FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements. Forward-looking statements are statements that relate to future events, future financial performance or are otherwise projections of future results. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section of this quarterly report on Form 10-QSB entitled "Risk Factors", that may cause our company's or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.

Unless otherwise specified in this quarterly report, all dollar amounts are expressed in United States dollars and all references to "common shares" refer to shares of our common stock.

As used in this quarterly report, the terms "we", "us", "our", "our company" and "California Oil & Gas" mean our company, California Oil & Gas Corporation, unless otherwise indicated.

Our Current Business

We are an early stage production company engaged in the identification, acquisition and exploration of oil and natural gas properties. Since transitioning our focus from mineral resource properties to oil and natural gas properties in January of 2006, we have entered into letters of intent and agreements, all of which are discussed below in greater detail, whereby we have earned, or we hope in the future to earn, an interest in certain oil and gas properties located in California and Louisiana.

Plan of Operation and Cash Requirements

Overview

You should read the following discussion of our financial condition and results of operations together with our reviewed but unaudited financial statements and the notes to those reviewed but unaudited financial statements included elsewhere in this filing prepared in accordance with accounting principles generally accepted in the United States. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those anticipated in these forward-looking statements.

California

To date, our partners in the East Slopes project have leased over 19,000 acres of mineral property in four prospect areas. Initial interpretation of a 3-D seismic program conducted over three of these four areas has been completed. Using this information and acting in consultation with our partners and Chevron U.S.A. Inc., we have selected locations for four exploration earning wells. We anticipate that drilling should begin during the next four weeks, with the four wells drilled by December 31, 2008, subject to equipment availability, government approvals (including environmental approvals) and the normal constraints of weather and financing.

On July 9, 2007, we, together with the other participants in the East Slopes project, entered into a seismic option farm-in agreement dated for reference June 21, 2007 with Chevron U.S.A. Inc. granting to Chevron an option to farm-in to a 50% interest in the East Slopes project if Chevron funded a High Definition 3-D Exploration Seismic Survey over a project area in the San Joaquin area of Southern California consisting of approximately 22,500 acres. The project area is comprised of 19,000 gross acres of mineral leaseholds to be contributed by our current partners and approximately 3,500 gross acres of mineral leaseholds contributed by Chevron, all of which has been subdivided into three prospect areas. Under the terms of the agreement, Chevron had the right, but was not obligated, to fund the high definition 3-D exploration seismic survey over the project area. The agreement provides that if Chevron chose to fund the survey (which they did), our company would act as the operator. The agreement also provides that if the survey was shot and the data are acquired, processed and delivered to the other parties to the agreement, Chevron will have earned 50% of the interest held by our partners in the 19,000 gross acres of mineral leaseholds contributed by them and our current partners would have the option to farm-in to a 50% interest in the 3,500 gross acres contributed to the project by Chevron by drilling four initial test wells on what all of our partners mutually agree to be the best exploration prospects within the seismic acquisition area. If this occurs, then our current partners as a group and Chevron will then each hold a 50% interest in the lands and wells. The agreement provides that our company would also be the operator for the purposes of drilling each of these four test wells. If after we have drilled these four test wells the parties decide to continue exploration in any of the prospect areas, Chevron will have the right, at its option, to become the operator in place of our company for the production phase. Beginning in mid-September, 2007, we began preliminary work on the 3-D seismic project and data acquisition began October 15, 2007. Field data acquisition for the 35.2 square mile seismic survey has been completed, the data have been processed and an initial interpretation of the data has been completed. Final agreement on the initial four exploration earning well has been reached. Drilling is planned to follow as governed by equipment availability, surface access and permitting. Drilling permits have been obtained for three of the four well locations, and an application for a drilling permit has been submitted for the fourth well. Approval is pending.

With the exception of the 50% working interest (reduced to 25% through the farm-in by Chevron) recently acquired in 320 acres of leases in the Dyer Creek area, our company does not currently own any interest in this Eastern Slopes project. We have previously entered into a farm-in agreement with our current partners that gives us the ability to earn an interest. Under this agreement, and following final interpretation of the seismic data derived from the High Definition 3-D Exploration Seismic Survey, we will have the option to earn a 12.5% interest (including recovery of 200% of costs) in the seismic area leases and wells by paying 25% of the cost of three wells in each of the three prospect areas covered by the seismic survey. We have elected to exercise the option and plan to participate in the program. Following the earning phase, our capital requirements would be to a 12.5% working interest.

Under the farm-in agreement with Chevron, Chevron has a 'call' right to purchase any oil, gas or other hydrocarbons produced under the terms of the agreement at posted, competitive pricing.

We anticipate that we will spend approximately $2 million to earn and maintain our interest in the East Slopes project over the next 12 months.

In the North project, basic exploration techniques have identified an area that could be prospective for shallow oil production. Over the next 12 months we plan to continue our geologic analysis of the area, the acquisition of oil and gas leases in areas considered prospective, and acquisition of 2-D and 3-D seismic data in anticipation of beginning exploratory drilling. We anticipate that we will spend approximately $500,000 on this project over the next 12 months, although the prime focus of our company during this period will be on operation of the initial drilling, and potential subsequent development of any exploration drilling successes, in the area covered by the 3-D seismic program.

Our company, in partnership with Consolidated Beacon Resources Ltd. (TSX-V:KBC-V), a Canadian public company, acquired from third parties a 50% interest in 320 acres of oil and gas leases in each of the Dyer Creek and Southeast Edison fields in the San Joaquin Basin in California. The Dyer Creek acreage (50% working interest) is within the area covered by the 3-D seismic survey and was subject to the Chevron farm-in which reduced our interest to 25%. The Southeast Edison leases (50% working interest) are outside all areas of mutual interest. Both fields were productive in the 1940's and were abandoned.

We executed a Letter of Intent with Consolidated Beacon Resources Ltd. to acquire its interests in the San Joaquin Basin, which include an approximately 10% interest in both the southern and northern areas, Consolidated Beacon's 50% working interest in the 320 acre Dyer Creek parcel and 50% of their 50% interest in the 320 acre Southeast Edison parcel. Consideration is to be $1,250,000 ($575,000 cash and the remainder in shares of our common stock at a deemed price of $0.50 per share). This transaction was conditioned on the approval of Consolidated Beacon's shareholders, the TSX Venture Exchange, financing and other regulatory approval. Consolidated Beacon's shareholders, at their Annual General Meeting on May 2, 2008, did not approve the transaction. As a result of the failure of the condition, the Letter of Intent has expired.

Louisiana

As we have previously disclosed, the cost of the Krotz Springs well in Louisiana was significantly over budget. As a result, our share of the well drilling and completion costs increased from the original estimate of $1,000,000 to $2,277,058. We have paid $1,913,796 of this amount to the operator and $363,262 remained outstanding at August 31, 2008. Although the operator has demanded payment of the balance, we have not made any further payments. We have previously assigned our share of revenue from the well to the operator and as revenue is received it goes to reduce the balance claimed by the operator. The operator has recently filed a lawsuit in State Court in Louisiana to recover the balance due. We believe that we have defences to this lawsuit. This lawsuit is discussed in more detail in the section of this Quarterly Report on Form 10-QSB, titled "Legal Proceedings", beginning at page 15, below.

The well is currently producing. For the period December 2007 through August 2008 the revenues from this well, net of royalty, were $127,423. With the exception of ongoing production, we believe that there will be no activity at Krotz Springs during the next 12 months. As a result of a minor maintenance procedure, current well production has been significantly higher than in the past, which has resulted in higher revenue from the well. This revenue is paid directly to the partner who operated the drilling of the well to reduce any amount owing on the well.

Our "E" project in Louisiana involves the potential exploration of a subterranean structure. Current operations involve leasing of acreage over the structure that our partners believe may be prospective for oil, gas and/or condensate. After leasing is completed, we expect that our partners will consider acquisition of 3-D seismic data. If interpretation of the seismic data identifies prospective locations, exploration wells might be planned and drilled. We believe that it is unlikely that a well will be drilled during the 12 month period ending October 20, 2009. The project is currently on hold and we anticipate only minimal expenditures over the next 12 months. We are considering reducing our interest in this project through a sale or farm-out of our interest.

Other Activity

We expect to continue to investigate other opportunities within the oil and gas sector, both domestic and international, over the next 12 months. We anticipate that our costs for these activities over the next 12 months should be approximately $100,000.

Employees

We do not currently have any employees (other than our directors and officers who, at present, have not signed an employment or consulting agreement with us). One of our directors works full-time for our company, for which he earns a salary. We do not expect any material changes in the number of employees over the next 12 month period (although we may enter into employment or consulting agreements with our officers or directors). We do and will continue to outsource contract employment as needed. We have an agreement with one consultant who performs general administrative and clerical functions for our company on an as-needed basis.

Financial Condition, Liquidity and Capital Resources

From inception on June 21, 2002 to November 30, 2006 (the date that we abandoned our mineral exploration business), we were engaged in the acquisition and exploration of mineral properties. Our principal capital resources have been acquired through the issuance of common stock.

At August 31, 2008, we had a working capital deficiency of $710,115.

At August 31, 2008, our total assets of $1,292,816 consisted of current assets of $417,552 and oil and gas properties and other long term assets of $875,264. This compares with our total assets at November 30, 2007 of $2,429,235 which consisted of current assets of $1,502,338 and long term assets of $926,897. The decrease in total assets is primarily due to a decrease in accounts receivable of $1,104,564.

At August 31, 2008, our total liabilities were $1,127,667 compared to our liabilities of $2,139,200 as at November 30, 2007. The 45% decrease in these liabilities consisted primarily of a decrease in trade payables of $1,305,233.

On August 7, 2007, we closed a private placement of 363,636 units for gross proceeds of $200,000. Each unit consisted of one common share and one common share purchase warrant. Each common share purchase warrant entitles the holder to purchase one additional common share of our company at a price of $0.55 per warrant share until the warrants expire on August 7, 2008.

On November 1, 2007, we closed a private placement of 315,791 units for gross proceeds of $180,001. Each unit consisted of one common share and one common share purchase warrant. Each common share purchase warrant entitles the holder to purchase one additional common share of our company at a price of $0.67 per warrant share until the warrants expire on October 31, 2009.

On April 9, 2008, we closed a private placement of 700,000 units for gross proceeds of $105,000. Each unit consisted of one common share and one common share purchase warrant. Each common share purchase warrant entitles the holder to purchase one additional common share of our company at a price of $0.20 per warrant share until the warrants expire on April 8, 2009.

On August 14, 2008, we signed a loan agreement with Humboldt Capital Corporation whereby Humboldt Capital Corporation agreed to loan to our company $250,000 ($221,700 net of discount) in consideration for the issuance of 500,000 shares of our common stock to Humboldt Capital Corporation. The loan is due and payable on September 30, 2008 together with interest from the date of the advance to September 30, 2008 at a rate of 10% per annum. We were granted an extension on the repayment of the loan to November 15, 2008.

On August 19, 2008, we issued 500,000 shares of our company in consideration for a loan of $250,000.

On September 1, 2008, we issued a promissory note to one accredited investor in the amount of $100,000. As part of the consideration for the loan evidenced by this promissory note, we issued warrants to purchase up to 2,000,000 shares of our common stock at an initial exercise price of $0.12 (subject to adjustment). The promissory note is due December 31, 2009. If we do not repay the loan by that date, or if we default in our obligations under the promissory note prior to maturity, the principal and all accrued interest may be converted, at the lender's option, into shares of our common stock at a conversion price equal to $0.06 per share.

On September 29, 2008, we closed a private placement of 4,000,000 shares of our company for gross proceeds of $200,000.

Cash Requirements

Over the next 12 months, we intend to spend approximately $400,000 on general and administrative expenses, approximately $100,000 on the search for new opportunities and approximately $2,500,000 on our oil and gas activities. At August 31, 2008, we had cash of $237,103 and a working capital deficiency of $710,115. Our working capital requirements could increase if we identify, assess and acquire one or more new oil and gas exploration or development properties during the year. The amount of the increase will depend, to a large extent, on the nature of the opportunities identified, if any.

Specifically, we estimate our operating expenses for the next 12 months to be as follows:

  California Projects        $ 2,500,000

  Acquisition evaluation     $   100,000
  General and Administrative $   400,000
  Total                      $ 3,000,000

We do not have the funds required to pay for our proposed expenditures over the next 12 months. If we cannot raise these funds when needed we will be required to scale down or discontinue our plan of operations. As we cannot assure a lender that we will be able to successfully explore and develop our properties, we believe that we will be unable to raise debt financing from traditional lending sources. We have traditionally raised our operating capital from sales of equity, but there can be no assurance that we will be able to do so on commercially reasonable terms, if at all. If we cannot raise the money that we need to in order to pursue our business plan, we may be forced to delay, scale back, or even eliminate our exploration activities. If this were to happen, our business could fail.

Exploration and Development

Our business plan is focused on a strategy of acquiring and maximizing the long-term exploration and development of oil and gas opportunities. To date, execution of our business plan has largely focused on assessing prospective oil and gas interests and acquiring the interests that we have acquired in California and Louisiana, as well as those that we recently failed to farm-in on in Chile. As our plans for these properties continue to develop based on leasing progress, results of initial wells and other exploration and related events that will evolve over time, we hope to structure and implement an exploration and development plan. In addition, we continue to look for additional properties of interest.

Going Concern

Our financial statements for the year ended November 30, 2007 were prepared assuming that we would continue as a going concern. As described in the explanatory paragraph to our independent auditors' report on our financial statements for the year ended November 30, 2007, which were included in our annual report on Form 10-KSB filed with the SEC on March 12, 2008, we have suffered recurring losses from operations, we have negative cash flows, we have a stockholders' deficiency and we are dependent upon obtaining adequate financing in order to continue to pursue our business plan. These factors raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Recently Issued Accounting Standards

Management does not anticipate that any recently issued accounting pronouncements will have a material impact on the financial statements or cash flows of our company.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our consolidated financial statements is critical to an understanding of our financials.

We have historically incurred losses and through August 31, 2008 have incurred losses of $4,238,795 since inception. Because of these historical losses, we will require additional working capital to develop our business operations. We do not anticipate that we will derive any revenues from operations unless and until we establish the existence of a reserve on any of our properties and put a well into production. There can be no assurance that we can do so or that, even if we are successful in doing so that we will be able to operate profitably.

We intend to raise additional working capital as and when we need it through private placements, public offerings and/or bank financing. We have historically raised working capital through the sale of equity securities but there can be no assurance that we will be able to continue to do so. As of the date of this quarterly report on Form 10-QSB, we are not engaged in any discussions with prospective investors and we have no definitive agreements for the investments of any funds in our company.

There are no assurances that we will be able to either (1) achieve a level of revenues adequate to generate sufficient cash flow from operations; or (2) obtain additional financing through either private placements, public offerings and/or bank financing necessary to support our working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, we will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to us. If adequate working capital is not available we may not increase our operations.

These conditions raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should we be unable to continue as a going concern.

RISK FACTORS

GENERAL STATEMENT ABOUT RISKS

An investment in our common stock involves a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information in this quarterly report in evaluating our company and our business before purchasing shares of our company's common stock. Our business, operating results and financial condition could be seriously harmed due to any of the following risks. You could lose all or part of your investment due to any of these risks.

This quarterly report on Form 10-QSB contains forward-looking statements. Forward-looking statements are statements that relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by the use of terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. Examples of forward-looking statements made in this quarterly report include statements about:

º Our future operating results,
º Our future capital expenditures,
º Our expansion and growth of operations, and
º Our future investments in and acquisitions of oil and natural gas properties.

These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including:

º General economic and business conditions,
º Exposure to market risks in our financial instruments,
º Fluctuations in worldwide prices and demand for oil and natural gas,
º Fluctuations in the levels of our oil and natural gas exploration and development activities,
º Risks associated with oil and natural gas exploration and development activities,
º Competition for raw materials and customers in the oil and natural gas industry,
º Technological changes and developments in the oil and natural gas industry,
º Regulatory uncertainties and potential environmental liabilities, and
º the risks in the section of this quarterly report entitled "Risk Factors",

any of which may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

While these forward-looking statements and any assumptions upon which they are based are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Our common shares are considered speculative during the development of our new business operations. Prospective investors should consider carefully the risk factors set out below.

Risks Relating to Our Business:

Our independent auditors have expressed substantial doubt about our ability to continue as a going concern.

During the three month period ended August 31, 2008, we generated revenues from operations due to natural gas production from our well in Krotz Springs, Louisiana. This well commenced production in May 2007 and has generated oil and gas revenues, net of royalties, of $21,777 for the three month period ended August 31, 2008. We incurred a net loss of $127,622 for the three month period ended August 31, 2008 and $99,678 for the three month period ended August 31, 2007. We anticipate that we will continue to incur operating expenses in excess of revenues from operations unless and until we find oil or natural gas in sufficient quantities as will enable us to realize a profit or until we sell a property for a profit. On August 31, 2008, we had cash of $237,103. At August 31, 2008, we had a working capital deficiency of $710,1155. We estimate our average monthly operating expenses to be approximately $33,000 each month, excluding exploration but including general and administrative expense and investor relations expenses. We estimate that we will need approximately $2,600,000 for drilling, exploration, leasing and other exploration and development costs arising from our exploration activities during the next 12 months. Therefore, we believe that we will require approximately $3,000,000 to fund our continued operations and our working capital deficiency for the next 12 . . .