UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





**FORM
        10-KSB/A**





[X]
            ANNUAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934For
                the fiscal year endedDecember
                31, 2005[
                ]
            TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACTFor
                the transition period from _________ to ________Commission
                file number:333-82636




Delta
                Oil & Gas, Inc.(Name
                of small business issuer in its
                charter)






Colorado
            91-2102350(State
                or other jurisdiction of incorporation or organization)
            (I.R.S.
                Employer Identification No.)1122
                  6thAvenue North, Seattle, Washington
            98109(Address
                of principal executive offices)
            (Zip
                Code)




Issuer’s
      telephone number: 866-355-3644




Securities
                registered under Section 12(b) of the Exchange Act:Title
                of each class
            Name
                of each exchange on which registeredNone
            Not
                ApplicableSecurities
                registered under Section 12(g) of the Exchange Act:None(Title
                of class)





Check
      whether the Issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Securities Exchange Act during the past 12 months (or for such
      shorter period that the registrant was required to file such reports), and
      (2)
      has been subject to such filing requirements for the past 90 days. Yes [X]
      No [
      ]





Check
      if
      disclosure of delinquent filers in response to Item 405 of Regulation S-B is
      not
      contained in this form, and no disclosure will be contained, to the best of
      registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-KSB or any amendment
      to
      this Form 10-KSB [X]





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





State
      issuer’s revenue for its most recent fiscal year. $7,367.





State
      the
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the average bid and asked price of
      such
      common equity, as of a specified date within the past 60 days.


$55,697,823
      as of April 11, 2006.





State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date. 44,343,235  Common
      Shares as of March 31, 2006





Transitional
      Small Business Disclosure Format (Check One): Yes [ ] No [X]










**TABLE
      OF CONTENTS**







PagePART
                IItem
                1.
            Description
                of Business
            3Item
                2.
            Description
                of Property
            10Item
                3.
            Legal
                Proceedings
            14Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            14PART
                IIItem
                5.
            Market
                for Common Equity and Related Stockholder Matters
            14Item
                6.
            Management’s
                Discussion and Analysis
            17Item
                7.
            Financial
                Statements
            22Item
                8.
            Changes
                In and Disagreements With Accountants on Accounting and
                Financial Disclosure
            23Item
                8A.
            Controls
                and Procedures
            23Item
                8B.
            Other
                Information
            24PART
                IIIItem
                9.
            Directors,
                Executive Officers, Promoters and Control Persons;
                Compliance With Section 16(a) of the Exchange Act
            24Item
                10.
            Executive
                Compensation
            26Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management
                and Related Stockholder Matters
            27Item
                12.
            Certain
                Relationships and Related
                Transactions
            27Item
                13.
            Exhibits
            28Item
                14.
            Principal
                Accountant Fees and Services
            29




2


**** **PART
      I**


**Item
      1. Description of Business**




**Business
      Development**





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





**Business
      of Issuer**





We
      are an
      exploration company focused on developing North American oil and natural gas
      reserves. Our current focus is on the exploration of our land portfolio
      comprised of working interests in highly prospective acreage in the Northern
      California, Palmetto Point, Mississippi, and the Southern Alberta Foothills
      area
      in Canada. The following disclosure relates to each property that we have an
      interest in.





Liberty
      Valance Well





On
        February 7, 2001, we acquired an 8.9% working interest in a production gas
        well
        called the Liberty Valance RD1 Gas Unit (“Liberty Valance” or the “well”). The
        well is located in the Rancho Capay Gas Field in Glenn County, California.
        Our
        interest was acquired by us at a cost of $90,000. The well is operated by
        Production Specialties Company (the “operator”) pursuant to an Operating
        Agreement dated December 29, 2000. Under the Operating Agreement, we are
        considered a non-operator. The operator markets each non-operator’s share of gas
        production from the well and deducts all royalty burdens and operating expenses
        prior to the distribution of revenues.




Proved
      reserves are estimated quantities of natural gas and oil that geological and
      engineering data demonstrate with reasonable certainty to be recoverable in
      future years from known reservoirs under existing economic and operating
      conditions. Proved developed reserves are proved reserves that reasonably can
      be
      expected to be recovered through existing wells with existing equipment and
      operating methods.





Based
      upon a reserve report, reserves in the Liberty Valance Well were estimated
      at
      2443 (MCF) on December 31, 2005 translating in an estimate of $9,823 for the
      standardized measure of discounted cash flows remaining from reserves as of
      December 31, 2005.





Coalinga
      Prospect





On
      July
      5, 2001, we acquired for consideration of $50,000, the right to participate
      to
      the extent of a 2.5% working interest in the Coalinga Prospect in Fresno County,
      California. The Coalinga Prospect is approximately 5,000 acres in oil and gas
      leases. A portion of the $50,000




3




c onsideration
      paid for our 2.5% interest on July 5, 2001 compensated our predecessors in
      interest for shared development cost attributed to the 2.5% interest paid
      through that date. Since July 5, 2001, we have paid $108,690 toward development
      of the Coalinga Prospect.





The
      first
      prospect was tested with a 12,000 foot well known as Olympic Coalinga No. 1.
      Even though certain intervals encountered totaling 49 feet returned excellent
      resistivity, the well was dry and is capped. We are obligated to contribute
      2.5%
      of all drilling costs in the Coalinga Prospect in order to share in any
      recovery. We expended $108,690 on Olympic Coalinga No. 1 which was a dry hole.
      Coalinga Prospect has since been abandoned. The property and associated dry
      well
      costs have been written off in the 2001 fiscal year. The entirety of the
      Coalinga Prospect at the present time is undeveloped acreage consisting of
      8,360
      acres of which our interest is 2.5%.





Todd
      Creek (Twp. 9 Range 2W5) and Hillspring Prospect (Twp. 5, 6 Range 29-30W4M)





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





Todd
      Creek Prospect





We
      acquired a 20% working interest in 13.75 sections of land (8800 acres) in Todd
      Creek for the purchase price of $597,263 (US dollars). We also have an option
      to
      acquire an additional 15% interest in 7 additional sections of land (4,480
      acres). This option terminates on December 31, 2006.





Included
      in the acquisition is a test well that has been drilled and cased. Under the
      terms of this agreement, Win shall assume all costs of drilling and completing
      or abandoning the test well up to gross costs of $1,330,000. Thereafter, we
      will
      assume responsibility for 20% of all costs, risks, and expenses relating to
      the
      test well.





During
      the second quarter of 2005, a well located in Todd Creek property was drilled
      to
      a specifically targeted depth. This well is located in 13-28-9-2W5 in Alberta,
      Canada and we will refer to this well as the “13-28 well.” The 13-28 well was
      evaluated and tested. The operator encountered gas reservoirs and concluded
      that
      this well is a potential gas well. We and Win Energy Corporation intend to
      drill
      a number of development wells in this prospect in the fourth quarter of
      2006.





During
      the third quarter of 2005, another well was drilled on the Todd Creek property.
      This well is located in 7-16-9-2W5 in Alberta, Canada and we will refer to
      this
      well as the “7-16 well.” The 7-16 well was previously drilled in October 2004.
      Following subsequent evaluation, the operator recommended that additional
      drilling take place on the 7-16 well to increased depths.




4




The
      operator conducted further testing and evaluation and concluded that it was
      not
      drilled deep enough and is currently suspended with no reserves
      assigned.




Hillspring
      Prospect





We
      acquired a 10% working interest in one section of land (640 acres) in Hillspring
      for the purchase price of $414,766 (US dollars). The operator drilled 4 test
      wells on property adjacent to our interest and is currently reviewing the data
      from these wells. It is anticipated that a test well will be drilled on our
      property interest during the year ended 2006.





Our
      acquisition of an interest in Hillspring Prospect included an option to acquire
      an additional 10% working interest in 1.25 sections in the immediate area for
      the sum of $207,833 (US dollars). This option expired on July 1, 2005, but
      was
      later extended to December 29, 2006.





Cache
      Slough Prospect




On
      May
      25, 2005, we entered into a Farmout Agreement (“Agreement”) with a California
      based oil and gas company. This California company has the right to acquire
      an
      oil and gas leasehold interest in certain lands located in Section 6, 7, &
18, Township 4 North, Range 3 East, M.D.B.M., Solano County, California upon
      incurring expenditures for drilling and testing on the said property. We refer
      to this property as the “Cache Slough Prospect.” Based upon an agreement with
      the property owner, this California company will be responsible all costs and
      receive 68% of the revenue generated from the wells drilled on the property.
      The
      property owner will receive the remaining 32% of revenue. This California
      company agreed to grant us a right to acquire 12.5% of their 68% interest upon
      us paying 18.75% of all costs associated with drilling, testing, and completing
      the first test well on the property. Following these payments, we will be
      responsible for 12.5% of all additional expenditures for drilling and production
      on the property and be entitled to receive 8.5% of all revenue generated by
      the
      property, which is 12.5% of this California company’s 68% interest.





Drilling
      of the first well on this property commenced in July of 2005. Preliminary drill
      logs indicated that this is a potential gas well and the operator then completed
      the well for testing. Further testing resulted in the discovery of natural
      gas
      with flow rates suitable for commercial production. The well will be tied in
      to
      a nearby pipeline to accommodate the natural gas production. Flow rates and
      reserve size will be announced after the well has commenced commercial
      production. The anticipated date to commence production was extended due to
      flooding in the area from higher than average rainfalls. We now expect to
      commence commercial production in May 2006.





Based
      on
      the positive results from the first well drilled on this property, we anticipate
      drilling additional wells on this property. We anticipate that our plans for
      future drilling on this property will be completed in the second quarter of
      the
      2006.







Strachan
      Prospect




5




On
      September 23, 2005, we entered into a Farmout Agreement (“Agreement”) with Odin
      Capital Inc. (“Odin”), a Calgary, Alberta corporation. A member of our board of
      directors, Mr. Philipchuk, maintains an ownership interest in Odin. Odin has
      the
      right to acquire an oil and gas leasehold interests in certain lands located
      in
      Section 9, Township 38, Range 9, West of the 5 th Meridian, Alberta, Canada (“Section 9”) upon incurring expenditures for drilling
      and testing on the property. In exchange for us paying 4.0000% of all costs
      associated with drilling, testing, and completing the test well on the property
      which we refer to as the Leduc formation test well, we will have
      earned:





a)  in
      the
      Spacing Unit for the Earning Well:





i)  a
      2.000%
      interest in the petroleum and natural gas below the base of the Mannville
      excluding natural gas in the Leduc formation; and





ii)  a
      4.000%
      interest in the natural gas in the Leduc formation before payout subject to
      payment of the Overriding Royalty which is convertible upon payout at royalty
      owners option to 50% of our Interest; and





b)  a
      1.600%
      interest in the rights below the base of the Shunda formation in Section 10,
      Township 38, Range 9W5M.





c)  a
      1.289%
      interest in the rights below the base of the Shunda formation in Section 15
      and
      16, Township 38, Range 9W5M, down to the base of the deepest formation
      penetrated.





On
      October 6, 2005, drilling commenced Leduc formation test well. Under the terms
      of the Agreement, we advanced 110% of the anticipated costs prior to drilling.
      The total costs advanced by us prior to drilling was $253,977. The well was
      drilled to the targeted depth of 13,650 feet. Based on positive results
      indicating the presence of a potential gas well, the operator inserted casing
      into the total depth of the well and will perform a full testing program. If
      the
      additional testing returns positive results, this well will be tied a nearby
      pipeline to accommodate the natural gas production. We anticipate receiving
      result from further testing in May 2006.





Palmetto
      Point Prospect





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




The
      Drilling Program on the acquired property interests is anticipated to be
      initiated by Griffin




6




on
      or
      about May 1, 2006 and to be completed by Griffin within approximately 10 months.
      The anticipated commencement date for the drilling program was extended due
      to
      flooding of the road accessing the well sites attributable to the melting snow.
      The prospect area owned or controlled by Griffin on which the ten wells will
      be
      drilled, is comprised of approximately 1273 acres in Palmetto Point,
      Mississippi. The exact locations of the ten wells in which we will participate
      are yet to be determined.





***Market
      for Our Products and Services***





Each
      oil
      and gas property that we now own and those that we may later acquire a
      percentage of interest in, will have an operator who will be responsible for
      marketing production. However, the Liberty-Valance well is subject to
      contractual restrictions that require that non-operators such as us consent
      to
      the terms and conditions of any sales contract before it is entered
      into.





The
      availability of a ready market for oil and gas, and the prices of such oil
      and
      gas, depends upon a number of factors, which are beyond our control. These
      include, among other things:





·
            the
                level of domestic production;


·
            actions
                taken by foreign oil and gas producing
                nations;


·
            the
                availability of pipelines with adequate
                capacity;


·
            the
                availability and marketing of other competitive
                fuels;


·
            fluctuating
                and seasonal demand for oil, gas and refined products;
                and


·
            the
                extent of governmental regulation and taxation (under both present
                and
                future legislation) of the production, importation, refining,
                transportation, pricing, use and allocation of oil, gas, refined
                products
                and alternative fuels.





In
      view
      of the many uncertainties affecting the supply and demand for crude oil, gas
      and
      refined petroleum products, it is not possible to predict accurately the prices
      or marketability of the gas and oil produced for sale.





***Competition***





The
      oil
      producing properties and exploratory drilling prospects, and gas industry is
      highly competitive in all its phases. Properties in which we have an interest
      will encounter strong competition from many other oil and gas producers,
      including many that possess substantial financial resources, in acquiring
      economically desirable producing properties and exploratory drilling prospects,
      and in obtaining equipment and labor to operate and maintain their
      properties.





***Patents,
      Licenses, Trademarks, Franchises, Concessions, Royalty Agreements, or Labor
      Contracts***





We
      do not
      own, either legally or beneficially, any patent or trademark.




7




***Research
      and Development***





We
      did
      not incur any research and development expenditures in the fiscal years ended
      December 31, 2005 or 2004.




***Existing
      and Probable Governmental Regulation***





We
      monitor and comply with current government regulations that affect our
      activities, although our operations may be adversely affected by changes in
      government policy, regulations or taxation. There can be no assurance that
      we
      will be able to obtain all of the necessary licenses and permits that may be
      required to carry out our exploration and development programs. It is not
      expected that any of these controls or regulations will affect our operations
      in
      a manner materially different than they would affect other natural gas and
      oil
      companies operating in the areas in which we operate.





**United
      States Government Regulation**





The
      United States federal government and various state and local governments have
      adopted laws and regulations regarding the protection of human health and the
      environment. These laws and regulations may require the acquisition of a permit
      by operators before drilling commences, prohibit drilling activities on certain
      lands lying within wilderness areas, wetlands, or where pollution might cause
      serious harm, and impose substantial liabilities for pollution resulting from
      drilling operations, particularly with respect to operations in onshore and
      offshore waters or on submerged lands. These laws and regulations may increase
      the costs of drilling and operating wells. Because these laws and regulations
      change frequently, the costs of compliance with existing and future
      environmental regulations cannot be predicted with certainty.





The
      transportation and certain sales of natural gas in interstate commerce are
      heavily regulated by agencies of the federal government. Production of any
      oil
      and gas by properties in which we have an interest will be affected to some
      degree by state regulations. States have statutory provisions regulating the
      production and sale of oil and gas, including provisions regarding
      deliverability. Such statutes and the regulations are generally intended to
      prevent waste of oil and gas and to protect correlative rights to produce oil
      and gas between owners of a common reservoir. State regulatory authorities
      may
      also regulate the amount of oil and gas produced by assigning allowable rates
      of
      production to each well or pro-ration unit.





Any
      exploration or production on Federal land will have to comply with the Federal
      Land Management Planning Act which has the effect generally of protecting the
      environment. Any exploration or production on private property whether owned
      or
      leased will have to comply with the Endangered Species Act and the Clean Water
      Act. The cost of complying with environmental concerns under any of these acts
      varies on a case by case basis. In many instances the cost can be prohibitive
      to
      development. Environmental costs associated with a particular project must
      be
      factored into the overall cost evaluation of whether to proceed with the
      project.


8
  **Canadian
      Government Regulation**





The
      natural gas and oil industry is subject to extensive controls and regulations
      imposed by various levels of government. It is not expected that any of these
      controls or regulations will affect our operations in a manner materially
      different than they would affect other natural gas and oil companies of similar size.




**Pricing
      and Marketing Natural Gas**





In
      Canada, the price of natural gas sold in interprovincial and international
      trade
      is determined by negotiation between buyers and sellers. Natural gas exported
      from Canada is subject to regulation by the NEB and the Government of Canada.
      Exporters are free to negotiate prices and other terms with purchasers, provided
      that the export contracts continue to meet certain criteria prescribed by the
      NEB and the Government of Canada. Natural gas exports for a term of less than
      two years or for a term of two to 20 years (in quantities of not more than
      30,000 m 3 /day),
      must be made pursuant to an NEB order. Any natural gas export to be made
      pursuant to a contract of longer duration (to a maximum of 25 years) or a larger
      quantity requires an exporter to obtain an export licence from the NEB and
      the
      issue of such a licence requires the approval of the Governor in
      Council.




The
      government of Alberta also regulates the volume of natural gas that may be
      removed from the province for consumption elsewhere based on such factors as
      reserve availability, transportation arrangements and market
      considerations.




**Royalties
      and Incentives**





In
      addition to federal regulation, each province has legislation and regulations
      that govern land tenure, royalties, production rates, environmental protection
      and other matters. The royalty regime is a significant factor in the
      profitability of natural gas and oil production. Royalties payable on production
      from lands other than Crown lands are determined by negotiations between the
      mineral owner and the lessee. Crown royalties are determined by government
      regulation and are generally calculated as a percentage of the value of the
      gross production, and the rate of royalties payable generally depends in part
      on
      prescribed reference prices, well productivity, geographical location, field
      discovery date and the type or quality of the petroleum product
      produced.





**Land
      Tenure**





Crude
      natural gas and oil located in the western provinces is owned predominantly
      by
      the respective provincial governments. Provincial governments grant rights
      to
      explore for and produce natural gas and oil pursuant to leases, licences and
      permits for varying terms from two years and on conditions set forth in
      provincial legislation including requirements to perform specific work or make
      payments. Natural gas and oil located in such provinces can also be privately
      owned and rights to explore for and produce such natural gas and oil are granted
      by lease on such terms and conditions as may be negotiated.


9


***Compliance
      with Environmental Laws***





We
      did
      not incur any costs in connection with the compliance with any federal, state,
      or local environmental laws. However, costs could occur at any time through
      industrial accident or in connection with a terrorist act or a new project.
      Costs could extend into the millions of dollars for which we could be totally
      liable. In the event of liability, we would be entitled to contribution from
      other owners so that our percentage share of a particular project would be
      the
      percentage share of our liability on that project. However, other owners may
      not
      be willing or able to share in the cost of the liability. Even if liability
      is
      limited to our percentage share, any significant liability would wipe out our
      assets and resources.





***Employees***





We
      have
      no employees other than our sole officer, Mr. Douglas Bolen.





**Item
      2. Description of Property**





On
      March
      1, 2005, we rent office space on a month to month basis at Suite 300-1055 West
      Hastings Street, Vancouver, British Columbia, Canada for the sum of CDN $1295
      per month.





On
      March
      1, 2005, we also rented a virtual office on
      a
      month to month basis located
      at Suite 1600, 144 4 th Avenue
      S.W., Calgary, Alberta T2P 3N4 for CDN $295 per month.





We
      maintain our corporate office at 1122 6th Avenue North, Seattle, Washington
      98109. This office space is an office sharing arrangement being provided as
      an
      accommodation to us where we can receive mail and perform other minimal
      corporate functions.





**Reported
      Reserves**





Below
      are
      estimates of our net Proved Reserves and the present value of estimated future
      net revenues from such Reserves based upon the standardized measure of
      discounted future net cash flows relating to proved oil and gas reserves in
      accordance with the provisions of Statement of Financial Accounting Standards
      No. 69, "Disclosures about Oil and Gas Producing Activities" (SFAS No. 69).
      The
      standardized measure of discounted future net cash flows is determined by using
      estimated quantities of Proved Reserves and the periods in which they are
      expected to be developed and produced based on period-end economic conditions.
      The estimated future production is priced at period-end prices, except where
      fixed and determinable price escalations are provided by contract. The resulting
      estimated future cash inflows are then reduced by estimated future costs to
      develop and produce reserves based on period-end cost levels. No deduction
      has
      been made for depletion, depreciation or for indirect costs, such as general
      corporate overhead. Present values were computed by discounting future net
      revenues by 10% per year.


10




December
                  31,2005
              2004
              2003Oil
                (Bbls)
              Gas
                (Mcf)
              Oil
                (Bbls)
              Gas
                (Mcf)
              Oil
                (Bbls)
              Gas
                (Mcf)Proved
                  Producing & Non-Producing Reserves
              Nil
              2.443
              Nil
              1,284
              Nil
              3448Estimated
                  future net cash flows from proved oil and gas reserves
              $11,143
              $2,356
              $2,356Present
                  value of net cash flows from proved oil and gas reserves
              $9,823
              $2,121
              $2,121





**Production**





Production
                Data
            Year
                ended December 31,2003
            2004
            2005Production
                -Oil
                (Bbls)
            0
            0
            0Gas
                (Mcf)
            3,497
            1,671
            866Average
                Sales Price -Oil
                (Bbls)
            0
            0
            0Gas
                (Mcf)
            4.87
            5.41
            9.20Average
                Production Costs per Mcf
            $2.52
            $1.18
            $6.82





Production
      costs may vary substantially among wells depending on the methods of recovery
      employed and other factors, but generally include severance taxes,
      administrative overhead, maintenance and repair, labor and
      utilities.


11
  **Productive
      Wells and Acreage**





The
      following table shows our producing wells and acreage as of December 31,
      2005:




Producing
                  Wells3
              Developed
                  AcreageOil
              GasGross1
              Net2
              Gross1
              Net2
              Gross1
              Net2Glenn
                  County, California
                (Liberty
                  Valence)
              0
              0
              1
              0.089
              10
              0.89Alberta,
                  Canada
                (Todd
                  Creek)
              0
              0
              0
              0
              0
              0Alberta,
                  Canada
                (Hillspring)
              0
              0
              0
              0
              0
              0Solano
                  County, California
                (Cache
                  Slough)
              0
              0
              0
              0
              0
              0Alberta,
                  Canada
                (Strachan)
              0
              0
              0
              0
              0
              0


**1**
            A
                gross well or acre is a well or acre in which a working interest
                in owned.
                The number of gross wells is the total number of wells in which a
                working
                interest is owned.


**2**
            A
                net well or acre is deemed to exist when the sum of fractional ownership
                working interests in gross wells or acres equals one. The number
                of net
                wells or acres is the sum of the fractional working interest owned
                in
                gross wells or acres expressed as hole numbers and fractions
                thereof.


**3**
            Productive
                wells are producing wells and wells capable of
                production.





**Undeveloped
      Acreage**





The
      following table set forth undeveloped acreage as of December 31,
      2005:





Undeveloped
                Acreage1as
                of December 31, 2005Gross
            NetGlenn
                County, California
              (Liberty
                Valence)
            0
            0Alberta,
                Canada
              (Todd
                Creek)
            7,350
            1,470Alberta,
                Canada
              (Hillspring)
            659
            65Solano
                County, California
              (Cache
                Slough)
            825
            103Alberta,
                Canada
              (Strachan)
            640
            12.8





12


1
            "Undeveloped
                Acreage" includes leasehold interests on which wells have not been
                drilled
                or completed to the point that would permit the production of commercial
                quantities of natural gas and oil regardless of whether the leasehold
                interest is classified as containing proved undeveloped
                reserves.





**Drilling
      Activity**





The
      following table sets forth, for each of the last three fiscal years by
      geographic area the number of net productive and dry exploratory wells drilled
      and the number of net productive and dry development wells drilled.





Geographical
                  Area
              Net
                  Exploratory Wells Drilled
              Net
                  Development Wells DrilledProductive1
              Dry2
              Productive1
              Dry2Glenn
                  County, California
                (Liberty
                  Valence)2005
              0
              0
              0
              02004
              0
              0
              0
              02003
              0
              0
              0
              0Alberta,
                  Canada
                (Todd
                  Creek)2005
              0.20
              0
              0
              02004
              0
              0
              0
              02003
              0
              0
              0
              0Alberta,
                  Canada
                (Hillspring)2005
              0
              0
              0
              02004
              0
              0
              0
              02003
              0
              0
              0
              0Solano
                  County, California
                (Cache
                  Slough)2005
              0.125
              0
              0
              02004
              0
              0
              0
              02003
              0
              0
              0
              0Alberta,
                  Canada
                (Strachan)20053
              0
              0
              0
              02004
              0
              0
              0
              02003
              0
              0
              0
              0Totals
              0.325
              0
              0
              0





1
            A
                productive well is an exploratory or development well that is not
                a dry
                well.


2
            A
                dry well (hole) is an exploratory or development well found to be
                incapable of producing either oil or gas in sufficient quantities
                to
                justify completion as an oil or gas
                well.




13


3
            As
                of the date of this Annual Report on Form 10-KSB, a well was drilled
                in
                2005, but testing of this well has not been completed. As a result,
                it is
                uncertain at this time whether this well will be productive or
                not.





**Present
      Activities**





A
      discussion of present activities on our property interests is included in the
      description of business disclosure set forth above.





**Delivery
      Commitments**





We
      are
      not obligated to provide a fixed and determined quantity of oil or gas in the
      future. During the last three fiscal years, we have not had, nor do we now
      have,
      any long-term supply or similar agreement with any government or governmental
      authority.





We
      are
      not obligated to provide a fixed and determinable quantity of oil or natural
      gas
      in the near future under existing contracts or agreements. Further, during
      the
      last three years we had no significant delivery commitments.





**Item
      3. 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
      4. Submission of Matters to a Vote of Security
      Holders**





No
      matters have been submitted to our security holders for a vote, through the
      solicitation of proxies or otherwise, during the fourth quarter of the fiscal
      year ended December 31, 2005.





**PART
      II**





**Item
      5. Market for Common Equity and Related Stockholder
      Matters**





**Market
      Information**





Our
      common stock is currently quoted on the OTC Bulletin Board (“OTCBB”), which is
      sponsored by the NASD. The OTCBB is a network of security dealers who buy and
      sell stock. The dealers are connected by a computer network that provides
      information on current "bids" and "asks", as well as volume information. Our
      shares are quoted on the OTCBB under the symbol “DOIG”





The
      following table sets forth the range of high and low bid quotations for our
      common stock as reported by the OTCBB following our eligibility for quotation
      on
      the OTCBB for each of the periods indicated. These quotations reflect
      inter-dealer prices, without retail mark-up, mark-down or commission and may
      not
      necessarily represent actual transactions.




14




Fiscal
                Year Ending December 31, 2005Quarter
                Ended
            
            High
                $
            
            Low
                $March
                31, 2005
            
            1.17
            
            0.85June
                30, 2005
            
            1.16
            
            0.82September
                30, 2005
            
            4.04
            
            1.02December
                31, 2005
            
            1.54
            
            0.83Fiscal
                Year Ended December 31, 2004Quarter
                Ended
            
            High
                $
            
            Low
                $December
                31, 2004
            
            4.00
            
            0.00





**Holders
      of Our Common Stock**





As
      of
      March 31, 2006, we had approximately seventy-one (71) holders of record of
      our
      common stock and several other stockholders hold shares in street
      name.





**Dividends**





There
      are
      no restrictions in our articles of incorporation or bylaws that restrict us
      from
      declaring dividends. We have not paid a dividend with respect to our common
      stock since our incorporation. We do not expect to pay a dividend on our common
      stock in the foreseeable future.





Our
      ability to pay dividendsis
      restricted by provisions of the Colorado
      Business Corporation Act which provides that a Colorado
      corporation may only pay dividendsif,
      after
      giving effect to the dividend, the corporation would be able to pay its debts
      as
      they become due in the usual course of business, or the corporation's total
      assets would be less than its total liabilities plus the amount that would
      be
      needed (if dissolution were to occur at the time of the dividend) to satisfy
      the
      preferential rights upon dissolution of shareholders whose preferential rights
      are superior to those receiving the dividend. At the present time, there are
      no
      shareholders who have any preferential rights.




15




**Recent
      Sales of Unregistered Securities**





We
      did
      not issue any securities without registration under the Securities Act of 1933
      during the year ended December 31, 2005 which were not previously included
      in a
      Quarterly Report on Form 10-QSB or Current Report on Form 8-K.





Subsequent
      to the reporting period on February 24, 2006, we sold 727,272 Units at $2.75
      per
      Unit to a total of three (3) investors. Each Unit consisted of one (1) share
      of
      common stock, par value $0.001, and one (1) Warrant (the "Warrant") to purchase
      one (1) share of common stock, exercisable for three (3) years from the closing
      of the offering. The exercise price for the Warrant was priced at $3.00. The
      total gross proceeds we received from this sale of securities was $2,000,000.
      We
      paid $150,000 in commissions on this private equity offering. Assuming that
      all
      of the warrants are exercised by the investors, the gross proceeds received
      from
      the warrants will equal $2,181,816.





We
      completed these sales of unregistered securities pursuant to Regulation S of
      the
      Securities Act. Each purchaser represented to us that he was a non-US person
      as
      defined in Regulation S. We did not engage in a distribution of this offering
      in
      the United States. Each purchaser represented his intention to acquire the
      securities for investment only and not with a view toward distribution. The
      stock transfer agent issued a stock certificate to each investor with the
      appropriate legends affixed in accordance with Regulation S. Each investor
      was
      given adequate access to sufficient information about us to make an informed
      investment decision. None of the securities were sold through an underwriter
      and
      accordingly, there were no underwriting discounts or commissions involved.
      No
      registration rights were granted to any of the purchasers.








**Securities
      Authorized for Issuance Under Equity Compensation Plans**





The
      following table provides information about our compensation plans under which
      shares of common stock may be issued upon the exercise of options as of December
      31, 2005.


16


**Equity
      Compensation Plans as of December 31, 2005**


A
            B
            C**Plan
                Category**
            **Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights**
            **Weighted-average
                exercise price of outstanding options, warrants and
                right**
            **Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (A))**Equity
                compensation plans
              approved
                by security
              holders
            -
            -
            -Equity
                compensation plans
              not
                approved by security
              holders
            330,000
            $0.82
            5,619,512Total
            330,000
            $0.82
            5,619,512





On
      January 3, 2005, we adopted the 2005 Stock Incentive Plan, which provides for
      the grant of incentive stock options and non-qualified stock options to our
      employees, officers, directors and consultants. Under the 2005 Stock Incentive
      Plan, we registered 6,194,512 shares of our common stock and reserved such
      number of shares for the granting of options and rights.





**Item
      6. Management’s Discussion and Analysis**





**Forward-Looking
      Statements**




Historical
      results and trends should not be taken as indicative of future operations.
      Management’s statements contained in this report that are not historical facts
      are forward-looking statements within the meaning of Section 27A of the
      Securities Act of 1933, as amended, and Section 21E of the Securities and
      Exchange Act of 1934 (the “Exchange Act”), as amended. Actual results may differ
      materially from those included in the forward-looking statements. The Company
      intends such forward-looking statements to be covered by the safe-harbor
      provisions for forward-looking statements contained in the Private Securities
      Litigation Reform Act of 1995, and is including this statement for purposes
      of
      complying with those safe-harbor provisions. Forward-looking statements, which
      are based on certain assumptions and describe future plans, strategies and
      expectations of the Company, are generally identifiable by use of the
      words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,”
“prospects,” or similar expressions. The Company’s ability to predict results or
      the actual effect of future plans or strategies is inherently uncertain. Factors
      which could have a material adverse affect on the operations and future
      prospects of the Company on a consolidated basis include, but are not limited
      to: unanticipated problems relating to exploration, hazards such as pollution,
      or other hazards which cannot be insured against or predicted, changes in
      economic conditions,




17




availability
      of capital, competition, and generally accepted accounting
      principles .
      These
      risks and uncertainties should be considered in evaluating forward-looking
      statements and undue reliance should not be placed on such statements. Further
      information concerning the Company and its business, including additional
      factors that could materially affect the Company’s financial results, is
      included herein and in the Company’s other filings with the SEC.





**Results
      of Operations for the Years Ended December 31, 2005 and
      2004**





For
      the
      year ended December 31, 2005, we generated revenues in the amount of $7,367.
      Our
      revenue decreased from the year ended December 31, 2004 when we generated
      revenue in the amount of $9,041. All revenue generated during the years ended
      December 31, 2005 and 2004 was attributable to the Liberty Valance Well, our
      only producing property during this reporting period.





We
        retained Mark E. Andersen, P.E. to assist us in preparing reserve reports
        to
        provide us with an estimated value of the remaining reserves in the Liberty
        Valance Well. Based upon these reserve reports, the standardized measure
        of
        discounted cash flows for Liberty Valance Well was estimated to be $2,121
        as of
        December 31, 2004 and $9,823 as of December 31, 2005. The decrease in our
        reported revenue is attributable to the depletion of the reserves in the
        Liberty
        Valance Well.





We
        incurred operating costs and expenses in the amount of $577,417 for the year
        ended December 31, 2005, compared to operating costs and expenses in the
        amount
        of $40,615 for the year ended December 31, 2004. Our expenses for the year
        ended
        December 31, 2005 consisted of primarily of general and administrative expenses
        in the amount of $201,393 and stock based compensation of $370,267. Our expenses
        for the year ended December 31, 2004 primarily consisted of oil and gas
        operating expenses in the amount of $1,973 and general and administrative
        expenses in the amount of $38,529. The increase is general and administrative
        fees in primarily attributable to an increase in professional fees associated
        with the acquisition of the interests in oil and gas properties during the
        reporting period. The reduction in oil and gas operating expenses is primarily
        attributable to declining producing of the Liberty Valance Well. As a result
        of
        the acquisition of additional oil and gas interests during and subsequent
        to the
        reporting period, we anticipate that our operating expenses will increase
        during
        the year ended December 31, 2006.





Our
      net
      loss for the year ended December 31, 2005 was $570,050, compared to a net loss
      of $31,574 in the prior year.





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




18




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
      December 31, 2005, we had current assets of $354,687 including cash on hand
      in
      the amount of $343,004. Our total current liabilities as of December 31, 2005
      were $132,715. As a result, we had a working capital of $221,972 as of December
      31, 2005.





The
      revenue we currently generate does not exceed our operating expenses. As a
      result, we needed additional financing in order to sustain our business
      operations and acquire additional properties during the year ended December
      31,
      2005. During the year ended December 31, 2005, we raised proceeds in the amount
      of $2,483,985 through the sale of our equity securities. This financing was
      primarily used to acquire the additional property interests.





For
      the
      year ended December 31, 2006, we still anticipate the need to raise significant
      capital through the sale of equity securities on a private or public basis
      in
      order to sustain operations and participate in future drilling and/or other
      oil
      and gas development projects. We intend to fund operations over the next twelve
      months through increased revenue from oil and gas sales resulting from our
      property acquisitions and debt and/or equity financing arrangements, which
      may
      be insufficient to fund our capital expenditures, working capital or other
      cash
      requirements for the next twelve months. The completion of our business plan
      for
      the next 12 months is contingent upon us obtaining additional financing. It
      is
      uncertain whether we will be able to obtain the necessary financing. If we
      are
      unable to obtain additional financing, the full implementation of our business
      plan will be impaired.





Operating
      activities used $140,035 in cash for the year ended December 31, 2005. Our
      net
      loss of $570,050 was the primary component of our negative operating cash
      flow.





Investing
      activities during the year ended December 31, 2005 consisted of $1,990,700
      for
      the purchase or natural gas and oil properties and equipment in the amount
      of
      $1,751.





Cash
      flows provided by financing activities during the year ended December 31, 2005
      primarily consisted of $2,679,726 related to the issuance of common
      stock.





The
      underlying drivers that resulted in material changes and the specific inflows
      and outflows of cash in the year ended December 31, 2005 are as
      follows:





19


a.
            Property
                acquisition costs, and


b.
            We
                obtained financing from the issuance of common stock. Our management
                believes that additional issuance of stock and/or debt financing
                will be
                required to satisfy our projected expenditures in
                2006.





**Off
      Balance Sheet Arrangements**





As
      of
      December 31, 2005, there were no off balance sheet arrangements.





**Going
      Concern**





We
      incurred a net loss of $873,214 for the period from inception to December 31,
      2005. 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 plan to seek additional
      financing through debt and/or equity financing arrangements to secure funding
      for our operations. There can be no assurance that such additional financing
      will be available to us on acceptable terms or at all. These factors, among
      others, raise substantial doubt about our ability to continue as a going
      concern. The financial statements do not include any adjustment to reflect
      the
      possible future effect on the recoverability and classification of the assets
      or
      the amounts and classification of liabilities that may result should we cease
      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.





**Joint
      Ventures**





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


20
  **Oil
      and Gas Properties**





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




**Revenue
      Recognition**





We
      use
      the sales method of accounting for natural gas and oil revenues. Under this
      method, revenues are recognized upon the passage of title, net of royalties.
      Revenues from natural gas production are recorded using the sales method. When
      sales volumes exceed our entitled share, an overproduced imbalance occurs.
      To
      the extent the overproduced imbalance exceeds our share of the remaining
      estimated proved natural gas reserves for a given property, we record a
      liability. At December 31, 2005 and 2004, we had no overproduced imbalances.





**Recently
      Issued Accounting Pronouncements**





The
      FASB
      issued FASB Interpretation No. (“FIN”) 47 - “Accounting for Conditional Asset
      Retirement Obligations” in March 2005. FIN 47 clarifies that an entity must
      record a liability for a conditional asset retirement obligation if the fair
      value of the obligation can be reasonably estimated. This interpretation also
      clarifies the circumstances under which an entity would have sufficient
      information to reasonably estimate the fair value of an asset retirement
      obligation. This Interpretation is effective no later than the end of fiscal
      years ending after December 15, 2005. We do not expect this guidance to have
      a
      material impact on our financial statements.





In
      November 2005, the FASB issued Staff Position No. FAS 115-1 - “The Meeting of
      Other-Than-Temporary Impairment and Its Application to Certain Investments”
(“FSP 115-1”). FSP 115-1 provides accounting guidance for identifying and
      recognizing other-than-temporary impairments of debt and equity securities,
      as
      well as cost method investments in addition to disclosure requirements. FSP
      115-1 is effective for reporting periods beginning after December 15, 2005,
      and
      earlier application is permitted. We have determined that the adoption of FSP
      115-1 does not have an impact on our result of operations or financial
      position.





In
      December 2004, FASB issued Statement of Financial Accounting Standards No.
      123
      (revised 2004) (“SFAS 123 (revised 2004)”), “Share-Based Payment”. This
      Statement requires that the




21




cost
      resulting from all share-based transactions be recorded in the financial
      statements. The Statement establishes fair value as the measurement objective
      in
      accounting for share-based payment arrangements and requires all entities to
      apply a fair-value-based measurement in accounting for share-based payment
      transactions with employees. The Statement also establishes fair value as the
      measurement objective for transactions in which an entity acquires goods or
      services from non-employees in share-based payment transactions. The Statement
      replaces FASB Statement No. 123 “Accounting for Stock-Based Compensation” and
      supersedes APB Opinion No. 25 “Accounting for Stock Issued to Employees”. The
      provisions of this Statement will be effective for the Company beginning with
      its fiscal year ending 2007. We have determined that the adoption of SFAS 123
      (revised 2004) does not have an impact on our results of operations or financial
      position.





In
      November 31, 2004, FASB issued Statement of Financial Accounting Standards
      No.
      151 (“SFAS 151”), “Inventory Costs”. The adoption of SFAS 151 does not have an
      impact on our results of operations or financial position.





In
      December 2004, FASB issued Statement of Financial Accounting Standards No.
      153
      (“SFAS 153”), “Exchanges of Non-monetary Assets - an amendment of APB Opinion
      No. 29”. The Company has determined that the adoption of SFAS 153 does not have
      an impact on our results of operations or financial position.





**Item
      7. Financial Statements**




**Index
                to Audited Consolidated Financial Statements:**F-1
            Report
                of Independent Registered Public Accounting
                Firm;F-3
            Consolidated
                Balance Sheets as of December 31, 2005 and
                2004;F-4
            Consolidated
                Statements of Operations - Years Ended December
                31, 2005 and December 31, 2004 and Cumulative period from inception
                January 9, 2001 to December 31, 2005;F-5
            Consolidated
              Statements
              of Cash Flows for the Years Ended December 31, 2005 and December 31,
              2004
              and Cumulative period from inception January 9, 2001 to December 31,
              2005;F-6
            Consolidated
                Statement of Changes in Stockholders’ Equity
                (Deficiency) and Comprehensive Loss from inception January 9, 2001
                to
                December 31, 2005;F-7
            Notes
                to Consolidated Financial
                Statements;





22





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM**


To
          the
          Board of Directors and the Stockholders of
 Delta
          Oil
& Gas, Inc.
 (A
          development stage company)
 
 We
          have
          audited the balance sheet of Delta Oil & Gas, Inc. (a development stage
          company) as at December 31, 2003 and the statements of operations, cash
          flows,
          and stockholders’ deficiency for the year ended December 31, 2003, and for the
          cumulative period from inception, January 9, 2001, to December 31, 2003.
          These
          financial statements are the responsibility of the Company’s management. Our
          responsibility is to express an opinion on these financial statements based
          on
          our audit.
 
 We
          conducted our audit in accordance with the standards of the Public Company
          Accounting Oversight Board (United States). Those standards require that
          we plan
          and perform an audit to obtain reasonable assurance whether the financial
          statements are free of material misstatement. An audit includes examining,
          on a
          test basis, evidence supporting the amounts and disclosures in the financial
          statements. An audit also includes assessing the accounting principles
          used and
          significant estimates made by management, as well was evaluating the overall
          financial statement presentation. We believe that our audit provides a
          reasonable basis for our opinion.
 
 In
          our
          opinion, these financial statements present fairly, in all material respects,
          the financial position of the Company as at December 31, 2003 and the results
          of
          its operations and its cash flows, and changes in stockholders’ deficiency for
          the year ended December 31, 2003, and for the cumulative period from inception,
          January 9, 2001, to December 31, 2003, in conformity with United States
          generally accepted accounting principles.
 
 The
          accompanying financial statements have been prepared assuming the Company
          will
          continue as a going concern. As discussed in Note 1(c) to the financial
          statements, the Company has incurred a net loss of $271,590 since inception,
          has
          not attained profitable operations and is dependent upon obtaining adequate
          financing to fulfil its development activities. These factors raise substantial
          doubt that the Company will be able to continue as a going concern. Management’s
          plans in regard to these matters are also discussed in Note 1(c). The financial
          statements do not include any adjustments that might result from the outcome
          of
          this uncertainty.
 
  Vancouver,
          Canada  /s/
          Morgan & Company
  March
          31,
          2004 Chartered
          Accountants
 
 F-1
  **REPORT
          OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
          FIRM**
 
 **To
          the Board of Directors and Stockholders of**
 **Delta
          Oil & Gas, Inc.**
 **(A
          Development Stage Company)**
 
 
 We
          have
          audited the accompanying consolidated balance sheets of **Delta
          Oil & Gas, Inc.** (the
          “Company”) (a Development Stage Company) as at December 31, 2005 and 2004,
          the related consolidated statements of operations, stockholders’ equity
          (deficiency) and cash flows for the years then ended and for the period
          from
          inception on January 9, 2001 to December 31, 2005. These consolidated financial
          statements are the responsibility of the Company’s management. Our
          responsibility is to express an opinion on these consolidated financial
          statements based on our audits. We did not audit the Company’s consolidated
          financial statements as of and for the year ended December 31, 2003, and
          the
          cumulative data from inception on January 9, 2001 to December 31, 2003
          in the
          consolidated statements of operations, stockholders’ equity (deficiency) and
          cash flows, which were audited by other auditors whose report, dated March
          31,
          2004, which expressed an unqualified opinion, has been furnished to us.
          Our
          opinion, insofar as it relates to the amounts included for cumulative data
          from
          inception on January 9, 2001 to December 31, 2003, is based solely on the
          report
          of the other auditors.
 
 We
            conducted our audits in accordance with standards of the Public Company
            Accounting Oversight Board (United States). Those standards require that
            we plan
            and perform an audit to obtain reasonable assurance about whether the
            financial
            statements are free of material misstatement. An audit includes examining,
            on a
            test basis, evidence supporting the amounts and disclosures in the financial
            statements. An audit also includes assessing the accounting principles
            used and
            significant estimates made by management, as well as evaluating the overall
            financial statement presentation. We believe that our audits and the
            report of
            other auditors provide a reasonable basis for our opinion.
 
 In
            our
            opinion, based on our audits and the report of the other auditors, the
            consolidated financial statements referred to above present fairly, in
            all
            material respects, the financial position of **Delta
            Oil & Gas, Inc** .
            (a Development Stage Company) as at December 31, 2005 and 2004 and the
            results of its operations and its cash flows for the years then ended
            and for
            the period from inception on January 9, 2001 to December 31, 2005, in
            conformity
            with accounting principles generally accepted in the United States of
            America.
 
 The
          accompanying consolidated financial statements have been prepared assuming
          the
          Company will continue as a going concern. As discussed in Note 1 to the
          consolidated financial statements, the Company has suffered recurring losses
          and
          net cash outflows from operations since inception. These factors raise
          substantial doubt about the Company’s ability to continue as a going concern.
          Management’s plans in regard to these matters are also described in Note 1. The
          consolidated financial statements do not include any adjustments that might
          result from the outcome of this uncertainty.
 
  **TELFORD
          SADOVNICK, P.L.L.C.**
 
 **CERTIFIED
          PUBLIC ACCOUNTANTS**
  Bellingham,
          Washington
 April
          13,
          2006
 
 F-2
 **DELTA
            OIL & GAS, INC.**
 **(A
            Development Stage Company)**
 
 **CONSOLIDATED
            BALANCE SHEETS**
 **(Stated
            in U.S. Dollars)**


**DECEMBER
                  31****2005**
              2004**ASSETS****Current**Cash
              **$**
              **343,004**
              $
              -Accounts
                  receivable
              
              **10,068**
              
              7,863Prepaid
                  expenses
              
              **1,615**
              
              -**354,687**
              
              7,863**Natural
                  Gas And Oil Properties**Proved
                  property
              
              **1,272**
              
              1,272Unproved
                  properties
              
              **2,040,700**
              
              50,000**2,041,972**
              
              51,272**Other
                  Equipment**Computer
                  equipment
              
              **3,492**
              
              1,741Less:
                  Accumulated depreciation
              
              **(2,033)**
              
              (1,741)**1,459**
              
              -**$**
              **2,398,118**
              $
              59,135**LIABILITIES****Current**Accounts
                  payableand accrued liabilities
              
              **93,318**
              
              21,962Accrued
                  interest payable
              
              **-**
              
              17,362Advances
                  payable
              
              **-**
              
              7,974Due
                  to related party
              
              **-**
              
              13,122Current
                  portion of promissory note payable
              
              **39,397**
              
              -**132,715**
              
              60,420**Promissory
                  Note Payable**
              
              **-**
              
              37,254**132,715**
              
              97,674**Commitment
                  And Contractual Obligations**(Note 11)**STOCKHOLDERS’
                  EQUITY (DEFICIENCY)****Share
                  Capital**Authorized:100,000,000
                  common voting shares, par value $0.001 per share25,000,000
                  preferred shares, par value $0.001 per shareIssued
                  and outstanding:44,025,735
                  common shares at December 31, 2005 and
                41,296,750
                  common shares at December 31, 2004
              
              **44,026**
              
              41,297Additional
                  paid-in capital
              
              **3,110,591**
              
              63,328Share
                  subscriptions received
              
              **-**
              
              160,000Share
                  subscriptions receivable
              
              **(16,000)**
              
              -**Deficit
                  Accumulated During The Development Stage**
              
              **(873,214)**
              
              (303,164)**2,265,403**
              
              (38,539)**$**
              **2,398,118**
              $
              59,135





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


F-3


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(Stated
      in U.S. Dollars)**





**YEAR
                    ENDED****DECEMBER
                  31**
              CUMULATIVEPERIOD
                          FROMINCEPTIONJANUARY
                      92001
                    TODECEMBER
                  31**2005**
              2004
              2005**Revenue**Natural
                  gas and oil sales
              **$**
              **7,367**
              $
              9,041
              $
              94,130**Costs
                  And Expenses**Natural
                  gas and oil operating expenses
              
              **5,465**
              
              1,973
              
              34,769General
                  and administration
              
              **571,660**
              
              38,529
              
              710,778Depreciation
                  and depletion
              
              **292**
              
              113
              
              37,604Impairment
                  ofnatural
                  gas and gas properties
              
              **-**
              
              -
              
              65,503Dry
                  well costs written off
              
              **-**
              
              -
              
              118,690**577,417**
              
              40,615
              
              967,344**Net
                  Loss For The Period**
              **$**
              **(570,050)**
              $
              (31,574)
              $
              (873,214)**Basic
                  And Diluted Loss Per Common Share**
              **$**
              **(0.01)**
              $
              (0.00)**Weighted
                  Average Number Of Outstanding Common Shares**
              
              **42,235,227**
              
              41,296,750




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


F-4
 
 **DELTA
          OIL & GAS, INC.**
 **(A
          Development Stage Company)**
 
 **CONSOLIDATED
          STATEMENTS OF CASH FLOWS**
 **(Stated
          in U.S. Dollars)**
 
 **YEAR
                          ENDED**DECEMBER
                        31
                    CUMULATIVEPERIOD
                                FROMINCEPTIONJANUARY
                            92001
                          TODECEMBER
                        31**2005**
                    2004
                    2005**Cash
                        Flows****(Used
                        By) Operating Activities**Net
                        loss for the period
                    **$**
                    **(570,050)**
                    $
                    (31,574)
                    $
                    (873,214)Items
                        not involving cash:Depreciation
                        and depletion
                    
                    **292**
                    
                    113
                    
                    37,604Impairment
                        of natural gas and oil properties
                    
                    **-**
                    
                    -
                    
                    65,503Interest
                        accrued on note payable
                    
                    **2,143**
                    
                    2,143
                    
                    9,396Dry
                        well costs written off
                    
                    **-**
                    
                    -
                    
                    118,690Stock-based
                        compensation expense
                    
                    **370,267**
                    
                    -
                    
                    370,267Changes
                        inoperating working capital items:Accounts
                        receivable
                    
                    **(2,205)**
                    
                    (2,831)
                    
                    (10,068)Accounts
                        payableand accrued liabilities
                    
                    **71,355**
                    
                    (5,321)
                    
                    93,318Accrued
                        interest payable
                    
                    **(17,362)**
                    
                    5,966
                    
                    -Prepaid
                        expenses
                    
                    **(1,615)**
                    
                    -
                    
                    (1,615)**Net
                        Cash****(Used
                        By) Operating Activities**
                    
                    **147,175**
                    
                    (31,504)
                    
                    190,119**Cash
                        Flows****(Used
                        By) Investing Activities**Purchase
                        of natural gas and oil properties
                    
                    **(1,990,700)**
                    
                    (50,000)
                    
                    (2,231,736)Purchase
                        of other equipment
                    
                    **(1,751)**
                    
                    -
                    
                    (3,492)**Net
                        Cash****(Used
                        By) Investing Activities**
                    
                    **(1,992,451)**
                    
                    (50,000)
                    
                    (2,235,228)**Cash
                        Flows From Financing Activities**Common
                        stock activity
                    
                    **2,503,726**
                    
                    160,000
                    
                    2,784,351Advances
                        from (Repaid to) related party
                    
                    **(13,122)**
                    
                    (6,878)
                    
                    -Advances
                        received (repaid)
                    
                    **(7,974)**
                    
                    (71,681)
                    
                    -**Net
                        Cash From Financing Activities**
                    
                    **2,482,630**
                    
                    81,441
                    
                    2,768,351**Increase
                        (Decrease) In Cash**
                    
                    **343,004**
                    
                    (63)
                    
                    343,004**Cash
                        (Excess Of Checks Issued Over Funds On Deposit), Beginning
                        Of
                        Period**
                    
                    **-**
                    
                    63
                    
                    -**Cash
                        (Excess Of Checks Issued Over Funds On Deposit), End Of
                        Period**
                    **$**
                    **343,004**
                    $
                    -
                    $
                    343,004**Supplemental
                        disclosure of cash flow information:**Cash
                        paid during the period for:Interest
                    **$**
                    **-**
                    $
                    -
                    $
                    -Income
                        taxes
                    **$**
                    **-**
                    $
                    -
                    $
                    -
 
 
 The
          accompanying notes are an integral part of these consolidated financial
          statements.


F-5


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**CONSOLIDATED
      STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
      (DEFICIENCY)**





**PERIOD
      FROM INCEPTION, JANUARY 9, 2001, TO DECEMBER 31, 2005**


**(Stated
      in U.S. Dollars)**





**COMMON
                STOCK**
            ****
                **DEFICIT****ACCUMULATED****NUMBER
                OF**
              **COMMON**
              **SHARES**
            **PAR**
              **V****ALUE**
            **ADDITIONAL**
              **PAID-IN**
              **CAPITAL**
            **SHARE**
              **SUBSCRIPTIONS**
              **RECEIVED**
            **SHARE**
              **SUBSCRIPTIONS****RECEIVABLE**
            **DURING**
              **THE****DEVELOPMENT**
              **STAGE**
            **TOTAL**Shares
                issued for cash at $0.00018
            13,750,000
            $
            13,750
            $
            (11,250)
            $
            -
            $
            -
            $
            -
            $
            2,500Shares
                issued for cash at $0.0036
            27,500,000
            
            27,500
            
            72,500
            
            -
            
            -
            
            -
            
            100,000Shares
                issued for cash at $0.045
            46,750
            
            47
            
            2,078
            
            -
            
            -
            
            -
            
            2,125Net
                loss for the period
            -
            
            -
            
            -
            
            -
            
            -
            
            (184,407)
            
            (184,407)Balance,
                December 31, 2001
            41,296,750
            
            41,297
            
            63,328
            
            -
            
            -
            
            (184,407)
            
            (79,782)Net
                loss for the year
            -
            
            -
            
            -
            
            -
            
            -
            
            (62,760)
            
            (62,760)Balance,
                December 31, 2002
            41,296,750
            
            41,297
            
            63,328
            
            -
            
            -
            
            (247,167)
            
            (142,542)Net
                loss for the year
            -
            
            -
            
            -
            
            
            
            -
            
            (24,423)
            
            (24,423)Balance,
                December 31, 2003
            41,296,750
            
            41,297
            
            63,328
            
            -
            
            -
            
            (271,590)
            
            (166,965)Share
                subscriptions received
            -
            
            -
            
            -
            
            160,000
            
            -
            
            -
            
            160,000Net
                loss for the year
            -
            
            -
            
            -
            
            
            
            -
            
            (31,574)
            
            (31,574)Balance,
                December 31, 2004
            41,296,750
            
            41,297
            
            63,328
            
            160,000
            
            -
            
            (303,164)
            
            (38,539)Units
                issued for cash at $1.00, net of
              share
                issuance cost
            2,483,985
            
            2,484
            
            2,481,241
            
            (160,000)
            
            -
            
            -
            
            2,323,725Shares
                issued on options exercised
              for
                cash at $0.80
            245,000
            
            245
            
            195,755
            
            -
            
            (16,000)
            
            -
            
            180,000Stock-based
                compensation
            -
            
            -
            
            370,267
            
            -
            
            -
            
            -
            
            370,267Net
                loss for the year
            -
            
            -
            
            -
            
            -
            
            -
            
            (570,050)
            
            (570,050)Balance,
                December 31, 2005
            44,025,735
            $
            44,026
            $
            3,110,591
            $
            -
            $
            (16,000)
            $
            (873,214)
            $
            2,265,403








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


F-6


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
      31, 2005**


**(Stated
      in U.S. Dollars)**











**1.**
            **OPERATIONS**





a)
            Organization





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





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





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





b)
            Development
                Stage Activities





The
      Company is a development stage enterprise engaged in the exploration for and
      production of natural gas and oil in the United States. Since January 9, 2001,
      the Company has acquired an 8.9% working interest in a well which commenced
      production in February 2001.





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.




F-7


**DELTA
        OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
      31, 2005**


**(Stated
      in U.S. Dollars)**











**1.**
            **OPERATIONS**(Continued)





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 financial statements, the Company has incurred a net loss
      of
      $873,214 since inception. To achieve profitable operations, the Company requires
      additional capital for obtaining producing oil and gas properties through either
      the purchase of producing wells or successful exploration activity. Management
      believes that sufficient funding will be available to meet its business
      objectives including anticipated cash needs for working capital and is currently
      evaluating several financing options. However, there can be no assurance that
      the Company will be able to obtain sufficient funds to continue the development
      of and, if successful, to commence the sale of its products under development.
      As a result of the foregoing, there exists substantial doubt about the Company’s
      ability to continue as a going concern. These financial statements do not
      include any adjustments that might result from the outcome of this
      uncertainty.








**2.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING
                POLICIES**





a)
            Basis
                of Consolidation





The
      consolidated financial statements include the financial statements of the
      Company and its wholly-owned subsidiary, Delta Oil & Gas (Canada) Inc. All
      significant inter-company 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 therefrom (see “Supplemental Oil and Gas
      Disclosures - Unaudited”).





F-8


**DELTA
        OIL & GAS, INC.**
 **(A
          Development Stage Company)**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
          31, 2005**
 **(Stated
          in U.S. Dollars)**
 
 **2.**
                **SUMMARY
                    OF SIGNIFICANT ACCOUNTING POLICIES**(Continued)
 
 c)
                Natural
                    Gas and Oil Properties
  The
              Company accounts for its oil and gas producing activities using the
              full cost
              method of accounting as prescribed by the United States Securities
              and Exchange
              Commission (“SEC”). Accordingly, all costs associated with the acquisition of
              properties and exploration with the intent of finding proved oil and
              gas
              reserves contribute to the discovery of proved reserves, including
              the costs of
              abandoned properties, dry holes, geophysical costs, and annual lease
              rentals are
              capitalized. All general corporate costs are expensed as incurred.
              In general,
              sales or other dispositions of oil and gas properties are accounted
              for as
              adjustments to capitalized costs, with no gain or loss recorded. Amortization
              of
              evaluated oil and gas properties is computed on the units of production
              method
              based on all proved reserves on a country-by-country basis. Unevaluated
              oil and
              gas properties are assessed at least annually for impairment either
              individually
              or on an aggregate basis. The net capitalized costs of oil and gas
              properties
              (full cost ceiling limitation) are not to exceed the sum of the related
              estimated future net revenues from proved reserves discounted at 10%,
              the lower
              of cost or estimated fair value of unproved properties included in
              the costs
              being amortized, if any, and the cost of unevaluated and unproved properties
              not
              being amortized, if any, 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 is not amortized until proved reserves associated with the
            projects
            can be determined or until they are impaired.
 
 d)
                Asset
                    Retirement Obligations  The
            Company has adopted Statement of Financial Accounting Standards No. 143
            (“SFAS
            143”), “Accounting for Asset Retirement Obligations”, which requires that asset
            retirement obligations (“ARO”) associated with the retirement of a tangible
            long-lived asset, including natural gas and oil properties, be recognized
            as
            liabilities in the period in which it is incurred and becomes determinable,
            with
            an offsetting increase in the carrying amount of the associated assets.
            The cost
            of tangible long-lived assets, including the initially recognized ARO,
            is
            depleted, such that the cost of the ARO is recognized over the useful
            life of
            the assets. The ARO is recorded at fair value, and accretion expense
            is
            recognized over time as the discounted 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.
  The
              Company determined that, pursuant to SFAS 143, the net effect of the
              ARO
              calculation to the Company’s income statement would be immaterial
              to record in its financial statements for the year ended December 31,
              2005.


F-9





**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
      31, 2005**


**(Stated
      in U.S. Dollars)**











**2.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES**(Continued)





e)
              Joint
                  Ventures





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





f)
            Revenue
                Recognition





The
      Company uses the sales method of accounting for natural gas and oil revenues.
      Under this method, revenues are recognized upon the passage of title, net of
      royalties. Revenues from natural gas production are recorded using the sales
      method. When sales volumes exceed the Company’s entitled share, an overproduced
      imbalance occurs. To the extent the overproduced imbalance exceeds the Company’s
      share of the remaining estimated proved natural gas reserves for a given
      property, the Company records a liability. At December 31, 2005 and 2004, the
      Company had no overproduced imbalances.





g)
            Cash





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.




h)
            Environmental
                Protection and Reclamation Costs





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





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





F-10


**DELTA
        OIL & GAS, INC.**


**(A
          Development Stage Company)**




**NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
          31, 2005**


**(Stated
          in U.S. Dollars)**











**2.**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES**(Continued)




i)
            Foreign
                Currency Translation




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





j)
            Other
                Equipment





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





k)
            Impairment
                of Long-Lived Assets





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





l)
            Loss
                Per Share





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








F-11


**DELTA
                                      OIL & GAS, INC.**
  **(A
                                  Development Stage Company)**
 **NOTES
                              TO CONSOLIDATED FINANCIAL STATEMENTS**
  **DECEMBER
                            31, 2005**
 **(Stated
                        in U.S.
                        Dollars)**




**2.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES**(Continued)




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




n)
              Financial
                  Instruments
                
                The
                  Company’s financial instruments consist of cash, accounts receivable,
                  prepaid expenses, accounts payable and accrued liabilities, accrued
                  interest payable, advances payable, amounts due to related parties,
                  and
                  promissory note payable.
                It
                    is management’s opinion that the Company is not exposed to significant
                    interest or credit risks arising from these financial instruments.
                    The
                    fair value of these financial instruments approximate their carrying
                    values.




o)
            Stock-Based
                Compensation
              
              The
                Company accounts for employee stock-based
                compensation using the intrinsic value method prescribed in Accounting
                Principles Board Opinion No. 25 - “Accounting for Stock Issued to
                Employees”, and related interpretations. Accordingly, compensation cost
                for stock options is measured as the excess, if any, of the fair
                value of
                the Company’s common stock at the date of the grant over the amount an
                employee must pay to acquire the common stock. Non-employee stock-based
                compensation is accounted for using the fair value method in accordance
                with SFAS No. 123 - “Accounting for Stock-Based
                Compensation”.




**DELTA
          OIL & GAS, INC.**


**(A
        Development Stage Company)**




NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS




DECEMBER
        31, 2005


**(Stated
        in U.S. Dollars)**






**3.**
            **NEW
                  ACCOUNTING PRONOUNCEMENTS**




a)
            FASB
                issued FASB Interpretation No. (“FIN”) 47 - “Accounting for Conditional
                Asset Retirement Obligations” in March 2005. FIN 47 clarifies that an
                entity must record a liability for a conditional asset retirement
                obligation if the fair value of the obligation can be reasonably
                estimated. This Interpretation also clarifies the circumstances under
                which an entity would have sufficient information to reasonably estimate
                the fair value of an asset retirement obligation. This Interpretation
                is
                effective no later than the end of fiscal years ending after December
                15,
                2005. The Company does not expect this guidance to have a material
                impact
                on its financial statements.




b)
            In
                November 2005, FASB issued Staff Position No. FAS 115-1 - “The Meeting of
                Other-Than-Temporary Impairment and Its Application to Certain
                Investments” (“FSP 115-1”). FSP 115-1 provides accounting guidance for
                identifying and recognizing other-than-temporary impairments of debt
                and
                equity securities, as well as cost method investments in addition
                to
                disclosure requirements. FSP 115-1 is effective for reporting periods
                beginning after December 15, 2005, and earlier application is permitted.
                The Company has determined that the adoption of FSP 115-1 does not
                have an
                impact on its result of operations or financial
                position.




c)
              In
                  December 2004, FASB issued Statement of Financial Accounting Standards
                  No.
                  123 (revised 2004) (“SFAS 123 (revised 2004)”), “Share-Based Payment”.
                  This Statement requires that the cost resulting from all share-based
                  transactions be recorded in the financial statements. The Statement
                  establishes fair value as the measurement objective in accounting
                  for
                  share-based payment arrangements and requires all entities to apply
                  a
                  fair-value-based measurement in accounting for share-based payment
                  transactions with employees. The Statement also establishes fair
                  value as
                  the measurement objective for transactions in which an entity acquires
                  goods or services from non-employees in share-based payment transactions.
                  The Statement replaces FASB Statement No. 123 “Accounting for Stock-Based
                  Compensation” and supersedes APB Opinion No. 25 “Accounting for Stock
                  Issued to Employees”. The provisions of this Statement will be effective
                  for the Company beginning with its fiscal year ending 2007. The
                  Company
                  has determined that the adoption of SFAS 123 (revised 2004) does
                  not have
                  an impact on its results of operations or financial
                  position.




d)
            In
                November 31, 2004, FASB issued Statement of Financial Accounting
                Standards
                No. 151 (“SFAS 151”), “Inventory Costs”. The adoption of SFAS 151 does not
                have an impact on the Company’s results of operations or financial
                position.




F-13
 **DELTA
                  OIL & GAS, INC.**
 **(A
                  Development Stage Company)**


**NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
  **DECEMBER
          31, 2005**
 **(Stated
          in U.S. Dollars)**







**3.**
              **NEW
                  ACCOUNTING PRONOUCEMENTS**(Continued)


e)
              In
                      December 2004, FASB issued Statement of Financial Accounting
                      Standards No.
                      153 (“SFAS 153”), “Exchanges of Non-monetary Assets - an amendment of APB
                      Opinion No. 29”. The Company has determined that the adoption of SFAS 153
                      does not have an impact on the Company’s results of operations or
                      financial
                      position.


**4.**
            **NATURAL
                GAS AND OIL PROPERTIES**


a)
            Proved
                Property In
      February
      2001, the Company acquired an 8.9% working interest in a gas well located in
      California at a cost of $90,000. The well commenced production in February
      2001
      following a redrill.





**DECEMBER
                  31****2005**
              2004Proved
                  property
              **$**
              **102,346**
              $
              102,346Less:
                  Accumulated depletion
              
              **(101,074)**
              
              (101,074)**$**
              **1,272**
              $
              1,272




b)
            Unproved
                Properties




**2005****Todd
                Creek**Acquisition
                cost
            $
            597,263Cash
                call
            
            519,990**Hillspring**Acquisition
                cost
            
            414,766**Solano
                County**Cash
                call
            
            301,387**Leduc**Acquisition
                cost
            
            207,294**$**
            **2,040,700**






F-14


**DELTA
        OIL & GAS, INC.**


**(A
          Development Stage Company)**
  **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
  **DECEMBER
          31, 2005**
 **(Stated
          in U.S. Dollars)**











**4.**
              **NATURAL
                  GAS AND OIL PROPERTIES**(Continued)





i)
            Todd
                Creek, Alberta, Canada





In
      January 2005, the Company acquired a 20% working interest in 13.75 sections
      (8,800 acres) of land in Todd Creek, Alberta, Canada, at a cost of $597,263.
      The
      Company also has an option to acquire an additional 15% interest in 7 additional
      sections of land by participating in 20% of the drilling cost by December 31,
      2006. As at December 31, 2005, a cash call of $519,890 has been paid as share
      of
      costs for a proposed drilling program.





ii)
            Hillspring,
                Alberta, Canada





In
      January 2005, the Company acquired a 10% working interest in 1 section (64
      acres) of land in Hillspring, Alberta, Canada, at a cost of $414,766. The
      Company also had an option to acquire an additional 10% working interest in
      an
      additional 1.25 sections by paying $207,833 by July 1, 2005. Later the Company
      elected not to exercise this option and the option expired.





b)
              Unproved
                  Properties (Continued)





ii)
              Hillspring,
                  Alberta, Canada (Continued)





Hillspring
      Prospect





This
      option expired on July 1, 2005, but was later extended to December 29,
      2006.





iii)
              Solano
                  County, California, USA





In
      May
      2005, the Company entered into a participation agreement with Production
      Specialties Company (“PSC”) where the Company has been granted the right to earn
      a 68% working interest in a test well and a 12.50% working interest in certain
      lands located in Solano County, California, by paying 18.75% of the test well
      operations. As at December 31, 2005, a cash call of $301,387 has been paid
      as
      share of costs for a proposed drilling program.





Cache
      Slough Prospect





Following
      these payments, the Company will be responsible for 12.5% of all additional
      expenditures for drilling and production on the property and be entitled to
      receive 8.5% of all revenue generated by the property, which is 12.5% of this
      California company’s 68% interest.




F-15


**DELTA
        OIL & GAS, INC.**


**(A
        Development Stage Company)**




**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**




**DECEMBER
        31, 2005**


**(Stated
        in U.S. Dollars)**










**4.**
              **NATURAL
                  GAS AND OIL PROPERTIES**(Continued)




iv)
            Leduc,
                Alberta, Canada
              
              In
                September 2005, the Company entered into a participation and farmout
                agreement with Odin Capital Inc. (“Odin”) where the Company will
                participate for 4% share of the costs of drilling a test well in
                certain
                lands located in the Leduc formation, Alberta, Canada. In exchange
                for the
                participation costs, the Company will earn interests in certain petroleum
                and natural gas wells ranging from 1.289% to 4.0%. As at December
                31,
                2005, the Company has advanced $207,294 as its share of the costs
                in the
                Leduc formation property.
              
              A
                director of the Company maintains a 50% ownership interest in
                Odin.




**5.**
              **NATURAL
                    GAS AND OIL EXPLORATION RISK**




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




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


F-16
 **DELTA
          OIL & GAS, INC.**


**(A
        Development Stage Company)**





**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
        31, 2005**


**(Stated
        in U.S. Dollars)**







**6.**
              **ADVANCES
                  PAYABLE**
                
                Advances
                  payable are repayable on demand,
                  unsecured and bear interest at 6.5% per annum.




**7.**
            **PROMISSORY
                NOTE PAYABLE**





**2005**
            2004Unsecured
                loan, repayable January 4, 2006, together with
              accrued
                interest at a rate of 6.5% per annum.
            **$**
            **39,397**
            $
            37,254Less:
                Current portion
            
            **(39,397)**
            
            -**$**
            **-**
            $
            37,254




**8.**
            **SHARE
                CAPITAL**




a)
            On
                May 2, 2005, the Company issued 1,200,000 units at a price of $1.00
                per
                unit for gross proceeds of $1,200,000. Each unit consists of one
                common
                share and one common share purchase warrant exercisable within 5
                years at
                an exercise price of $1.50.
              
              On
                August 29, 2005, the Company issued 383,985 units at a price of $1.00
                per
                unit for gross proceeds of $383,985. Each unit consists of one common
                share and one common share purchase warrant exercisable within 5
                years at
                an exercise price of $1.50.
              
              On
                September 8, 2005, the Company issued 70,000 common shares for exercise
                of
                stock options at $0.80 per share. At December 31, 2005, there is
                an amount
                of $16,000 receivable relating to this share issuance.
              
              On
                September 14, 2005, the Company issued 100,000 common shares for
                exercise
                of stock options at $0.80 per share.
              
              On
                October 4, 2005, the Company issued 75,000 common shares for exercise
                of
                stock options at $0.80 per share.
              
              On
                December 19, 2005, the Company issued 900,000 units at a price of
                $1.00
                per unit for gross proceeds of $900,000. Each unit consists of one
                common
                share and one common share purchase warrant exercisable within 5years
                at an exercise price of $1.50.


F-17
 **DELTA
            OIL & GAS, INC.**


**(A
            Development Stage Company)**
  **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
  **DECEMBER
            31, 2005**
 **(Stated
          in U.S. Dollars)**




**8.**
              **SHARE
                  CAPITAL**(Continued)




b)
            Stock
                Options
              
              Compensation
                expense related to stock options granted is recorded at their fair
                value
                as calculated by the Black-Scholes option pricing model. Compensation
                expense of $370,267 was recorded during the year ended December 31,
                2005
                (2004 - $Nil).
              
              The
                changes in stock options are as
                follows:




**NUMBER**
            **WEIGHTED**
              **AVERAGE**
              **EXERCISE**
              **PRICE**Balance
                outstanding, December 31, 2004
            -
            $
            -Granted
            575,000
            
            0.81Exercised
            (245,000)
            
            (0.80)Balance
                outstanding December 31, 2005
            330,000
            $
            0.81




The
        following table summarized information about the stock options outstanding
        at
        December 31, 2005:





**OPTIONS
                OUTSTANDING**
            
            **OPTIONS
                EXERCISABLE****REMAINING****EXERCISE**
            **NUMBER
                OF**
            **CONTRACTUAL**
            
            **NUMBER
                OF****PRICE**
            **SHARES**
            **LIFE
                (YEARS)**
            
            **SHARES**$
            0.80
            305,000
            2.50
            
            305,000$
            1.00
            25,000
            3.00
            
            12,500




The
      fair
      value of the stock options granted was estimated using the Black-Scholes
      option-pricing model and is amortized over the vesting period of the underlying
      options. The weighted average fair value of options granted was $0.80 per share.
      The weighted average assumptions used to calculate the fair value are as
      follows:




Dividend
                yield
            0Expected
                volatility
            186%Risk
                free interest rate
            3.77%Expected
                life
            3
                years





Changes
      in the subjective input assumptions can materially affect the fair value
      estimate and, therefore, the existing models do not necessarily provide a
      reliable measure of the fair value of the Company’s stock options.


F-18


**DELTA
        OIL & GAS, INC.**


**(A
        Development Stage Company)**





**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
        31, 2005**


**(Stated
        in U.S. Dollars)**











**8.**
              **SHARE
                  CAPITAL**(Continued)





c)
            Common
                Stock Share Purchase Warrants





As
      at
      December 31, 2005, share purchase warrants outstanding for the purchase of
      common shares as follows:




**WARRANTS
                OUTSTANING****EXERCISE**
              ****PRICE****
            **NUMBER
                OF**
              ****SHARES****
            **EXPIRY**
              ****DATE****$
            1.50
            1,200,000
            May
                2, 2010$
            1.50
            383,985
            August
                29, 2010$
            1.50
            900,000
            December
                19, 2010




**9.**
              **RELATED
                  PARTIES**





During
      the year ended December 31, 2005, the Company paid $21,492 (2004 - $Nil) for
      management fees to a director of the Company.





An
      amount
      of $805 at December 31, 2005 (2004 - $4,825) is due to a director of the
      Company.




F-19


**DELTA
        OIL & GAS, INC.**


**(A
        Development Stage Company)**





**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
        31, 2005**


**(Stated
        in U.S. Dollars)**











**10.**
            **INCOME
                TAX**





a)
            Income
                Tax Provision
              
              The
                provision for income taxes differs from the
                result which would be obtained by applying the statutory income tax
                rate
                of 34% to income before income taxes. The difference results from
                the
                following items:




**YEAR
                ENDED**
                **DECEMBER
                  31****2005**
            2004Computed
                expected (benefit of) income taxes
            **$**
            **(193,450)**
            $
            (10,735)Increase
                in valuation allowance
            
            **193,450**
            
            10,735Income
                tax provision
            **$**
            **-**
            $
            -





b)
              Significant
                  component of the Company’s deferred income tax assets are as
                  follows:





**DECEMBER
                31****2005**
            2004Operating
                loss carryforwards
            **$**
            **654,252**
            $
            89,667Natural
                gas and oil properties
            
            **218,962**
            
            213,497**873,214**
            
            303,164Statutory
                tax rate
            
            **34%**
            
            34%Deferred
                income tax assets
            
            **296,892**
            
            103,075Valuation
                allowance
            
            **(296,892)**
            
            (103,075)Net
                deferred tax assets
            **$**
            **-**
            $
            -








**11.**
              **COMMITMENT
                  AND CONTRACTUAL OBLIGATIONS**
                
                A
                  lease agreement for the Vancouver office commenced March 1, 2005
                  and
                  terminates on February 28, 2006. The lease agreement includes a
                  fixed
                  rental fee of $1,295 per month plus additional charges for services
                  supplied by the landlord or incurred on behalf of the client in
                  the
                  previous month.
                On
                    March 1, 2005, the Company also rented an office on a month to
                    month basis
                    for $243 per month.




F-20


**DELTA
        OIL & GAS, INC.**


**(A
        Development Stage Company)**





**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
        31, 2005**


**(Stated
        in U.S. Dollars)**











**11.**
              **COMMITMENT
                  AND CONTRACTUAL OBLIGATIONS**(Continued)





c)
            The
                Company has incurred operating losses and approximately $654,252,
                which,
                if unutilized, will expire through to 2025. Subject to certain
                restrictions, the Company has natural gas and oil properties expenditures
                of $218,962 available to reduce future taxable income. Future tax
                benefits, which may arise as a result of these losses, have not been
                recognized in these financial statements, and have been offset by
                a
                valuation allowance. The following table lists the fiscal year in
                which
                the loss was incurred and the expiration date of the operating loss
                carry
                forwards:





**Income
                Tax Operating**
              **Loss
                Carry Forward****Amount**
            **Expiration**
              **Date**2001
            $10,852
            20212002
            33,617
            20222003
            15,597
            20232004
            29,601
            20242005
            564,585
            2025Total
                income tax operating loss carry forward
            $654,252





**12.**
              **SUBSEQUENT
                  EVENTS**





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





F-21
 **DELTA
          OIL & GAS, INC.**


**(A
        Development Stage Company)**





**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**





**DECEMBER
        31, 2005**


**(Stated
        in U.S. Dollars)**











**12.**
              **SUBSEQUENT
                  EVENTS**(Continued)





The
      Drilling Program on the acquired property interests is anticipated to be
      initiated by Griffin on or about May 1, 2006 and to be completed by Griffin
      within approximately 10 months.  The anticipated commencement date for the
      drilling program was extended due to flooding of the road accessing the well
      sites attributable to the melting snow.  The prospect area owned or
      controlled by Griffin on which the ten wells will be drilled, is comprised
      of
      approximately 1273 acres in Palmetto Point, Mississippi.  The exact
      locations of the ten wells in which the Company will participate are yet to
      be
      determined.





b)
            Private
                Placement





Subsequent
      to the reporting period on February 24, 2006, the Company sold 727,272 units
      at
      $2.75 per Unit to a total of three (3) investors. Each unit consisted of one
      (1)
      share of common stock, par value $0.001, and one (1) warrant (the "warrant")
      to
      purchase one (1) share of common stock, exercisable for three (3) years from
      the
      closing of the offering. The exercise price for the warrant was priced at $3.00.
      The total gross proceeds the Company received from this sale of securities
      was
      $2,000,000.  The Company paid $150,000 in commissions on this private
      equity offering.  Assuming that all of the warrants are exercised by the
      investors, the gross proceeds received from the warrants will equal $2,181,816.





F-22


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**SUPPLEMENTAL
      OIL AND GAS DISCLOSURES**





**DECEMBER
      31, 2005**


**(Unaudited)**


**(Stated
      in U.S. Dollars)**











**SUPPLEMENTAL
      OIL AND GAS DISCLOSURES**





The
      following disclosures provide unaudited information required by SFAS No. 69
      -
“Disclosures About Oil and Gas Producing Activities”.





Capitalized
      Costs Incurred





Capitalized
      costs incurred in natural gas and oil property acquisition, exploration and
      development activities are summarized below:




**2005**
            
            2004**TOTAL**
            **US**
            **CANADA**
            
            TOTAL
            US
            CANADAAcquisition
                of propertiesProved
            **$**
            **90,000**
            **$**
            **90,000**
            **$**
            **-**
            
            $
            90,000
            $
            90,000
            $
            -Unproved
            
            **2,040,701**
            
            **301,388**
            
            **1,739,313**
            
            
            50,000
            
            -
            
            50,000Exploration
                costs
            
            **-**
            
            **-**
            
            **-**
            
            
            -
            
            -
            
            -Development
                costs
            
            **12,346**
            
            **12,346**
            
            **-**
            
            
            12,346
            
            12,346
            
            -Total
                costs incurred
            **$**
            **2,143,047**
            **$**
            **403,734**
            **$**
            **1,739,313**
            
            $
            152,346
            $
            102,346
            $
            50,000





Natural
      Gas and Oil Reserves





Proved
      reserves are estimated quantities of natural gas and oil that geological and
      engineering data demonstrate with reasonable certainty to be recoverable in
      future years from known reservoirs under existing economic and operating
      conditions. Proved developed reserves are proved reserves that reasonably can
      be
      expected to be recovered through existing wells with existing equipment and
      operating methods.





Proved
      natural gas and oil reserve quantities at December 31, 2005 and 2004, and the
      related discounted future net cash flows before income taxes are based on
      estimates prepared by an independent consulting engineer. Such estimates have
      been prepared in accordance with guidelines established by the Securities and
      Exchange Commission.




F-23


**DELTA
      OIL & GAS, INC.**


**(A
      Development Stage Company)**





**SUPPLEMENTAL
      OIL AND GAS DISCLOSURES (Continued)**





**DECEMBER
      31, 2005**


**(Unaudited)**


**(Stated
      in U.S. Dollars)**











Natural
      Gas and Oil Reserves (Continued)





The
        Company’s net ownership interests in estimated quantities of proved natural gas
        and oil reserves and changes in net proved reserves, all of which are located
        in
        the continental United States, are summarized below. The Company has no proved
        undeveloped reserves.





NATURALGAS(MCF)Reserves,
                  December 31, 2003
              3,448Extensions
                  and revisions
              (493)Production
              (1,671)Reserves,
                  December 31, 2004
              1,284Extensions
                  and revisions
              2,025
                  (i)Production
              (866)Reserves,
                  December 31, 2005
              2,443





(i)
        The
        increase in the volume of estimated reserves results from a change in the
        estimate of the decline rate of the well reserves.





Standardized
      Measure





The
      standardized measure of discounted future net cash flows relating to the
      Company’s ownership interests in proved natural gas and oil reserves is shown
      below:





**YEAR
                  ENDED**DECEMBER
                31**2005**
            2004Future
                cash flows
            **$**
            **23,015**
            $
            8,193Future
                operating expenses
            
            **11,872**
            
            5,837Future
                net cash flows
            
            **11,143**
            
            2,35610%
                annual discount for estimated timing of cash flows
            
            **(1,320)**
            
            (235)Standardized
                measure of discounted future net cash flows
            **$**
            **9,823**
            $
            2,121




F-24


**DELTA
        OIL & GAS, INC.**


**(A
        Development Stage Company)**





**SUPPLEMENTAL
        OIL AND GAS DISCLOSURES (Continued)**





**DECEMBER
        31, 2005**


**(Unaudited)**


**(Stated
        in U.S. Dollars)**











Standardized
        Measure (Continued)





Future
      cash flows are computed by applying fiscal period end prices of natural gas
      and
      oil to period end quantities of proved natural gas and oil reserves. Future
      operating expenses and development costs are computed primarily by the Company’s
      petroleum engineers by estimating the expenditures to be incurred in developing
      and producing the Company’s proved natural gas and oil reserves at the end of
      the period, based on period end costs and assuming continuation of existing
      economic conditions.





Future
        income taxes are based on period end statutory rates, adjusted for tax basis
        and
        applicable tax credits. A discount factor of 10 percent was used to reflect
        the
        timing of future net cash flows. The standardized measure of discounted future
        net cash flows is not intended to represent the replacement cost of fair
        value
        of the Company’s natural gas and oil properties. An estimate of fair value would
        also take into account, among other things, the recovery of reserves not
        presently classified as proved, anticipated future changes in prices and
        costs,
        and a discount factor more representative of the time value of money and
        the
        risks inherent in reserve estimate of natural gas and oil producing
        operations.





Change
      in
      Standardized Measure





Changes
      in the standardized measure of future net cash flows relating to proved natural
      gas and oil reserves are summarized below:





**YEAR
                  ENDED**DECEMBER
                31**2005**
            2004Changes
                due to current period operationsSales
                of natural gas and oil, net of natural gas and oil operating
                expenses
            **$**
            **276**
            $
            7,068Purchases
                of natural gas and oil properties
            
            **-**
            
            -Changes
                due to revisions in standardized variablesPrices
            
            **7,426**
            
            (10,077)Net
                change
            
            **7,702**
            
            (3,009)Beginning
                of year
            
            **2,121**
            
            5,130End
                of year
            **$**
            **9,823**
            $
            2,121




F-25


**Item
      8. Changes In and Disagreements with Accountants on Accounting and Financial****Disclosure**





No
      events
      occurred requiring disclosure under Item 304(b) of Regulation S-B.





Morgan
      and Company (the "Former Accountant") resigned as our principal accountants
      on
      April 4, 2005. We engaged Telford Sadovnick, P.L.L.C., CPA’s ("Telford") as
      our principal accountants effective April 5, 2005. The decision to change
      accountants was approved by our board of directors.  We did not consult
      with Telford on any matters prior to retaining such firm as our principal
      accountants.





**Item
      8A. 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 December 31, 2005. This evaluation was carried
        out under the supervision and with the participation of our Chief Executive
        Officer and Chief Financial Officer, Mr. Douglas Bolen. Based upon that
        evaluation, our Chief Executive Officer and Chief Financial Officer concluded
        that, as of December 31, 2005, our disclosure controls and procedures are
        effective. There have been no changes in our internal controls over financial
        reporting during the quarter ended December 31, 2005.





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





Limitations
      on the Effectiveness of Internal Controls





Our
      management does not expect that our disclosure controls and procedures or our
      internal control over financial reporting will necessarily prevent all fraud
      and
      material error. Our disclosure controls and procedures are designed to provide
      reasonable assurance of achieving our objectives and our Chief Executive Officer
      and Chief Financial Officer concluded that our disclosure controls and
      procedures are effective at that reasonable assurance level. Further, the design
      of a control system must reflect the fact that there are resource constraints,
      and the benefits of controls must be considered relative to their costs. Because
      of the inherent limitations in all control systems, no evaluation of controls
      can provide absolute assurance that all control issues and instances of fraud,
      if any, within the Company have been detected. These inherent limitations
      include the realities that judgments in decision-making can be faulty, and
      that
      breakdowns can occur because of simple error or mistake. Additionally, controls
      can be circumvented by the individual acts of some persons, by collusion of
      two
      or more people, or by management override of the internal control. The design
      of
      any system of controls also is based




23




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.





**Item
      8B. Other information**





None.





**PART
      III**





**Item
      9. Directors, Executive Officers, Promoters and Control Persons; Compliance
      with****Section
      16(a) of the Exchange Act**





The
      following information sets forth the names of our current directors and
      executive officers, their ages and their present positions with the Company
      as
      of March 31, 2006.





Name
            Age
            Office(s)
                HeldDouglas
                Bolen
            40
            President,
                Chief Executive Officer, Chief Financial Officer &
                DirectorMatthew
                Philipchuck
            34
            Director





Set
      forth
      below is a brief description of the background and business experience of each
      of our current executive officers and directors.





**Douglas
      N. Bolen.** Mr.
      Douglas Bolen **** has
      been
      our Chief Executive Officer and Director since April 15, 2004. Mr. Bolen
      received a Bachelor of Arts from the University of Regina, Saskatchewan in
      1991
      and his Bachelor of Laws from the University of Saskatchewan in 1995. Mr. Bolen
      is a member in good standing of the Law Society of Saskatchewan, the Regina
      Bar
      Association and the Canadian Bar Association. From 1995 to 1999, Mr. Bolen
      articled and practiced law at Balfour Moss, Barristers and Solicitors, a large
      Regina, Canada based law firm with a practice concentration in the area of
      Corporate Commercial law. From 1999 to the present, Mr. Bolen has been providing
      consulting services to small to medium sized US based businesses.





**Mr.
      Matthew Philipchuk.** Mr.
      Philipchuk was appointed as a member of our board of directors in February
      2005.
      From 1995 to the present, Matthew Philipchuck has been President, VP Operations
      and a co-founder of Odin Capital Inc., a Calgary-based Oil & Gas exploration
      company. In 2004, Mr. Philipchuk co-founded Win Energy Corporation, an oil
      and
      gas company based in Calgary, Alberta, Canada. He currently holds the position
      of VP Operations at Win Energy Corporation. In this capacity, he manages
      operations, public relations and administration as well as assists in corporate
      finance and joint ventures.








**Term
      of Office**





24




Our
      directors are appointed for a one-year term to hold office until the next annual
      meeting of our shareholders or until removed from office in accordance with
      our
      bylaws.





Our
      executive officers are appointed by our board of directors and hold office
      until
      removed by the board.





**Significant
      Employees**





We
      have
      no significant employees other than our officers and directors.





**Family
      Relationships**





There
      are
      no family relationships between or among the directors, executive officers
      or
      persons nominated or chosen by us to become directors or executive
      officers.





**Involvement
      in Certain Legal Proceedings**





To
      the
      best of our knowledge, during the past five years, none of the following
      occurred with respect to a present or former director, executive officer, or
      employee: (1) any bankruptcy petition filed by or against any business of which
      such person was a general partner or executive officer either at the time of
      the
      bankruptcy or within two years prior to that time; (2) any conviction in a
      criminal proceeding or being subject to a pending criminal proceeding (excluding
      traffic violations and other minor offenses); (3) being subject to any order,
      judgment or decree, not subsequently reversed, suspended or vacated, of any
      court of competent jurisdiction, permanently or temporarily enjoining, barring,
      suspending or otherwise limiting his or her involvement in any type of business,
      securities or banking activities; and (4) being found by a court of competent
      jurisdiction (in a civil action), the SEC or the Commodities Futures Trading
      Commission to have violated a federal or state securities or commodities law,
      and the judgment has not been reversed, suspended or vacated.





**Audit
      Committee**





We
      do not
      have a separately-designated standing audit committee. The entire board of
      directors performs the functions of an audit committee, but no written charter
      governs the actions of the board of directors when performing the functions
      of
      that would generally be performed by an audit committee. The board of directors
      approves the selection of our independent accountants and meets and interacts
      with the independent accountants to discuss issues related to financial
      reporting. In addition, the board of directors reviews the scope and results
      of
      the audit with the independent accountants, reviews with management and the
      independent accountants our annual operating results, considers the adequacy
      of
      our internal accounting procedures and considers other auditing and accounting
      matters including fees to be paid to the independent auditor and the performance
      of the independent auditor.





We
      do not
      have an audit committee financial expert because of the size of our company
      and
      our board of directors at this time. We believe that we do not require an audit
      committee financial expert intend to retain outside consultants who possess
      these attributes as needed.





25




For
      the
      fiscal year ending December 31, 2005, the board of directors:





1.
            Reviewed
                and discussed the audited financial statements with management,
                and





2.
            Reviewed
                and discussed the written disclosures and the letter from our independent
                auditors on the matters relating to the auditor's
                independence.





Based
      upon the board of directors’ review and discussion of the matters above, the
      board of directors authorized inclusion of the audited financial statements
      for
      the year ended December 31, 2005 to be included in this Annual Report on Form
      10-KSB and filed with the Securities and Exchange Commission.





**Section
      16(a) Beneficial Ownership Reporting Compliance**





Our
      officers, directors and shareholders owning greater than ten percent of our
      shares are not required to comply with Section 16(a) of the Securities Exchange
      Act of 1934 because we do not have a class of securities registered under
      Section 12 of the Securities Exchange Act of 1934.





**Code
      of Ethics Disclosure**





We
      adopted a Code of Ethics for Financial Executives, which include our principal
      executive officer, principal financial officer, principal accounting officer
      or
      controller, or persons performing similar functions. The code of ethics was
      filed as an exhibit to the annual report on Form 10-KSB for the fiscal year
      ended December 31, 2003 and filed with the SEC on April 19, 2004.





**Item
      10. Executive Compensation**





The
      table
      below summarizes all compensation awarded to, earned by, or paid to our current
      executive officers for each of the last three completed fiscal
      years.





Annual
                Compensation
            Long
                Term CompensationName
            Title
            Year
            Salary
              ($)
            Bonus
              ($)
            Other
                AnnualCompensation
              ($)
            Restricted
                Stock
              Awarded
              ($)
            Options/
              SARs
              (#)
            LTIP
              Payouts
              ($)
            All
                Other
              Compensation
              ($)Douglas
              Bolen
            CEO
                & CFO
            2005
              2004
              2003
            0
              0
              n/a
            0
              0
              n/a
            0
              0
              n/a
            0
              0
              n/a
            0
              0
              n/a
            0
              0
              n/a
            0
              1,900
              n/a




**Compensation
      to Directors**





Mr.
      Philipchuk was appointed as a member of our board of directors in February
      2005.
      Beginning in March 2005, Mr. Philipchuk was paid a total of $18,000 Canadian
      dollars ($2000 Canadian dollars on a monthly basis) for services rendered as
      a
      member of our board of directors.





26




**Summary
      of Options Grants**





We
      did
      not grant any stock options during the year ended December 31, 2005 to any
      of
      our named executive officers.





**Item
      11.****Security
      Ownership of Certain Beneficial Owners and Management and Related Stockholder
      Matters**





The
      following table sets forth, as of March 31, 2006, the beneficial ownership
      of
      our common stock by each executive officer and director, by each person known
      by
      us to beneficially own more than 5% of the our common stock and by the executive
      officers and directors as a group. Except as otherwise indicated, all shares
      are
      owned directly and the percentage shown is based on 44,343,235 shares of common
      stock issued and outstanding on March 31, 2006.





**Title
                of class**
            **Name
                and address**
              **of
                beneficial owner****(1)**
            **Amount
                of**
              **beneficial
                ownership**
            **Percent**
              **of
                class*****Executive
                Officers & Directors:**Common
            Douglas
                N. Bolen
              1122
                6thAvenue
              Seattle
                Washington 98109
            500,000
            1.1%Common
            Matthew
                Philipchuk
              1122
                6thAvenue
              Seattle
                Washington 98109
            400,000
            0.9%**Total
                of All Directors and Executive Officers:**
            900,000
            2.0%**More
                Than 5% Beneficial Owners:**Common
            Pamela
                Starek
              2288
                Marstrand Avenue, Suite 111
              Vancouver,
                BC Canada V6K 4S9
            12,500,000
            28.2%




(1)
            As
                used in this table, "beneficial ownership" means the sole or shared
                power
                to vote, or to direct the voting of, a security, or the sole or shared
                investment power with respect to a security (i.e., the power to dispose
                of, or to direct the disposition of, a security). In addition, for
                purposes of this table, a person is deemed, as of any date, to have
                "beneficial ownership" of any security that such person has the right
                to
                acquire within 60 days after such
                date.





**Item
      12. Certain Relationships and Related
      Transactions**





Except
      as
      disclosed below, none of our directors or executive officers, nor any proposed
      nominee for election as a director, nor any person who beneficially owns,
      directly or indirectly, shares carrying more than 5% of the voting rights
      attached to all of our outstanding shares, nor any members of the immediate
      family (including spouse, parents, children, siblings, and in-laws) of any
      of
      the foregoing persons has any material interest, direct or indirect, in any
      transaction over the last two years or in any presently proposed transaction
      which, in either case, has or will




27




materially
      affect us.





**·**
            On
                or about January 25, 2005, we acquired from Win Energy Corporation
                a
                working interest in two prospective properties known as Todd Creek
                and
                Hillspring. Both properties are located approximately 90 miles south
                of
                Calgary, Alberta in the Southern Alberta Foothills belt. Mr. Philipchuck
                co-founded Win Energy Corporation and serves as their VP Operations.
                Mr.
                Philipchuck was appointed as a member of our board of directors in
                February 2005.





**·**
            On
                September 23, 2005, we entered into a Farmout Agreement (“Agreement”) with
                Odin Capital Inc. (“Odin”), a Calgary, Alberta corporation. Odin has the
                right to acquire an oil and gas leasehold interests in certain lands
                located in Section 9, Township 38, Range 9, West of the 5thMeridian, Alberta, Canada (“Section 9”) upon incurring expenditures for
                drilling and testing on the property. Mr. Philipchuk maintains an
                ownership interest in Odin and also is a member of our board of
                directors.





**Item
      13. Exhibits**





Exhibit
                Number
            Description3.1
            Articles
                of Incorporation, as amended13.2
            By-laws,
                as amended110.1
            Agreement
                to Acquire Interest in Todd Creek210.2
            Agreement
                to Acquire Interest in Hillspring210.3
            Amendment
                to Todd Creek and Hillspring Agreements210.4
            Farmout
                Agreement relating to Cache Slough Prospect310.5
            Farmout
                Agreement with Odin Capital Inc. relating to Leduc formation test
                well410.6
            Drilling
                Program Agreement between Griffin & Griffin Exploration L.L.C. and
                0743608 B.C. Ltd.510.7
            Assignment
                Agreement between Delta Oil & Gas, Inc. and 0743608 B.C. Ltd514.1
            Code
                of Ethics631.1
            Certification
                of Chief Executive Officer pursuant to Securities Exchange Act Rule
                13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200231.2
            Certification
                of Chief Financial Officer pursuant to Securities Exchange Act Rule
                13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200232.1
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant to
                18
                U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002


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


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


28




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


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


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


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





**Item
      14. Principal Accountant Fees and Services**





**Audit
      Fees**





The
      aggregate fees billed by our auditors for professional services rendered in
      connection with a review of the financial statements included in our quarterly
      reports on Form 10-QSB and the audit of our annual consolidated financial
      statements for the fiscal years ended December 31, 2005 and December 31, 2004
      were approximately $3,500 and $5,310 respectively.





**Audit-Related
      Fees**





Our
      auditors did not bill any additional fees for assurance and related services
      that are reasonably related to the performance of the audit or review of our
      financial statements.





**Tax
      Fees**





The
      aggregate fees billed by our auditors for professional services for tax
      compliance, tax advice, and tax planning were $0 and $0 for the fiscal years
      ended December 31, 2005 and 2004.





**All
      Other Fees**





The
      aggregate fees billed by our auditors for all other non-audit services, such
      as
      attending meetings and other miscellaneous financial consulting, for the fiscal
      years ended December 31, 2005 and 2004 were $0 and $0 respectively.


29


**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.





**Delta
      Oil & Gas, Inc.**





By:
                /s/ Douglas BolenDouglas
                    Bolen
                  Chief
                    Executive Officer & Chief Financial Officer
                  January
                    8, 2007




In
      accordance with the requirements of the Exchange Act , this report has
      been signed by the following persons on behalf of the registrant
      and in the capacities and on the dates indicated:




By:
                /s/ Douglas BolenDouglas
                    Bolen
                  Director
                  January
                      8, 2007