10QSB/A 1 mainbody.htm MAINBODY mainbody


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-QSB/A

[X]
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
   
 
For the quarterly period ended September 30, 2005
   
[ ]
Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
   
 
For the transition period __________  to __________
   
 
Commission File Number:  333-82636
 
 
Delta Oil & Gas, Inc.
(Exact name of small business issuer as specified in its charter)
 
 
Colorado
91-2102350
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
 
1122 6th Avenue North, Seattle, Washington 98109
(Address of principal executive offices)

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


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

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

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 43,050,735 common shares as of September 30, 2005

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




Our unaudited financial statements included in this Form 10-QSB are as follows:


These unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-QSB. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended September 30, 2005 are not necessarily indicative of the results that can be expected for the full year.


DELTA OIL & GAS, INC.
(A Development Stage Company)


CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER 30, 2005
(Unaudited)
(Stated in U.S. Dollars)


DELTA OIL & GAS, INC.
(A Development Stage Company)

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

 
SEPTEMBER 30
  
DECEMBER 31
 
2005
  
2004
         
 (Audited)
ASSETS
          
Current
          
Cash
$
845,758
  
$
-
Accounts receivable
  
9,393
  
 
7,863
Prepaid expenses
  
8,047
  
 
-
   
863,198
    
7,863
Natural Gas And Oil Properties
        
 
Proved property
  
1,272
    
1,272
Unproved properties
  
1,919,393
    
50,000
   
1,920,665
    
51,272
Other Equipment
  
 
    
 
Computer equipment
  
3,492
    
1,741
Less: Accumulated depreciation
  
(1,957)
    
(1,741)
   
1,535
    
-
         
 
 
$
2,785,398
  
$
59,135
         
 
LIABILITIES
        
 
Current
        
 
Excess of checks issued over funds on deposit
$
-
  
$
5,283
Accounts payable
  
309,945
    
16,679
Accrued interest payable
  
-
    
17,362
Advances payable
  
-
    
7,974
Due to related party
 
-
  
 
13,122
Current portion of promissory notes payable
  
 211,441
    
 -
   
521,386
    
60,420
Promissory Note Payable
  
-
    
37,254
   
521,386
    
97,674
         
 
STOCKHOLDERS’ EQUITY (DEFICIENCY)
        
 
         
 
Share Capital
          
Authorized:
          
100,000,000 common voting shares, par value $0.001 per share
          
25,000,000 preferred shares, par value $0.001 per share
          
           
Issued and outstanding:
          
43,050,735 common shares at September 30, 2005 and
41,296,750 common shares at December 31, 2004
  
 
43,051
    
 
41,297
           
Additional paid-in capital
  
2,050,013
    
63,328
Share subscriptions received
  
 883,985
    
 160,000
         
 
Deficit Accumulated During The Development Stage
  
(713,037)
    
(303,164)
   
2,264,012
    
(38,539)
           
 
$
2,785,398
  
$
59,135
 
The accompanying notes are an integral part of these financial statements.


DELTA OIL & GAS, INC.
(A Development Stage Company)

(Unaudited)
(Stated in U.S. Dollars)
 
 
THREE MONTHS ENDED
SEPTEMBER 30
NINE MONTHS ENDED
SEPTEMBER 30
CUMULATIVE
PERIOD FROM
INCEPTION
JANUARY 9
2001 TO
SEPTEMBER 30
 
2005
2004
2005
2004
2005
                     
Revenue
                    
Natural gas and
oil sales
 
$
 
1,073
 
$
 
148
 
$
 
4,861
 
$
 
6,865
 
$
 
91,624
                     
Costs And Expenses
                    
Natural gas and
oil operating
expenses
  
 
 
922
 
 
 
3,180
 
 
 
3,590
 
 
 
6,243
 
 
 
32,894
General and
administration
  
 
60,137
 
 
10,858
 
 
142,213
 
 
27,022
 
 
281,331
Depreciation and
depletion
 
 
146
 
 
-
 
 
217
 
 
1,385
 
 
37,529
Impairment of oil
and gas
properties
 
 
-
 
 
-
 
 
-
 
 
-
  
 

65,503
Dry well costs
written off
  

-
  
 
-
  
 
-
  
 
-
  
 
118,690
Stock based
compensation
  
 
268,714
  
 
-
  
 
268,714
  
 
-
  
 
268,714
   
329,919
 
14,038
 
414,734
 
34,650
 
804,661
                     
Net Loss For The
Period
 
$
 
(328,846)
 
$
 
(13,890)
 
$
 
(409,873)
 
$
 
(27,785)
 
$
 
(713,037)
                     
                     
Basic And Diluted
Loss Per Common Share
 
$
 
(0.01)
 
$
 
(0.00)
 
$
 
(0.01)
 
$
 
(0.00)
    
                     
                     
Weighted Average
Number Of
Outstanding Common Shares
  
 

42,664,440
 
 

41,296,750
 
 

42,016,997
 
 

41,296,750
    
 
The accompanying notes are an integral part of these financial statements.


DELTA OIL & GAS, INC.
(A Development Stage Company)

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

 
NINE MONTHS ENDED
SEPTEMBER 30
CUMULATIVE
PERIOD FROM
INCEPTION
JANUARY 9
2001 TO
SEPTEMBER 30
 
2005
2004
2005
             
Cash Flows Used By Operating Activities
            
Net loss for the period
$
(409,873)
$
(27,785)
$
(713,037)
             
Items not involving cash:
            
Depreciation and depletion
  
217
 
1,385
 
37,529
Impairment of natural gas and oil 
    properties
 
 
-
 
 
-
 
 
65,503
Dry well costs written off
  
-
  
-
  
118,690
Stock based compensation
  
268,714
  
-
  
268,714
             
Change in non-cash operating working capital items:
            
Accounts receivable
  
(1,530)
 
3,465
 
(9,393)
Accounts payable
  
293,266
 
15,517
 
309,945
Accrued interest payable
  
(17,362)
 
6,465
  
-
Prepaid expenses
  
(8,047)
  
-
  
(8,047)
Net Cash Used By Operating Activities
  
125,385
  
(953)
  
69,904
             
Cash Flows Used By Investing Activities
            
Purchase of natural gas and oil properties
  
(1,869,394)
  
-
  
(2,140,430)
Purchase of other equipment
  
(1,751)
 
-
 
(3,492)
Net Cash Used By Investing Activities
  
(1,871,145)
 
-
 
(2,143,922)
             
Cash Flows From Financing Activities
            
Issue of common stock
  
1,719,725
 
-
 
1,824,350
Share subscriptions received
  
723,985
 
-
 
883,985
Due to related party
  
(13,122)
  
-
 
-
Advances payable
  
(7,974)
 
2,000
 
-
Promissory notes payable
  
174,187
  
-
  
211,441
Net Cash From Financing Activities
  
2,596,801
 
2,000
 
2,919,776
             
Increase In Cash
  
851,041
 
1,047
 
845,758
             
Cash (Excess Of Checks Issued Over
Funds On Deposit), Beginning Of Period
  
 
(5,283)
 
 
63
  
 
-
             
Cash, End Of Period
$
845,758
$
1,110
$
845,758
 
The accompanying notes are an integral part of these financial statements.


DELTA OIL & GAS, INC.
(A Development Stage Company)


PERIOD FROM INCEPTION, JANUARY 9, 2001, TO SEPTEMBER 30, 2005
(Unaudited)
(Stated in U.S. Dollars)
 

 
COMMON STOCK
  
 DEFICIT
    
 
NUMBER OF
COMMON
SHARES
  
 
PAR
VALUE
  
ADDITIONAL
PAID-IN
CAPITAL
  
SHARE
SUBSCRIPTIONS
RECEIVED
(RECEIVABLE)
  
ACCUMULATED
DURING THE
DEVELOPMENT
STAGE
  
 TOTAL
                       
Shares issued for cash at $0.00018
13,750,000
$
13,750
$
(11,250)
$
-
$
-
$
2,500
Shares issued for cash at $0.0036
27,500,000
 
27,500
 
72,500
 
-
 
-
 
100,000
Shares issued for cash at $0.045
46,750
 
47
 
2,078
 
-
 
-
 
2,125
Net 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
 
-
 
160,000
Net 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)
 
 
 
 
 
 
 
 
 
 
 
 
Shares issued for cash at $1.00, net of share issuance cost
 
1,583,985
 
 
1,584
 
 
1,582,141
 
 
(160,000)
 
 
-
 
 
1,423,725
Options exercised for cash at $0.80
170,000
 
170
 
135,830
 
(16,000)
 
-
 
120,000
Stock based compensation
-
 
-
 
268,714
 
-
 
-
 
268,714
Share subscriptions received
-
 
-
 
-
 
899,985
 
-
 
899,985
Net loss for the period
-
 
-
 
-
 
-
 
(409,873)
 
(409,873)
 
 
 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2005
43,050,735
$
43,051
$
2,050,013
$
883,985
$
(713,037)
$
2,264,012

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

DELTA OIL & GAS, INC.
(A Development Stage Company)


SEPTEMBER 30, 2005
(Unaudited)
(Stated in U.S. Dollars)


1.
BASIS OF PRESENTATION

The unaudited consolidated financial statements as of September 30, 2005 included herein have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. It is suggested that these consolidated financial statements be read in conjunction with the December 31, 2004 audited financial statements and notes thereto.


2.
ORGANIZATION AND BUSINESS

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 was incorporated in Colorado on January 9, 2001.
 

3.
NATURAL GAS AND OIL PROPERTIES

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.

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 September 30, 2005, a cash call of $597,263 has been paid as share of costs for a proposed drilling program.

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 has 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.

DELTA OIL & GAS, INC.
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2005
(Unaudited)
(Stated in U.S. Dollars)


3.
NATURAL GAS AND OIL PROPERTIES (Continued)

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 September 30, 2005, a cash call of $102,806 has been paid as share of costs for a proposed drilling program.

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%.

A director of the Company maintains an 50% ownership interest in Odin.

As at September 30, 2005, the Company has advanced $207,294 as its share of the costs.


4.
PROMISSORY NOTES PAYABLE

The promissory note payable, in the amount of $172,012, is unsecured, payable on or before October 6, 2005, and has a fixed amount of $2,000 for interest. At September 30, 2005 interest has accrued in the amount of $575.

The promissory note payable, in the amount of $32,968, is unsecured, payable on or before January 4, 2006, and accrues interest at 6.5% per annum. At September 30, 2005 interest has accrued in the amount of $5,886.


5.
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.


DELTA OIL & GAS, INC.
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2005
(Unaudited)
(Stated in U.S. Dollars)


5.
SHARE CAPITAL (Continue)

On September 8, 2005, the Company issued 70,000 common shares for exercise of stock options at $0.80 per share. At September 30, 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.

As at September 30, 2005, the Company has received $899,985 as subscriptions for units at a price of $1.00 per unit. Each unit consists of one common share and one common share purchase warrant exercisable within 5 years at an exercise price of $1.50.

 
b)
Stock Options

During the nine months ended September 30, 2005, the company granted 550,000 stock options to consultants exercisable at a price of $0.80 until June 30, 2008.

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 $268,714 was recorded during the nine months ended September 30, 2005.
The changes in stock options are as follows:
 



NUMBER
  
WEIGHTED
AVERAGE
EXERCISE
PRICE
       
 Balance outstanding, December 31, 2004
-
$
-
       
 Granted 550,000
$
 0.80
 Exercised (170,000)
$
 (0.80)
       
 Balance outstanding, September 30, 2005 380,000
$
 (0.80)

The following table summarized information about the stock options outstanding at September 30, 2005:

 OPTIONS OUTSTANDING
 OPTIONS EXERCISABLE
EXERCISE
PRICE
NUMBERS OF
SHARES
REMAINING
CONTRACTUAL
LIFE (YEARS)
NUMBER OF SHARES
 $ 0.80
 380,000
 2.75
 242,500

F-7
5.
SHARE CAPITAL (Continued)

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 $0.65 per share. The assumptions used to calculate the fair value are as follows:

 Dividend yield
0
 Expected volatility
82%
 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.


6.
RELATED PARTIES

During the six months ended September 30, 2005, the Company paid $14,731 (2004 - $Nil) for management fees to a director of the Company.

An amount of $139 is due to a director of the Company.


7.
SUBSEQUENT EVENT

Subsequent to September 30, 2005, the Company issued 75,000 common shares for exercise of stock options at $0.80 per share.
   
 
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, 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.

Management’s Discussion and Analysis

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 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 styled 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 1,284 (MCF) on December 31, 2004 translating in an estimate of $2,121 for the standardized measure of discounted cash flows remaining from reserves as of December 31, 2004.

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 consideration 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. No drilling in the Coalinga Prospect is taking place at the present time or is anticipated to occur in the foreseeable future. Accordingly, 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

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 this year, 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 is now being evaluated and tested. The operator will not release any information until such time that the testing on the 13-28 well is completed. We anticipate that the results of this well will be received prior to end of the fiscal year.

During the reporting period, 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. The operator will conduct further testing and evaluation after drilling is complete. We anticipate that the results of this well will be received prior to end of the fiscal year.
 
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). Our acquisition of an interest in this property included an option to acquire an additional 10% working interest in 1.25 sections in the immediate area. We did not exercise this option and it expired on July 1, 2005.

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% 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 12.5% of all revenue generated by the property.

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. We expect to commence commercial production of this well within the next 60 to 90 days.

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 first quarter of the next fiscal year.

Leduc Formation Test Well

On September 23, 2005, we entered into a Farmout Agreement (“Agreement”) with Odin Capital Inc. (“Odin”), a Calgary, Alberta corporation. Mr. Philipchuk maintains an ownership interest in Odin and also is a member of our board of directors. 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 5th 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 were $207,294. The targeted depth of the well is approximately 13,500 feet and we expect to complete drilling before the end of the fiscal year.

Results of Operations for the Three and Nine Months Ended September 30, 2005
 
For the three month period ended September 30, 2005, we earned revenues from gas sales of $1,073 compared to revenue of $148 for the same three month period in the prior year. For the nine month period ended September 30, 2005, we earned revenues from gas sales of $4,861 compared to revenue of $6,865 for the same nine month period in the prior year. The fluctuation in our revenue for the three and nine months ended September 30, 2005, as compared to the same reporting period in the prior year is attributed to fluctuations in sales of natural gas from the Liberty Valance Well. The Liberty Valance Well is presently our only property generating revenue. We anticipate that our revenues will significantly increase beginning in the next fiscal year due to the discovery of natural gas with flow rates suitable for commercial production in the first well drilled on the Cache Slough Prospect.

For the three month period ended September 30, 2005 we incurred costs and expenses in the amount of $329,919, compared to costs and expenses of $14,038 for the same three month period in the prior year. For the nine month period ended September 30, 2005, we incurred costs and expenses in the amount of $414,734, compared to costs and expenses of $34,650 for the same nine month period in the prior year.
 
This significant increase in costs and expenses is attributable to stock based compensation and administrative expenses we incurred in connection with the following:

·  
Rent payment in connection with the acquisition of additional office space;
·  
The creation of information packages available for interested parties upon request; and
·  
Fees paid to consultants and outside directors.

We incurred general and administrative expenses in the amount of $60,137 for the three months ended September 30, 2005 and $142,213 for the nine months ended September 30, 2005. We incurred stock based compensation in the amount of $268,714 for the three months ended September 30, 2005 and $268,714 for the nine months ended September 30, 2005.

Assets

As of September 30, 2005, we had current assets of $863,198 and total assets of $2,785,398. We had total assets of $59,135 as of December 31, 2004. The increase in our total assets is primarily attributable to our acquisition of working interests in properties during the current fiscal year that were recorded as unproved oil and gas properties in the amount of $1,919,393 as of September 30, 2005.


Liquidity and Capital Resources

As of September 30, 2005, we had total current assets of $863,198 and total assets in the amount of $2,785,398. Our total current liabilities as of September 30, 2005 were $521,386. As a result, on September 30, 2005 we had working capital of $341,812.

We primarily relied on equity capital and loan proceeds to fund our operations during the three and nine months ended September 30, 2005. During the reporting period, we received proceeds of $1,283,970 from a private equity offering.
 
During the nine months ended September 30, 2005 we granted 550,000 stock options to consultants exercisable at a a price of $0.80 until June 30, 2008. As of September 30, 2005, 170,000 shares have been exercised and we have received $120,000 in proceeds.  The remaining $16,000 is still due and owing.

The revenue we generate from a producing well currently does not exceed our operating expenses. Following the acquisition of additional properties during the current fiscal year, 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. It is uncertain whether we will be able to obtain the necessary capital.

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. If we are unable to obtain additional financing, the full implementation of our business plan will be impaired.

Going Concern  

Our independent auditors have stated in their Auditor’s Report for the fiscal year ended December 31, 2004 that we have suffered recurring losses and net cash outflows from development stage activities. 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. As a result, our auditor’s concluded that there is a substantial doubt about our ability to continue as a going concern.
 
Revenue Recognition

We use the sale method of accounting for natural gas and oil reserves. According to this method, revenues are recognized based on actual volumes of gas and oil sold to purchasers. Volumes sold may differ from the volumes to which we are entitled, based on our interests in the properties. Differences between volumes sold and entitled volumes, create oil and gas imbalances. These differences are generally reflected as adjustments to the reported proved oil and gas reserves and future cash flows in the supplemental oil and gas disclosures. If excess takes of natural gas or oil exceed our estimated remaining proved reserves for a property, the natural gas or oil imbalance liability will be recorded in the balance sheet.
 


We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 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 September 30, 2005, our disclosure controls and procedures are effective. There have been no significant changes in our internal controls over financial reporting during the quarter ended September 30, 2005 that have materially affected or are reasonably likely to materially affect such controls.

Disclosure controls and procedures are controls and other procedures 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. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
 



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.


The information set forth below discloses all issuance of our equity securities without registration under the Securities Act of 1933 during the reporting period.

On August 29, 2005, we sold 383,985 Units at $1.00 per Unit to a total of two (2) 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 five (5) years from the closing of the offering. The exercise price for the Warrant was priced at $1.50. The total amount we received from this sale of securities was $383,985. Assuming that all of the warrants are exercised by the investors, the gross proceeds received from the warrants will equal $575,978.

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.

As of September 30, 2005, we have received $899,985 as subscriptions for units at a price of $1.00 per unit from a total of two (2) investors. Each unit consists of one common share and one common share purchase warrant exercisable within 5 years at an exercise price of $1.50. The total amount we received from this sale of securities was $899,985. Assuming that all of the warrants are exercised by the investors, the gross proceeds received from the warrants will equal $1,349,978.

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. We requested our stock transfer agent to affix appropriate legends to the stock certificate issued to each purchaser in accordance with Regulation S and the transfer agent affixed the appropriate legends. 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.


None



No matters have been submitted to our security holders for a vote, through the solicitation of proxies or otherwise, during the quarterly period ended September 30, 2005.


None



1  
Previously filed as an exhibit to Current Report on Form 8-K filed with the Securities and Exchange Commission on May 26, 2005
2  
Previously filed as an exhibit to Current Report on Form 8-K filed with the Securities and Exchange Commission on September 29, 2005
 

SIGNATURES

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

 
Delta Oil & Gas, Inc.
   
Date:
December 1, 2005
 
 
By:       /s/ Douglas Bolen
             Douglas Bolen
Title:    Chief Executive Officer, Chief Financial Officer, and Director