
internet site (www.sec.gov) that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC, including us.




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




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







- 4
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 Table of Contents






Business
of Delta Oil




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 acquisition,
exploration and development of North American 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 minority interests in either producing wells or oil and
gas exploration and development projects.




Our current focus is on the exploration
of our land portfolio comprised of working interests in acreage in King City,
California; South Central, Oklahoma; and Eastern, Texas.  As a result
of our acquisition in March 2009 of a controlling interest in The Stallion
Group, a Nevada corporation, we expanded our property interests to include
acreage in the North Sacramento Valley, California.




Texas
Prospect




On July
15, 2009, we entered into an assignment agreement with
Mr. Barry Lasker (the “Assignor”) and were assigned all of Assignor’s
rights and obligations under two oil, gas and liquid hydrocarbon lease
agreements, each dated March 26, 2009 (the “Leases”) covering an aggregate area
of approximately 243 acres in Newton County, Texas (the “Texas
Prospect”).  These Leases provide us with the ability to drill up to 3
exploration wells.  The costs of the leases were
$169,566.  In December 2009, we sold a sixty (60%) percent interest in
the Leases to Hillcrest Resources Ltd. (“Hillcrest”) and received
$111,424.  As at June 30, 2010, the costs of the leases were
$74,018.




Following our disposition of a 60%
interest in the Leases to Hillcrest, we will be responsible for 40% of all costs
allocated to the Leases, drilling and completion of up to 3 exploration wells.
We anticipate the dry hole costs to be approximately $442,000.  Once
the 3 exploration wells are drilled, completed and production commences, if at
all, we will receive a percentage distribution of net revenue, after deduction
of all applicable expenses and royalties of approximately 25%, according to the
following table:




Net
      Revenue DistributionBefore
      Payout
            
            After
      PayoutWell
      #1
            36%
            
            20%Well
      #2
            36%
            
            24%Well
      #3
            36%
            
            28%







Under the terms of the Leases, we have
the ability to participate in additional wells drilled in the Texas
Prospect.  In the event that we elect to participate, we will
negotiate with Hillcrest our respective levels of participation in additional
wells.  Our percentage of the costs and net revenue distribution, both
before and after payout, associated with each additional well will be
proportional to our level of participation.




The Company transferred its
proportionate share of the drilling and completion costs during the quarter
ended June 30, 2010.  On June 4, 2010, the first well (the “Donner
#1”) was successfully drilled and encountered hydrocarbons.  The well
was completed and the Company is expecting this well to go into production
during the quarter ended September 30, 2010.






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2009-3 Drilling Program - 4
Wells




On August
7, 2009, we entered into an agreement with Ranken Energy to participate in a
four well drilling program in Garvin County, Oklahoma (the “2009-3 Drilling
Program”).  We purchased a 6.25% working interest before casing point
and 5.0% working interest after casing point in the 2009-3 Drilling Program for
$37,775.  In addition to the total buy-in cost, we are responsible for
our proportionate share of the drilling and completion costs.  During
the year ended December 31, 2009, we paid additional drilling costs in the
amount of $78,090.  The first well (the “Jackson #1-18”) started
production during the quarter ending March 31, 2010 and the second well (the
“Miss Gracie #1-18”) started production during the quarter ending June 30,
2010.  The following represents the revenues from this drilling
program:




Well
      Name
            Three
      months ended,
              June
      30, 2010
            Six
      months ended,
              June
      30, 2010
            Three
      and Six months ended,
              June
      30, 2009Jackson
      #1-18
            $12,958
            $20,920
            $nilMiss
      Gracie #1-18
            $78,439
            $78,439
            $nil




The increase in revenues for both
periods was due to wells not being in production for both periods during the
corresponding prior year.  Drilling and completion costs of $127,878
were moved to the proved properties pool for depletion.




The third and fourth wells in this four
well drilling program have also been drilled, completed and are undergoing
further testing in order to determine whether commercially viable quantities of
hydrocarbons are present.




2009-1 Drilling Program - 5
Wells




On July
27, 2009, we entered into an agreement with Ranken Energy to participate in a
five well drilling program in Garvin County, Oklahoma (the “2009-1 Drilling
Program”).  We initially acquired a 5.0% working interest in the
2009-1 Drilling Program in exchange for our payment of a total of $13,125 in
buy-in costs, which equates to $2,625 in buy-in costs for each well, plus our
proportionate share of the drilling and completion costs.  During the
fourth quarter of 2009, our working interest in the 2009-1 Drilling Program was
reduced to 3.75%.  The reduction in our working interest was
attributable to the landowner exercising an option to increase its working
interest causing in a proportional reduction to all working interests held in
this drilling program.




During
the year ended December 31, 2009, we paid estimated drilling and completion
costs of $72,175for
three wells which we refer to as Saddle #1-18, Saddle #2-18
and  Saddle #3-18.  The first three wells in this drilling
program started to produce hydrocarbons during the quarter ending March 31,
2010.  Total revenue received from all three wells for the three
months ended June 30, 2010 was $7,482 (June 30, 2009: $nil) and for the six
months ended June 30, 2010 was $19,073, (June 30, 2009: $nil).  The
increase in revenue for both periods is due to the wells not being in existence
for the corresponding periods in the prior year.




2007-1 Drilling Program - 3
Wells




On
September 10, 2007, we entered into an agreement with Ranken Energy to
participate in a four well drilling program in Garvin County, Oklahoma (the
“2007-1 Drilling Program”).  We purchased a 20% working interest in
the 2007-1 Drilling Program for $77,100. Drilling of the first and second wells
(the “Pollock #1-35” and the “Hulsey #1”) was completed in the N.E. Anitoch
Prospect and the Washington Creek Prospect respectively.  The Pollock
#1-35 did not prove to be commercially viable, but the Hulsey #1 has been
producing in the range of approximately 50 to 60 barrels of oil per day with
approximately 50 Mcf of natural gas per day since February 2008.






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Drilling of the third well in this
drilling program (the “River #1”) was completed during the three months ended
September 30, 2008.  River #1 is currently in production and the total
revenue received for the three months ended June 30, 2010 was $11,475 (June 30,
2009: $8,897) and for the six months ended June 30, 2010 was $24,982 (June 30,
2009: $21,305), the small increase in revenue was caused by an increase in the
commodity prices during the period.




Hulsey #1-8 started producing during
the first quarter of 2008 and the total revenue received for the three months
ended June 30, 2010 was $19,972 (June 30, 2009: $550) and for the six months
ended June 30, 2010 was $40,064 (June 30, 2009: $1,244).  The increase
in revenue was caused by the stimulation of the well which resulted in higher
production rates and also an increase in commodity prices during the
period.




Hulsey
#2-8 commenced production during the three months ended March 31, 2009 and
produced $6,403 for the three months ended June 30, 2010 (June 30, 2009: $4,933)
and $6,403 in oil revenues for the six months ended June 30, 2010 (June 30,
2009: $8,256).  The reduction in revenue for the six months ended June
30, 2010,as compared to the same period in the prior year was caused by a
suspension of production from the Hulsey #2-8 well due to maintenance and
weather related issues that occurred during the first quarter of
2010.  Our proportionate costs associated with the Hulsey #2-8 well
amounted to $139,674, which was moved to the proved properties cost pool for
depletion.




2006-3 Drilling
Program




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




Three
wells drilled (the "Wolf #1-7", the "Loretta #1-22" and the “Ruggles #1-15")
were deemed by the operator to not be commercially viable and as such, were
plugged and abandoned in September 2007.  The proportionate costs
associated with these abandoned wells amounted to $244,989, which were moved to
the proved properties cost pool for depletion.




Three other wells drilled (the
“Elizabeth #1-25”, the “Plaster #1-1” and the “Dale #1 re-entry”) were deemed by
the operator to be commercially viable and production casing was set in
each.  The Elizabeth #1-25 located in the Meridian Prospect cost
$99,129, the Plaster #1-1 located in the Plaster Prospect cost $116,581, and
re-entry into the Dale #1 located in the Dale Prospect cost $18,150, all of
which was paid August and September, 2007.  Subsequent to the
completion of these wells, two remain economically viable at this
time.  The Plaster #1 encountered hydrocarbon showings and is
producing natural gas with amounts of associated oil as of January,
2008.  The Dale #1 re-entry has been producing in the range of 2 to 3
barrels of oil per day.  The Elizabeth #1-25 has been plugged and
abandoned as of February 7, 2008.




Total
revenue received from the Plaster #1 and Dale #1 wells for the three months
ended June 30, 2010 was $3,118 (June 30, 2009: $2,066).  Total revenue
received from the Plaster #1 and Dale #1 wells for the six months ended June 30,
2010 was $4,018 (June 30, 2009: $2,887).   The increase in
revenue was caused by an increase in commodity prices.




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






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Wordsworth
Prospect




On April
10, 2006, we entered into a farm-out, 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
contained oil reserves suitable for commercial production. In June 2006, this
initial well began producing as an oil well.




A second horizontal well was drilled in
May 2007 at a cost of $198,152. Initial logs indicated hydrocarbon showings in
an oil-bearing zone estimated to be approximately 770 feet in the horizontal
section. However, due to the high water content in fluid removed from this well,
the operator determined that it was not commercially productive and it was
plugged and abandoned.  In April 2008, the operator recommended
re-entering the second horizontal well with a view to drilling horizontally in a
different direction starting at the base of the vertical portion of that well.
We elected to participate in this re-entry on the same terms and conditions as
the previous wells.  This well was drilled at a cost of $33,812. No
economic hydrocarbons were found and this well was plugged and
abandoned.




On
November 2, 2009, we announced the completion and production of a third well at
the location 2A2-23-7-3W2.  The total cost of this well was
CDN$67,253.  The well has started production and we began receiving
royalties from this well during November 2009.




The
revenue received from all wells in the Wordsworth prospect for the three months
ending June 30, 2010 was $61,138 (June 30, 2009: $37,301).  The
revenue received from all wells in the Wordsworth prospectfor
the six months ended June 30, 2010 was $126,055 (June 30, 2009:
$77,116).  The increase in revenue was caused by the addition of a two
new successful wells and the increase in commodity prices; however, this was
partially offset by the disposal of 2.5% of our interest in the Wordsworth
Prospect for $214,961, effective on June 1, 2009, thereby reducing our interest
from 7.5% to 5%.




On July
1, 2010, we entered into a Purchase and Sale Agreement (the “Agreement”) with
Petrex Energy Ltd. (“Petrex”) whereby Petrex agreed to purchase our remaining 5%
working interest in the Wordsworth prospect and our right to participate in
future wells in the Wordsworth prospect for CDN $757,500, inclusive of 5% GST on
Tangibles, which equates to US $704,490.  The Agreement closed on
August 3, 2010.  As of the closing date, we disposed of our entire
working interest in the Wordsworth prospect.










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Willows Gas
Field




On
February 15, 2007, Stallion, our majority-owned subsidiary, entered into a Farm
Out Agreement with Production Specialties Company (“Production Specialties”) for
participation in a natural gas prospect area located in the North Sacramento
Valley, California.  On October 15, 2007, Stallion drilled its first
prospect well paying 12.5% of the costs of the first well to earn a 6.25%
working interest.  For subsequent wells, Stallion will pay 6.25% of
the costs of future wells to earn 6.25% working interest.Stallion
participated in the drilling of the first well (“Wilson Creek
#1-27”)  on the prospect area and encountered a number of prospective
pay zones.  Testing was completed and stabilized flow rates exceeded a
combined 1.5 million cubic feet per day of sweet high quality
gas.  Thereafter, the Wilson Creek #1-27 was connected to a nearby
pipeline and begun producing natural gas in April 2008.  Total costs
for the Wilson Creek #1-27 well in the end year ended December 31, 2009 was
$255,971.  During 2009 and in light of the lower natural gas commodity
prices, we reviewed the future economic viability of this well and decided to
suspend production until further notice in order to determine whether production
of this well will be profitable.  During the quarter ended March 31,
2010, we decided to resume production on this well due to an increase in
commodity prices.  The total revenue received from the Wilson Creek
#1-27 well for the three months ended June 30, 2010 was $4,233 (June 30, 2009:
$nil).  Total revenue received from Wilson Creek #1-27 for the six
months ended June 30, 2010 was $9,596 (June 30, 2009: $nil).  The
increase in revenue was caused by our decision to resume production in the
reporting period.




King City,
California




On May
25, 2009, we entered into a farm-out agreement with Sunset Exploration
(“Sunset”), a California corporation, to participate in the drilling and
exploration of lands located in Monterey County, California.  The
prospect area where the drilling and exploration will take place is comprised of
approximately 10,000 acres.  We are obligated to pay 66.67% of the
costs of the initial test well up to casing point, in order to earn a 40.0%
working interest.  Thereafter, we will be obligated to pay 40.0% of
the costs of any future wells which we elect to participate in order to earn a
40.0% working interest.  We paid Sunset $100,000 as an advance towards
the permitting and processing of lands and the costs of a gravity survey and a
2D seismic program. We commenced a gravity
survey and 2D seismic program in August 2009.  Following receipt of
the results from the gravity survey and 2D seismic program, we decided to pursue
further 2D seismic analysis in order to identify viable hydrocarbon targets for
its first test well, which we anticipate will be completed by December 31,
2010.




Palmetto Point Prospect - 12
Wells Phase - I




On
February 21, 2006, we entered into an agreement with 0743608 B.C. Ltd.,
(“Assignor”), a British Columbia based oil and gas exploration company, in order
to accept an assignment of the Assignor’s 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 Exploration”), 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 Exploration on February
24, 2006.




The
initial Drilling Program on ten wells on the acquired property interest was
completed by Griffin Exploration.  On August 4, 2006, we paid $70,000
to Griffin Exploration in exchange for our participation in an additional two
well program, which has also been completed.  The prospect area owned
or controlled by Griffin Exploration on which the wells were drilled is
comprised of approximately 1,273 acres in Palmetto Point,
Mississippi.  Twelve wells had been drilled resulting in seven
producing wells.  We refer to this drilling program as Palmetto Point
Phase I.






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Effective
February 1, 2009, we disposed of our interests in the Palmetto Point Prospect -
12 Wells Phase - I project described above.  These interests were
disposed of together with the interests in the Palmetto Point Prospect – 50
Wells Phase II project described below.  We received no revenue from
the Palmetto Point Phase I producing wells during the year ended December 31,
2009.




Palmetto Point Prospect - 50
wells – Phase II




During
the fiscal quarter ended September 30, 2006, we entered into a joint venture
agreement to acquire an interest in a drilling program comprised of up to fifty
natural gas and/or oil wells.  The area in which the wells are being
drilled is approximately 300,000 gross acres located between Southwest
Mississippi and Northeastern Louisiana.  Drilling commenced in
September 2006.  The site of the first twenty wells was located within
range to tie into existing pipeline infrastructure should the wells be suitable
for commercial production.  The drilling program was conducted by
Griffin Exploration in its capacity as operator.  We agreed to pay 10%
of all prospect fees, mineral leases, surface leases, and drilling and
completion costs to earn a net 8.0% share of all production zones to the base of
a geological formation referred to as the Frio formation and 7.5% of all
production to the base of a geological formation referred to as the Wilcox
formation.  The cost during the quarter ending September 30, 2006
amounted to $100,000.  During the fourth quarter of fiscal 2006, we
made additional payments of $300,000 that was employed in the further
development of prospects on lands in Mississippi and Louisiana in accordance
with the terms of the operating agreement.




We acquired, through our acquisition of
a controlling interest of the Stallion Group in March 2009, an additional
interest in this same drilling program.  Pursuant to the agreement
entered into by the Stallion Group with Griffin Exploration on August 2, 2006,
the Stallion Group agreed to pay 30% of all prospect fees, mineral leases,
surface leases, and drilling and completion costs to earn a net 19.2% share of
all production zones to the base of a geological formation referred to as the
Frio formation and 17.25% of all production to the base of a geological
formation referred to as the Wilcox formation.  The Stallion Group’s
cost during the quarter ending September 30, 2006 amounted to
$300,000.  During the fourth quarter of fiscal 2006, the Stallion
Group made additional payments of $600,000 that were employed in the further
development of prospects on lands in Mississippi and Louisiana in accordance
with the terms of the operating agreement.  As a result of our
acquisition of a controlling interest of the Stallion Group in March 2009
pursuant to our tender offer, we became obligated to pay 40% of all prospect
fees, mineral leases, surface leases, and drilling and completion costs to earn
a net 27.2% share of all production zones to the base of a geological formation
referred to as the Frio formation and 24.75% of all production to the base of a
geological formation referred to as the Wilcox formation




Effective
February 1, 2009, we disposed of all of our interests in the Palmetto Point
Prospect - 50 Wells Phase - II project described above, including those
previously held by the Stallion Group.  These interests were disposed
of together with the interests in the Palmetto Point Prospect – 12 Wells Phase I
for consideration of $200,367 plus a monthly payment of $500 for each monthly
period that these wells are in production up to a maximum of forty-eight
months.




No
revenue was received from the Palmetto Point Phase II producing wells during the
year ended December 31, 2009.




Hillspring
Prospect




On
November 26, 2004, through our wholly-owned Canadian subsidiary, Delta Oil &
Gas (Canada), Inc., we entered into an agreement (the "Agreement") with Win
Energy Corporation, ("Win Energy"), an Alberta based oil & gas exploration
company, in order to acquire an interest in leases owned by Win
Energy.  On or about January 25, 2005, we paid Win Energy $414,766 in
exchange for a 10% working interest in one section of land (640 acres) in
Hillspring located approximately 90 miles south of Calgary, Alberta in the
Southern Alberta Foothills belt.  During the three months ended March
31, 2009, management reassessed its participation in this project and determined
to abandon this project due to concerns regarding its
profitability.  We did not incur any costs in connection with our
abandonment of this project and do not anticipate incurring any future
costs.






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For the Six Months Ended
June 30, 2010 and 2009




Revenues




We
generated total revenue of $331,751 for the six months ended June 30, 2010, an
increase of 151% from revenues of $132,481 for the six months ended June 30,
2009.  Our revenues generated during the six months ended June 30,
2010 were entirely attributable to natural gas and oil sales.  The
increase in revenues was due to an in increase in the number of producing wells
when compared to the corresponding period last year, particularly in our
Oklahoma area of interest.  However, this was partially offset by the
part disposal of our working interest in the Wordsworth Prospect during the
quarter ended June 30, 2009.  The increase is also attributed to an
increase in the price of natural gas and oil when compared to the corresponding
period last year.




Costs
and Expenses




We
incurred costs and expenses in the amount of $451,780 for the six months ended
June 30, 2010, a 66% decrease from costs and expenses of $1,345,441 for six
months ended June 30, 2009.  The significant decrease in costs was
primarily attributable to us not incurring during the six months ended June 30,
2010 any impairment charges or losses from the sale of natural gas and oil
properties after having incurred a significant amount of these costs and
expenses during the six months ended June 30, 2009.  During the six
months ended June 30, 2009, we incurred a loss on sale of natural gas and oil
properties of $750,305 relating to our disposition of the Palmetto Point
Prospect 12 Wells Phase - I and 50 wells – Phase II projects and also an
impairment charge of $202,486   An increase in the price of
natural gas and oil resulted in no impairment charge when performing the ‘full
cost ceiling test’ for the six months ended June 30, 2010.




Other
changes in our costs and expenses for the six months ended June 30, 2010, when
compared the six months ended June 30, 2009, are described below:




·
            General
      and administrative costs for the six months ended June 30, 2010 increased
      to  $329,294 from $292,222 for the six months ended June 30,
      2009, an increase of 13%. The increase was
      caused by an increase in stock based compensation and the inclusion of
      costs related to the additional personnel that was acquired during the
      merger with The Stallion Group.




·
            Natural
      gas and oil operating costs for the six months ended June 30, 2010
      increased to $81,562 from $73,176 for the six months ended June 30, 2009,
      an increase of 11%.  The increase in operating expenses was
      caused by the increase in producing wells when compared to the same period
      in the prior year.




·
            Depreciation
      and depletion costs for the six months ended June 30, 2010 increased to
      $39,635 from $25,704, representing an increase of 54%.  The
      increase was caused by an increase in production from our natural gas and
      oil wells, in particular, our wells located in Garvin County,
      Oklahoma.




Net
Operating Loss




The net
operating loss for the six months ended June 30, 2010 was $120,029, compared to
a net operating loss of $1,070,869 for the six months ended June 30, 2009 due to
the factors described above.






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Other
Income and Expense




We
reported other net income of $192 for the six months ended June 30,
2010, as compared to other net income of $5,672 in the six months ended June 30,
2009.  Other income was attributable to interest received on bank
deposits.




Net
Loss Attributable to Delta Oil and Gas Inc.




As a
result of the above, net loss for the six months ended June 30, 2010 was
$123,510, compared to a net loss of $1,066,081 for the six months ended June 30,
2009.




For the three Months Ended
June 30, 2010 and 2009




Revenues




We
generated total revenue of $206,319 for the three months ended June 30, 2010, an
increase of 222% from revenues of $64,040 for the three months ended June 30,
2009.  Our revenues generated during the three months ended June 30,
2010 were entirely attributable to natural gas and oil sales.  The
increase in revenues was due to an in increase in the number of producing wells
when compared to the corresponding period last year, particularly in our
Oklahoma area of interest.  However, this was partially offset by the
partial disposal of our 2.5% of our working interest in the Wordsworth Prospect
during the quarter ended June 30, 2009.  The increase is also
attributed to an increase in the price of natural gas and oil when compared to
the corresponding period in the prior year.




Costs
and Expenses




We
incurred costs and expenses in the amount of $201,940 for the three months ended
June 30, 2010, a 81% decrease from costs and expenses of $1,064,153 for the
three months ended June 30, 2009.  The significant decrease in costs
was primarily attributable to us not incurring during the three months ended
June 30, 2010 any impairment charges or losses from the sale of natural gas and
oil properties after having incurred a significant amount of these costs and
expenses during the three months ended June 30, 2009.  During the
three months ended June 30, 2009, we incurred a loss on sale of natural gas and
oil properties of $750,305 relating to our disposition of the Palmetto Point
Prospect 12 Wells Phase - I and 50 wells – Phase II projects and also an
impairment charge of $71,794   An increase in the price of
natural gas and oil resulted in no impairment charge when performing the ‘full
cost ceiling test’ for the three months ended June 30, 2010.




Other
changes in our costs and expenses for the six months ended June 30, 2010, when
compared the six months ended June 30, 2009, are described below:




·
            General
      and administrative costs for the three months ended June 30, 2010
      decreased to $131,426 from $199,897 for the three months ended June 30,
      2009, a decrease of 34%. The decrease was
      caused by a decrease in stock based compensation which was partially
      offset by the inclusion of costs related to the additional personnel that
      was acquired during the merger with The Stallion
  Group.




·
            Natural
      gas and oil operating costs for the three months ended June 30, 2010
      increased to $41,529 from $36,403 for the three months ended June 30,
      2009, an increase of 14%.  The increase in operating expenses
      was caused by the increase in producing wells when compared to the same
      period in the prior year.




·
            Depreciation
      and depletion costs for the three months ended June 30, 2010 increased to
      $28,340 from $4,941, representing an increase of $23,399.  The
      increase was caused by an increase in production from our natural gas and
      oil wells, in particular, our wells located in Garvin County,
      Oklahoma.






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Net
Operating Income/(Loss)




The net
operating income for the three months ended June 30, 2010 was $4,378, compared
to a net operating loss of $857,632 for the three months ended June 30, 2009 due
to the factors described above.




Other
Income and Expense




We
reported other income of $51 for the three months ended June 30, 2010, as
compared to other income of $2,713 in the three months ended June 30,
2009.  Other income was attributable to interest received on bank
deposits.




Net
Income/(Loss) Attributable to Delta Oil and Gas Inc.




As a
result of the above, net income for the three months ended June 30, 2010 was
$1,695, compared to a net loss of $850,744 for the three months ended June 30,
2009.




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




Liquidity
and Capital Resources




As of
June 30, 2010, we had total current assets of $362,766 and total current
liabilities in the amount of $164,814.  As a result, we had working
capital of $197,952 as of June 30, 2010.




The
revenue we generated from natural gas and oil sales for the six months ended
June 30, 2010 did not exceed our operating expenses over the same
period.  As such, we anticipate that we will require additional
financing activities including issuance of our equity or debt securities to fund
our operations and proposed drilling activities beyond the year ended December
31, 2010.




During
the six months June 30, 2010, we received $216,294 restricted cash from
financing activities, as compared $48,045 in expenses incurred on a Form S-4
registration of shares in connection with the offer to acquire shares of the
Stallion Group.




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






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Cash
Generated/(Used) in Operating Activities




Operating
activities generated $134,316 in cash for the six months June 30, 2010, compared
to $117,693 cash used in operating activities for the six months ended June 30,
2009.  Our positive cash flow for the six months March 31, 2010 was
caused by an increase in revenues earned during such period.




Cash
Used in / Provided by Investing Activities




Cash
flows used by investing activities for the six months ended June 30, 2010 was
$331,001, compared to $78,600 cash provided by investing activities for the six
months ended June 30, 2009.  All cash used in investment activities
during the six months ended June 30, 2010 and 2009 related to investments in
natural gas and oil working interests.




Cash
from Financing Activities




Cash
flows used by financing activities for the six months June 30, 2010 were
$216,294, as compared to of $48,045 in expenses related to the cost of
registration of shares under the Form S-4 in relation to the Offer to acquire
shares of the Stallion Group, for the six months ended June 30,
2009.




Off-Balance
Sheet Arrangements




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




Going
Concern




As shown
in the accompanying financial statements, we have incurred a net loss of
$6,035,037 since inception.  To achieve profitable operations, we
require additional capital for obtaining producing oil and gas properties
through either the purchase of producing wells or successful exploration
activity.  We believe that we will be able to obtain sufficient
funding to meet our business objectives, including anticipated cash needs for
working capital and are currently evaluating several financing
options.  However, there can be no assurances offered in this
regard.  As a result of the foregoing, there exists substantial doubt
about our ability to continue as a going concern.




Critical
Accounting Policies




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




Oil and
Gas Joint Ventures




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







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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 FASB Accounting Standards
Codifications.  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, 2010 and 2009, we had no overproduced imbalances.




Item 3.Quantitative and Qualitative Disclosures
About Market Risk.




(Not
Applicable).




Item 4T.Controls and Procedures.




Evaluation
of Disclosure Controls and Procedures




We
carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) as of June 30, 2010.  This evaluation was
carried out under the supervision and with the participation of our Chief
Executive Officer, Mr. Christopher Paton-Gay, 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, 2010, our
disclosure controls and procedures are effective.




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






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Limitations on the
Effectiveness of Internal Controls




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




Changes in Internal Control
Over Financial Reporting




There
have been no changes in our internal controls over financial reporting during
the quarter ended June 30, 2010 that have materially affected or are reasonably
likely to materially affect such controls.







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PART
II – OTHER INFORMATION




Item 1.     Legal Proceedings




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




Item 1A. Risk Factors.




(Not
Applicable).




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




During to
the reporting period, we issued to a consultant in exchange for services
rendered options to purchase an aggregate of 150,000 shares of our common stock
at an exercise price of $0.18 exercisable for a period of 2
years.  These options were issued in a private transaction and issued
in reliance of the exemption provided by Section 4(2) of the Securities Act of
1933, as amended.





Item 3.  Defaults upon Senior
Securities.




None.




Item 4.   (Removed and
Reserved).




Item 5. Other
Information.




None.




Item 6.
Exhibits.




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







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SIGNATURES





Pursuant
to the requirements of the Securities 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
      12, 2010By: /s/ 
      Christopher
      Paton-Gay
              Christopher
      Paton-Gay
              Title:Chief
      Executive Officer and DirectorDate:
            August
      12, 2010By: /s/ Kulwant
      Sandher
              Kulwant
      Sandher
              Title:Chief
      Financial Officer and
Director











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DELTA
OIL & GAS, INC.


(the
“Registrant”)


(Commission
File No. 000-52001)


Exhibit Index


to


Quarterly
Report on Form 10-Q


for
the Quarter Ended June 30, 2010





Exhibit
              No.
            
            Description
            
            Incorporated
      Herein by Reference to
            
            Filed
      Herewith3.1
            
            Amended
      and Restated Articles of Incorporation of Delta.
            
            Exhibit
      3 of Delta’s Form SB-2 filedon
      February 13, 20023.2
            
            Articles
      of Amendment to the Articles of Incorporation of Delta
            
            Exhibit
      3.1 of Delta’s Quarterly Reporton
      Form 10-Q for the period ended September 30, 20093.3
            
            Articles
      of Amendment to the Articles of Incorporation of Delta
            
            Exhibit
      3.1 of Delta’s Form 8-Kdated
      October 21, 2009.3.4
            
            By-laws of Delta, as
    amended.
            
            Exhibit
      3.4 of Delta's Annual Reporton
      Form 10-K for the year ended December 31, 200910.1
            
            Letter
      Agreement by and between Delta and Ranken Energy Corporation dated
      September 10, 2007.
            
            Exhibit
      10.1 of Delta’s Form 10QSBdated
      November 7, 200710.2
            
            Farmout
      Agreement by and between Sunset Exploration, Inc. and Delta, effective May
      25, 2009
            
            Exhibit
      10.1 of Delta’s Quarterly Reportof
      Form 10-Q dated June 30, 200910.3
            
            Letter
      Agreement by and between Ranken Energy Corporation and Delta relating to
      2009-1 Drilling Program
            
            Exhibit
      10.2 of Delta’s Quarterly Reportof
      Form 10-Q dated June 30, 200910.4
            
            Assignment
      of Oil, Gas, & Liquid Hydrocarbon Leases dated July 15, 2009, relating
      to the Texas Prospect
            
            Exhibit
      10.1 of Delta’s Quarterly Reportof
      Form 10-Q dated September 30, 200910.5
            
            Letter
      Agreement by and between Delta and Ranken Energy Corporation dated August
      7, 2009
            
            Exhibit
      10.2 of Delta’s Quarterly Reportof
      Form 10-Q dated September 30, 200910.6
            
            Exploration Agreement by and between Barry Lasker
      and Delta, dated March 27, 2009
            
            Exhibit
      10.12 of Delta’s Annual Reportof
      Form 10-K dated December 31, 200910.7
            
            Assignment and Assumption Agreement, dated as of
      December 8, 2009, between Delta and Hillcrest Resources,
      Ltd.
            
            Exhibit
      10.13 of Delta’s Annual Reportof
      Form 10-K dated December 31, 200910.8
            
            Purchase
      and Sale Agreement, dated as of July 1, 2010, between Delta Oil & Gas,
      Inc. and Petrex Energy Ltd.
            
            Exhibit
      10.1 of Delta’sForm
      8-K dated August 9, 2010.31.1
            
            Certification of Chief Executive Officer pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002
            
            
            
            X31.2
            
            Certification of Chief Financial Officer pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002
            
            
            
            X32.1
            
            Certification of Chief Executive Officer and Chief
      Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to Section 906 of the Sarbanes-Oxley Act of 2002
            
            
            
            X











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