HYDROCARB ENERGY CORP - FORM 10-Q/A

Attached files

file	filename
EX-31.2 - EXHIBIT 31.2 - HYDROCARB ENERGY CORP	ex31_2.htm
EX-32.1 - EXHIBIT 32.1 - HYDROCARB ENERGY CORP	ex32_1.htm
EX-31.1 - EXHIBIT 31.1 - HYDROCARB ENERGY CORP	ex31_1.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended January 31, 2010

o	Transition Report Pursuant to Section13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _____ to _____

Commission File Number:000-53313

STRATEGIC AMERICAN OIL CORPORATION

(Exact name of registrant as specified in its charter)

NEVADA		98-0454144
(State or other jurisdiction of incorporation of organization)		(I.R.S. Employer Identification No.)

600 Leopard Street, Suite 2015, Corpus Christi, Texas		78401
(Address of principal executive offices)		(Zip Code)

(361) 884-7474

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant has (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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act:

o	Large accelerated filer	o	Accelerated filer

o	Non-accelerated filer (Do not check if smaller reporting company)	x	Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 49,130,852 shares of common stock outstanding as of March 15, 2010.

Table of Contents

EXPLANATORY NOTE TO FORM 10-Q/A:

This 10-Q/A is being filed to correct our financial statements for the three months and six months ended January 31, 2010 and 2009. Subsequent to issuing the report for the three and six months ended January 31, 2010 and 2009, we discovered the following errors that impacted the balance sheets, statements of operations and comprehensive loss, and statements of cash flows.

In October and November 2009, our private placements included warrants which had a “price protection” feature (i.e., an anti-dilution feature; a ratchet down feature). As a result, the warrants are not considered indexed to our own stock, and as such, they are to be classified as liabilities and all future changes in the fair value of these warrants will be recognized currently in earnings in our consolidated statement of operations under the caption “Other Items – Gain (loss) on warrant derivative liability” until such time as the warrants are exercised or expire. The previously filed financial statements reflected the warrants as indexed to our own stock and classified them as a component of equity. See Note 7: Warrant derivative liability for a detailed disclosure relating to these warrants.

In August 2009, we extended the term of warrants originally issued with an equity raise. Because the warrants that were extended were originally issued with common stock, the fair values associated with this modification should have been recorded as a deemed dividend. The previously filed financial statements reflected the extension as interest and finance charges. See Note 10: Stockholders’ equity (deficit) – warrant modifications for more information.

Additionally, we have corrected various typographical errors from the original document.

Table of Contents

STRATEGIC AMERICAN OIL CORPORATION

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

	Item 1.	Financial Statements	4

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

	Item 4.	Controls and Procedures	29

PART II - OTHER INFORMATION

	Item 1.	Legal Proceedings	30

	Item 1A.	Risk Factors	30

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

	Item 3.	Defaults Upon Senior Securities	30

	Item 4.	(Removed and Reserved)	30

	Item 5.	Other Information	30

	Item 6.	Exhibits	31

SIGNATURES			32

Table of Contents

PART I- FINANCIAL INFORMATION

Item 1. Financial Statements

Table of Contents

STRATEGIC AMERICAN OIL CORPORATION

(An Exploration Stage Company)

CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2010

(Unaudited)

Table of Contents

STRATEGIC AMERICAN OIL CORPORATION

(An Exploration Stage Company)

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	January 31, 2010 (Restated)			July 31, 2009



CURRENT ASSETS
Cash	$	1,093,379		$	18,793
Accounts receivable		100,747			35,073
Prepaid expenses and deposits		32,016			44,478

		1,226,142			98,344

RECLAMATION BONDS (Note 3)		59,317			59,317
EQUIPMENT (Note 4)		70,363			29,830
OIL AND GAS PROPERTIES (Note 5)
Proved properties		1,023,539			986,926
Unproved properties		446,881			295,454

TOTAL ASSETS	$	2,826,242		$	1,469,871

CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	80,817		$	403,804
Convertible notes (Note 6)		88,696			42,718
Warrant derivative liability(Note 7)		4,739,506			-
Due to related parties (Note 8)		29,326			459,257

		4,938,345			905,779

ASSET RETIREMENT OBLIGATIONS (Note 9)		23,045			22,662

TOTAL LIABILITIES		4,961,390			928,441
STOCKHOLDERS' EQUITY (DEFICIT)

Capital stock (Note 10)
Common stock $0.001 par value: 500,000,000 shares authorized 48,774,946 shares issued and outstanding (July 31, 2009 - 29,350,827)		48,775			29,351
Additional paid-in capital		8,701,999			7,688,912
Obligation to issue shares		135,457			37,382
Share subscriptions		18,012			356,062
Deficit accumulated during the exploration stage		(11,039,391	)		(7,570,277	)

Total stockholders’ equity (deficit)		(2,135,148	)		541,430

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	2,826,242		$	1,469,871

COMMITMENTS AND CONTINGENCIES (Notes 1 and 11)

SUBSEQUENT EVENTS (Note 13)

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

Table of Contents

STRATEGIC AMERICAN OIL CORPORATION

(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended January 31, 2010 (Restated)			Three Month Ended January 31, 2009			Six Months Ended January 31, 2010 (Restated)			Six Months Ended January 31, 2009			For the Period from April 12, 2005 (inception) to January 31, 2010 (Restated)

OIL AND GAS REVENUES (Note 8)	$	137,763		$	124,233		$	220,696		$	259,442		$	2,485,807

EXPENSES
Consulting fees		277,845			73,052			411,830			244,444			2,407,262
Consulting fees - stock based (Note 10)		323,426			5,555			498,504			11,111			2,069,909
Depreciation and depletion		23,651			17,310			39,701			27,237			251,168
Direct operating costs (Note 8)		161,702			103,632			214,171			190,792			1,924,159
General and administrative		51,484			32,410			94,037			92,978			514,879
Impairment of properties (Note 5)		-			3,700			-			3,700			233,306
Interest and financing charges (Notes 6, 8 and 10)		32,098			9,757			102,166			9,757			167,152
Management fees (Note 8)		166,297			81,224			268,843			171,744			1,316,168
Management fees - stock based (Notes 8 and 10)		374,667			-			374,667			-			2,030,667
Professional fees		152,571			50,617			254,950			108,019			870,599
Travel and promotion		23,638			263			48,545			13,287			386,748

TOTAL EXPENSES		1,587,379			377,520			2,307,414			873,069			12,172,017

LOSS BEFORE OTHER ITEMS		(1,449,616	)		(253,287	)		(2,086,718	)		(613,627	)		(9,686,210	)

OTHER ITEMS
Gain on debt settlement		8,364			-			12,559			-			12,559
Interest and other income		513			3,536			625			3,754			8,913
Foreign exchange		(4,565	)		-			(38,093	)		-			(17,166	)
Gain (loss) on derivative warrant liability		680,739			-			(1,357,487	)		-			(1,357,487	)

NET LOSS FOR THE PERIOD		(764,565	)		(249,751	)		(3,469,114	)		(609,873	)		(11,039,391	)

DEFICIT ACCUMULATED DURING THE EXPLORATION STAGE, BEGINNING OF PERIOD		(10,274,826	)		(5,147,896	)		(7,570,277	)		(4,787,774	)		-

DEFICIT ACCUMULATED DURING THE EXPLORATION STAGE, END OF PERIOD	$	(11,039,391	)	$	(5,397,647	)	$	(11,039,391	)	$	(5,397,647	)	$	(11,039,391	)

NET LOSS PER SHARE, BASIC AND DILUTED	$	(0.02	)	$	(0.01	)	$	(0.09	)	$	(0.02	)

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED		47,761,124			28,610,350			39,872,984			28,423,004

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

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STRATEGIC AMERICAN OIL CORPORATION

(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended January 31, 2010 (Restated)			Six Months Ended January 31, 2009			For the Period From April 12, 2005 (inception) to January 31, 2010 (Restated)

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period	$	(3,469,114	)	$	(609,873	)	$	(11,039,391	)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and depletion		39,701			27,237			251,168
Impairment of oil and gas properties		-			3,700			233,306
Non-cash interest and financing charges		77,958			-			141,342
Stock based compensation		873,171			11,111			4,100,576
Loss on derivative warrant liability		1,357,487			-			1,357,487
Gain on debt settlement		(12,559	)		-			(12,559	)
Write-off of reclamation bond		-			-			21,875
Changes in operating assets and liabilities:
Accounts receivable		(65,674	)		178,279			(100,747	)
Prepaid expenses and deposits		(30,816	)		(78,359	)		(32,016	)
Accounts payable and accrued liabilities		(139,028	)		45,777			352,064
Due to related parties		(101,031	)		-			(101,031	)

NET CASH FLOWS USED IN OPERATING ACTIVITIES		(1,469,885	)		(422,128	)		(4,827,926	)

CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of shares for cash, net of share issuance costs		2,858,862			469,900			7,428,059
Proceeds from sales of derivative warrants		-			-			-
Proceeds from convertible notes		-			-			150,000
Advances from and repayments to related parties		(46,500	)		7,277			426,650

NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES		2,812,362			477,177			8,004,709

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of oil and gas properties, net of cost recoveries		(219,589	)		(104,447	)		(1,888,714	)
Purchase of equipment		(48,302	)		-			(113,498	)
Reclamation bonds		-			-			(81,192	)

NET CASH FLOWS USED IN INVESTING ACTIVITIES		(267,891	)		(104,447	)		(2,083,404	)

INCREASE IN CASH		1,074,586			(49,398	)		1,093,379

CASH, BEGINNING		18,793			67,650			-

CASH, ENDING	$	1,093,379		$	18,252		$	1,093,379

SUPPLEMENTAL CASH FLOW INFORMATION ANDNONCASH INVESTING AND FINANCING ACTIVITIES (Note 12)

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

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STRATEGIC AMERICAN OIL CORPORATION

(An Exploration Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

JANUARY 31, 2010 (Unaudited)

NOTE 1: NATURE OF OPERATIONS

Strategic American Oil Corporation (the "Company") was incorporated as Carlin Gold Corporation on April 12, 2005 in Nevada, U.S.A. On July 11, 2005, the Company changed its name to Nevada Gold Corp., on October 18, 2005 the Company changed its name to Gulf States Energy Inc., and on September 5, 2006, the Company changed its name to Strategic American Oil Corporation. The Company is an exploration stage company as it has not generated significant revenues from operations. The Company was formed for the purpose of oil and gas exploration and development. The Company owns 100% of Penasco Petroleum Inc. ("Penasco"), a Nevada corporation incorporated on November 23, 2005.

The accompanying consolidated financial statements have been prepared on the basis of a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As at January 31, 2010, the Company had working deficit of $(3,712,203) and has incurred significant losses since inception and further losses are anticipated in the development of its oil and gas property interests. The ability of the Company to continue as a going concern is dependent on raising additional capital to fund ongoing exploration and development and ultimately on generating future profitable operations. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Since internally generated cash flow will not fund development and commercialization of the Company's oil and gas properties, the Company will require significant additional financial resources and will be dependent on future financings to fund its ongoing exploration and development as well as other working capital requirements. The Company's future capital requirements will depend on many factors including the rate and extent of progress in its exploration and development programs. There can be no assurance the Company will be successful in its efforts to raise additional financing or if financing is available, that it will be on terms that are acceptable to the Company.

Management is addressing going concern remediation through raising additional sources of capital for operations and planned property acquisitions. Management's plans are intended to increase the Company's financial stability and improve the efficiency of continuing operations. The Company continues to raise capital through private placements to meet immediate working capital requirements. Management expects to be able to complete planned property acquisitions and funding of on-going operations. These measures, if successful, will contribute to reducing the risk of going concern uncertainties for the Company over the next twelve to twenty-four months.

Restatement

These consolidated financial statements have been restated as more fully discussed in Note 2 – Restatement.

Fair Value

Accounting standards regarding fair value of financial instruments define fair value, establish a three-level hierarchy which prioritizes and defines the types of inputs used to measure fair value, and establish disclosure requirements for assets and liabilities presented at fair value on the consolidated balance sheets.

Fair value is the amount that would be received from the sale of an asset or paid for the transfer of a liability in an orderly transaction between market participants. A liability is quantified at the price it would take to transfer the liability to a new obligor, not at the amount that would be paid to settle the liability with the creditor.

The three-level hierarchy is as follows:

Level 1 inputs consist of unadjusted quoted prices for identical instruments in active markets.

Level 2 inputs consist of quoted prices for similar instruments.

Level 3 valuations are derived from inputs which are significant and unobservable and have the lowest priority.

Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. We have determined that certain warrants outstanding as of the date of these financial statements qualify as derivative financial instruments under the provisions of FASB ASC Topic No. 815-40, “Derivatives and Hedging – Contracts in an Entity’s Own Stock.” These warrant agreements include provisions designed to protect holders from a decline in the stock price (‘down-round’ provision) by reducing the exercise price in the event we issue equity shares at a price lower than the exercise price of the warrants. As a result of this down-round provision, the exercise price of these warrants could be modified based upon a variable that is not an input to the fair value of a ‘fixed-for-fixed’ option as defined under FASB ASC Topic No. 815-40 and consequently, these warrants must be treated as a liability and recorded at fair value at each reporting date.

The fair value of these warrants was determined using the Black-Sholes option pricing method with any change in fair value during the period recorded in earnings as “Other income (expense) – Gain (loss) on warrant derivative liability.”

Significant inputs used to calculate the fair value of the warrants include expected volatility and the risk-free interest rate.

The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of January 31, 2010.

	Carrying		Fair Value Measurement at January 31, 2010
	Value at January 31, 2010		Level 1		Level 2		Level 3

Derivative warrant liability	$	4,739,506		-		-	$	4,739,506

Table of Contents

The following table sets forth the changes in the fair value measurement of our Level 3 derivative warrant liability during the six months ended January 31, 2010:

Beginning balance – July 31, 2009	$	-
Issuance of derivative warrants		3,382,019
Reduced for warrants exercised		-
Change in fair value of derivative liability		1,357,487
At January 31, 2010	$	4,739,506

The $1,357,487 change in fair value was recorded as an increase of the derivative liability and as an unrealized loss in our statement of operation.

Unaudited Interim Consolidated Financial Statements

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. They may not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the consolidated financial statements for the year ended July 31, 2009, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. The interim unaudited consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K filed on November 12, 2009 with the U.S. Securities and Exchange Commission. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the six months ended January 31, 2010, are not necessarily indicative of the results that may be expected for the year ending July 31, 2010.

Recent accounting pronouncements

The Accounting Standards Codification (ASC) has become the source of authoritative U.S. generally accepted accounting principles ("GAAP"). The ASC only changes the referencing of financial accounting standards and does not change or alter existing GAAP.

Effective August 1, 2009, the Company adopted ASC 855, Subsequent Events (formerly FAS No. 165 "Subsequent Events"). ASC 855 requires companies to recognize in the financial statements the effects of subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. An entity shall evaluate the subsequent events which have occurred to the date the financial statements were issued. Companies are not permitted to recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the balance sheet date and before financial statements are issued. Some non recognized subsequent events must be disclosed to keep the financial statements from being misleading. For such events a company must disclose the nature of the event, an estimate of its financial effect, or a statement that such an estimate cannot be made. This Statement applies prospectively for interim or annual financial periods ending after June 15, 2009. The adoption of ASC 855 did not have a material impact on the Company's results of operations and financial position.

Certain other recent accounting pronouncements have not been disclosed as they are not applicable to the Company.

Note 2: RESTATEMENTS

Subsequent to issuing the report for the three and six months ended January 31, 2010 and 2009, we discovered the following errors that impacted the balance sheets, statements of operations and comprehensive loss, and statements of cash flows.

The above changes result in an increase in the net loss and accumulated deficit of $1,009,567 during the six months ended January 31, 2010. During the same period it results in an increase in the derivative warrant liability of $4,739,506 and a decrease in the additional paid in capital of $3,729,939.

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The results of the restatements are summarized as follows:

Consolidated Balance Sheets as of January 31, 2010:

	As reported			Adjustment			As restated
Warrant derivative liability	$	-		$	4,739,506		$	4,739,506
Total current liabilities	$	198,839		$	4,739,506		$	4,938,345
TOTAL LIABILITIES	$	221,884		$	4,739,506		$	4,961,390
Additional paid-in capital	$	12,431,938		$	(3,729,939	)	$	8,701,999
Accumulated deficit		(10,029,824	)		(1,009,567	)		(11,039,391	)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)	$	2,604,358		$	(4,739,506	)	$	(2,135,148	)

Consolidated Statements of Operations for the three months ended January 31, 2010:

	As reported			Adjustment			As restated
Consulting fees	$	310,269		$	13,157		$	323,426
Total expenses	$	1,574,222		$	13,157		$	1,587,379
Loss before other items	$	(1,436,459	)	$	(13,157	)	$	(1,449,616
Gain on warrant derivative liability	$	-		$	680,739		$	680,739
NET LOSS FOR THE PERIOD	$	(1,432,147	)	$	667,582		$	(764,565	)
DEFICIT ACCUMULATED DURING THE EXPLORATION STAGE, BEGINNING OF PERIOD	$	(8,597,677	)	$	(1,677,149	)	$	(10,274,826	)
DEFICIT ACCUMULATED DURING THE EXPLORATION STAGE, END OF PERIOD	$	(10,029,824	)	$	(1,009,567	)	$	(11,039,391	)
BASIC AND DILUTED LOSS PER SHARE	$	(0.03	)	$	0.01		$	(0.02	)

Consolidated Statements of Operations for the six months ended January 31, 2010:

	As reported			Adjustment			As restated
Consulting fees	$	485,347		$	13,157		$	498,504
Interest and financing charges	$	463,243		$	(361,077	)	$	102,166
Total expenses	$	2,655,334		$	(347,920	)	$	2,307,414
Loss before other items	$	(2,434,638	)	$	347,920		$	(2,086,718	)
Loss on warrant derivative liability	$	-		$	(1,357,487	)	$	(1,357,487	)
NET LOSS FOR THE PERIOD	$	(2,459,547	)	$	(1,009,567	)	$	(3,469,114	)
DEFICIT ACCUMULATED DURING THE EXPLORATION STAGE, END OF PERIOD	$	(10,029,824	)	$	(1,009,567	)	$	(11,039,391	)
BASIC AND DILUTED LOSS PER SHARE	$	(0.06	)	$	(0.03	)	$	(0.09	)

Consolidated Statements of Operations for the Period from April 12, 2005 (inception) to January 31, 2010:

	As reported			Adjustment			As restated
Consulting fees	$	2,056,752		$	13,157		$	2,069,909
Interest and financing charges	$	528,229		$	(361,077	)	$	167,152
Total expenses	$	12,519,937		$	(347,920	)	$	12,172,017
Loss before other items	$	(10,034,130	)	$	347,920		$	(9,686,210	)
Loss on warrant derivative liability	$	-		$	(1,357,487	)	$	(1,357,487	)
NET LOSS FOR THE PERIOD	$	(10,029,824	)	$	(1,009,567	)	$	(11,039,391	)

Consolidated Statements of Cash Flows for the six months ended January 31, 2010:

	As reported			Adjustment			As restated
Net loss	$	(2,459,547	)	$	(1,009,567	)	$	(3,469,114	)
Non cash interest and financing charges	$	439,035		$	(361,077	)	$	77,958
Stock based compensation	$	860,014			13,157			873,171
Loss on warrant liability	$	-		$	1,357,487		$	1,357,487

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NOTE 3: RECLAMATION BONDS

Reclamation bonds includes interest and non-interest bearing deposits issued in the States of Louisiana $19,317 (July 31, 2009 - $19,317) and Texas $40,000 (July 31, 2009 - $40,000) to cover each State's reclamation requirement for producing operations. There were no changes during the six months ended January 31, 2010.

NOTE 4: EQUIPMENT

Equipment acquisitions consist of the following:

	January 31, 2010			July 31, 2009

EQUIPMENT
Computer equipment	$	5,925		$	4,632
Furniture and fixtures		8,320			8,320
Leasehold improvements		11,294			11,294
Production equipment		87,959			40,950

		113,498			65,196
Accumulated depreciation		(43,135	)		(35,366	)

	$	70,363		$	29,830

NOTE 5: OIL AND GAS PROPERTIES

Proved Properties

Barge Canal, Texas

On November 16, 2006, the Company completed an assignment and purchase agreement with OPEX Energy, LLC with an effective date of August 1, 2006. Under the terms of the agreement, the Company paid $500,000 plus a finder's fee of $50,000 for a 100% working interest (90% after payout) and a 72.5% net revenue interest (65.25% after payout) in approximately 81 acres of an oil and gas lease (the "Welder Lease") located in Calhoun County, Texas. On January 1, 2010, the Company acquired an assignment of the remaining 10% working interest for a total cost of $70,000.

South Delhi / Big Creek Field, Louisiana

On August 24, 2006, the Company entered into an assignment of oil and gas interests purchase agreement with Energy Program Accompany, LLC (the "EPA Purchase Agreement"). Under the terms of the EPA Purchase Agreement, the Company paid $250,000 to acquire the Holt Lease, the Strahan Lease and the McKay Lease, as described below. In December 2007, an independent registered engineer completed a reserve and economics report on the combined South Delhi and Big Creek Field properties. The report outlined the proved developed producing reserves as of January 1, 2008 and accordingly, acquisition costs of $290,290 and development costs of $42,900 were reclassified as capitalized proved oil and gas properties.

The Holt Lease

Pursuant to the EPA Purchase Agreement, the Company acquired a 97% working interest and an 81.25% net revenue interest in approximately 136 acres in Franklin Parish, Louisiana (the "Holt Lease").

The Strahan Lease

Pursuant to the EPA Purchase Agreement, the Company acquired a 100% working interest and an 81.25% net revenue interest in approximately 40 acres in Richland Parish, Louisiana (the "Strahan Lease").

The McKay Lease

Pursuant to the EPA Purchase Agreement, the Company acquired a 100% working interest and an 82.08% net revenue interest in approximately 80 acres in Richland Parish, Louisiana (the "McKay Lease"). On November 1, 2008, the Company assigned 100% of its interest in and to the McKay No. 1 well bore and leasehold. Pursuant to the Assignment Agreement, the Company retained ownership to all surface equipment, which was subsequently moved to the Company's Holt Lease in Franklin Parish. Additionally, all plugging liabilities were transferred to the purchaser and the Company retained no ORRI or working interest in the McKay No. 1 well.

Assignment of Interests to Tradestar Resources Corporation

In conjunction with the acquisition of the Holt Lease, the Strahan Lease and the McKay Lease, the Company assigned a 25% working interest with respect to each lease to Tradestar Resources Corporation as a finder's fee. In each case, the 25% working interest consists of two parts - a 12.5% working interest prior to payout and a 12.5% back in after payout agreement working interest. Tradestar Energy Inc., a wholly owned subsidiary of Tradestar Resources Corporation, became the operator of record for the Holt, Strahan and McKay Leases as of December 1, 2007.

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Unproven Reserves

Janssen Lease, Texas

In October 2005, the Company entered into an agreement to purchase a 25% working interest and an 18.75% net revenue interest in approximately 138 acres of an oil and gas lease (the "Janssen Lease") located in Karnes County, Texas. This lease interest was acquired from Rockwell Energy of Texas LLC for $220,000 plus additional payments of $13,800 to negotiate new oil, gas and mineral leases. On December 20, 2006, the Company farmed out 100% of the working interest to ETG Energy Resources, retaining a 3% working interest on any producing zones and a 5% non-promoted option to participate in any offset drilling within the leased area. At July 31, 2007, management determined the recoverable value of its interest to be $75,000 and accordingly, costs of $158,800 were written off to impairment of oil and gas properties. At July 31, 2009, management determined the recoverable value of its interest to be $20,000 and accordingly, costs of $55,000 were deemed to be impaired and added to the full cost pool, which is amortized on a unit-of-production basis.

Koliba Prospect, Texas

Through January 31, 2010 the Company has entered into several lease agreements with certain mineral owners of a 79 acre tract (the "Koliba Lease") in Victoria County, Texas. The Company has leased over 95% of the minerals rights on this tract with additional leases pending. Additionally, the Company paid $70,000 for an assignment of oil and gas leases on 84% of 64 adjacent and contiguous acres. This Assignment includes several leases with numerous mineral owners. During the quarter, the Company entered into participation agreements whereby a total of a 75% working interest has been assigned to other parties. The Company will retain a carried 16.33% working interest to casing point, and have a 25% working interest (not carried) after casing point in the completed well.

Kenedy Prospect, Texas

Through January 31, 2010 the Company has entered into a lease agreement with certain mineral owners of a 1,203 acre tract (the "Kenedy Lease") in Kenedy County, Texas. The Company paid $187,824 for a 100% working interest and a 75% net revenue interest.

Capitalized Costs of Oil and Natural Gas Producing Properties

The Company's aggregate capitalized costs related to oil and natural gas properties are as follows:

	January 31, 2010			July 31, 2009

PROVED PROPERTIES
Barge Canal	$	663,920		$	593,767
South Delhi / Big Creek Field		347,017			346,787
Impaired properties		220,635			222,473

		1,231,572			1,163,027

Accumulated depletion		(208,033	)		(176,101	)

		1,023,539			986,926

UNPROVED OR UNEVALUATED PROPERTIES
Janssen Lease		20,000			20,000
Illinois prospects		165,955			164,272
Louisiana prospects		43,265			22,944
Texas prospects		217,661			88,238

		446,881			295,454

	$	1,470,420		$	1,282,380

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Capitalized Costs Incurred for Oil and Natural Gas Producing Activities

Costs incurred in oil and natural gas property acquisition, exploration and development activities that have been capitalized are summarized below:

	January 31, 2010		July 31, 2009

ACQUISITION COSTS
Barge Canal	$	642,456	$	572,456
Janssen Lease		20,000		20,000
South Delhi / Big Creek Field		290,290		290,290
Illinois prospects		165,955		164,272
Louisiana prospects		22,902		22,944
Texas prospects		217,586		88,238
Impaired acquisition costs		99,948		101,786

		1,459,137		1,259,986

DEVELOPMENT COSTS
Barge Canal		12,246		12,246
South Delhi / Big Creek Field		42,900		42,900
Louisiana prospects		5,875		-

		61,021		55,146

EXPLORATION COSTS
Louisiana prospects		14,488		-
Texas prospects		75		-
Impaired exploration costs		120,687		120,687

		135,250		120,687

RETIREMENT OBLIGATIONS
Barge Canal		9,218		9,065
South Delhi / Big Creek Field		13,827		13,597

		23,045		22,662

	$	1,678,453	$	1,458,481

NOTE 6: NOTES PAYABLE

2009 Convertible Debenture

On March 25, 2009, the Company completed a convertible debenture financing of $150,000 issuing convertible promissory notes that bear interest at 15% per annum. If not converted, the notes would be due on September 25, 2010. The unpaid amount of principal and accrued interest can be converted at any time at the holder's option into shares of the Company's common stock at a price of the greater of $0.25 or the current market price less 10%. Additionally, the Company issued to the Lender, as fully paid and non-assessable, 600,000 non-transferable and registerable share purchase warrants to acquire an equivalent number of common shares of the Company at an exercise price of $0.60 per share, and for an exercise period of up to September 25, 2010. The Company retained the right to redeem the convertible promissory notes at any time upon giving certain notice to the holder(s), and subject to paying a 20% premium.

The Company determined and recognized the fair value of the embedded beneficial conversion feature of $75,999 as additional paid-in capital as the convertible notes were issued with an intrinsic value conversion feature.

The Company has charged the beneficial conversion feature to additional paid-in capital. In addition, the Company allocated the proceeds of issuance between the convertible debt and the detachable warrants based on their relative fair values. Accordingly, the Company recognized the relative fair value of the warrants of $61,935 as a component of stockholders' equity. Additionally, for the six months ended January 31, 2010 interest expense of $45,978 has been accreted increasing the carrying value of the convertible debentures to $88,696 as at January 31, 2010.

2010 Promissory Note

On September 2, 2009, the Company issued a $100,000 promissory note that bear interest at 3% per term, due 90 days from the date of issuance. Additionally, the Company issued, as fully paid and non-assessable, 100,000 non-transferable and registerable share purchase warrants to acquire an equivalent number of common shares of the Company at an exercise price of $0.25 per share, and for an exercise period of three years. Accordingly, the Company recognized the relative fair value of the warrants of $16,000 as a component of stockholders' equity. For the six months ended January 31, 2010 interest expense of $16,000 has been accreted increasing the carrying value of the promissory note to $100,000 prior to repayment. The fair value of the warrants was estimated using the Black-Scholes option pricing model with an expected life of three years, a risk free interest rate of 0.89%, a dividend yield of 0%, and an expected volatility of 109%.

NOTE 7: DERIVATIVE WARRANT LIABILITY

Effective July 31, 2009, we adopted FASB ASC Topic No. 815-40 (formerly EITF 07-05) which defines determining whether an instrument (or embedded feature) is indexed to an entity’s own stock. This literature specifies that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to our own stock and (b) classified in stockholders’ equity in the statement of financial position, would not be considered a derivative financial instrument and provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for the scope exception.

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The exercise price of all the 12,977,500 warrants issued to investors, vendors, and for finders’ fees in October 2009 is subject to “reset” provisions in the event we subsequently issue common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than $0.35. If these provisions are triggered, the exercise price of all their warrants will be reduced.

The total fair value of the warrants issued during October 2009, amounting to $4,410,367 was recognized as a derivative liability on the date of issuance. The fair value on the date of issuance includes the net cash proceeds from the sale of stock of $2,042,112, the value of accounts payable and debt settled of $310,000 and an unrealized loss as of the date of issuance of $2,058,255.

The exercise price of all the 6,030,000 warrants issued to investors, consultants, and for finders’ fees in November 2009 is subject to “reset” provisions in the event we subsequently issue common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than $0.35. If these provisions are triggered, the exercise price of all their warrants will be reduced.

The total fair value of the warrants issued during November 2009, amounting to $1,586,727 was recognized as a derivative liability on the date of issuance. The fair value on the date of issuance includes net cash proceeds from the sale of stock of $1,016,750, the fair value of warrants granted to consultants for business development services of $13,157 and an unrealized loss as of the date of issuance of $556,742.

The following table sets forth the changes in the fair value measurement of our Level 3 derivative warrant liability during the three months ended January 31, 2010:

Beginning balance – July 31, 2009	$	-
Issuance of derivative warrants		3,382,019
Reduced for warrants exercised		-
Change in fair value of derivative liability		1,357,487
At January 31, 2010	$	4,739,506

The $1,357,487 change in fair value was recorded as an increase of the derivative liability and as an unrealized loss in our statement of operation.

NOTE 8: RELATED PARTY TRANSACTIONS

During the six months ended January 31, 2010 the Company had transactions with certain officers and directors of the Company as follows:

recorded production revenues of $133,789 (2009 - $186,005) and incurred production costs of $70,194 (2009 - $74,120) for the Barge Canal property which is operated by a company controlled by an officer of the Company;

incurred $268,843 (2009 - $171,744) in management fees paid to directors and officers during the period, and incurred $374,667 (2009 - $Nil) in stock based compensation for the incremental fair value of options granted to directors and officers that were earned during the period;

repaid a $44,000 promissory note issued to an officer of the Company, and incurred $1,434 (2009 - $4,500) in interest and finance charges;

repaid a $25,000 promissory note issued to a director of the Company, and incurred $752 (2009 - $2,268) in interest and finance charges;

repaid a $100,000 promissory note issued to a direct family member of an officer and a director of the Company, and incurred $3,008 (2009 - $Nil) in interest and finance charges;

repaid a $27,500 promissory note issued to an officer of the Company, and incurred $1,098 (2009 - $Nil) in interest and finance charges;

repaid a $18,500 promissory note issued to a director of the Company, and incurred $760 (2009 - $Nil) in interest and finance charges; and

incurred $1,817 (2009 - $Nil) in interest and finance charges on a $100,000 promissory note to a direct family member of an officer and a director that was issued and repaid during the six months ended January 31, 2010 (refer to Note 6).

At January 31, 2010, a balance of $29,326 (July 31, 2009 - $459,257) consisting of outstanding management fees and expense reimbursements is reported as due to related parties. All related party transactions involving provision of services or tangible assets were recorded at the exchange amount, which is the value established and agreed to by the related parties reflecting arms length consideration payable for similar services or transfers.

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NOTE 9: ASSET RETIREMENT OBLIGATIONS

The Company's asset retirement obligations ("ARO's") in regards to Barge Canal and South Delhi / Big Creek Field projects (refer to Note 5) relates to site restoration. A reconciliation between the opening and closing ARO's balances is provided below:

	January 31, 2010		July 31, 2009

BARGE CANAL
Opening balance	$	9,065	$	10,722
Revisions		-		(1,956	)
Accretion expense		153		299

		9,218		9,065

SOUTH DELHI / BIG CREEK FIELD
Opening balance		13,597		4,643
Revisions		-		8,505
Accretion expense		230		449

		13,827		13,597

	$	23,045	$	22,662

The Company measured the ARO's at a fair value of $37,500 and capitalized this to proved oil and gas properties. The ARO's will accrete to $53,977 until the time at which it is expected to be settled. A discount rate of 6.00% was used to calculate the present value of the ARO. Actual retirement costs will be recorded against the ARO's when incurred. Any difference between the recorded ARO's and the actual retirement costs incurred will be recorded as a gain or loss in the period of settlement.

NOTE 10: STOCKHOLDERS' EQUITY (DEFICIT)

Share Capital

The Company's capitalization at January 31, 2010 was 500,000,000 authorized common shares with a par value of $0.001 per share.

2010 Share Transactions

On September 1, 2009, the Company issued 57,144 shares of its restricted common stock pursuant under a business development services agreement. As of July 31, 2009, the Company had recorded the $23,715 fair value as a share issuance obligation which was expensed as stock-based consulting fees in the prior year (refer to Note 11).

On September 15, 2009, the Company completed a private placement for 460,166 Units at a subscription price of $0.30 per Unit for gross proceeds of $138,050, which were received during the fiscal year ended July 31, 2009. Additionally, on September 15, 2009 the Company completed a private placement for 479,332 Units at a subscription price of $0.30 per Unit for the conversion of debt in the amount of $143,800. Each Unit is comprised of one common share and one non-transferable share purchase warrant of the Company. Each warrant entitles the holder to purchase an additional common share of the Company at an exercise price of $0.40 per warrant share, for a period of three years from the date of issuance.

On October 7, 2009, the Company issued 66,666 shares of its restricted common stock pursuant to a corporate development consulting agreement. The Company recorded the $24,666 fair value of the shares issued as stock-based consulting. On December 9, 2009, the Company issued 10,811 shares of its restricted common stock pursuant to the same agreement. The Company recorded the $4,595 fair value of the shares issued as stock-based consulting.

On October 15, 2009, the Company issued 100,000 shares of its restricted common stock pursuant to an amended business development services agreement. The Company recorded the $27,000 fair value of the shares issued as stock-based consulting. On January 12, 2010, the Company issued 150,000 shares of its restricted common stock pursuant to the same agreement. The Company recorded the $59,000 fair value of the shares issued as stock-based consulting.

On October 15, 2009, the Company completed a private placement for 12,500,000 Units at a subscription price of $0.20 per Unit for gross proceeds of $2,500,000, of which $310,000 were received in the form of debt conversion. Each Unit is comprised of one common share and one non-transferable share purchase warrant of the Company. Each warrant entitles the holder to purchase an additional common share of the Company at an exercise price of $0.35 per warrant share, for a period of five years from the date of issuance. The purchase price for 1,000,000 units, or $200,000, was collected during the year ended June 31, 2009 and the shares are deemed as issued as of July 31, 2009. The fair value of the warrants was estimated using the Black-Scholes option pricing model with an expected life of five years, a risk free interest rate of 2.41%, a dividend yield of 0%, and an expected volatility of 140.18%. The proceeds, net of finder’s fees, were allocated to the warrants because the warrants are derivatives (see Note 7) and the fair value of the warrants was classified as a liability.

On November 13, 2009, the Company completed a private placement for 5,250,000 Units at a subscription price of $0.20 per Unit for gross proceeds of $1,050,000. Each Unit is comprised of one common share and one non-transferable share purchase warrant of the Company. Each warrant entitles the holder to purchase an additional common share of the Company at an exercise price of $0.35 per warrant share, for a period of five years from the date of issuance. The fair value of the warrants was estimated using the Black-Scholes option pricing model with an expected life of five years, a risk free interest rate of 2.28%, a dividend yield of 0%, and an expected volatility of 138.91%. The proceeds, net of finder’s fees, were allocated to the warrants because the warrants are derivatives (see Note 7) and fair value of the warrants was classified as a liability.

In association with the private placements, during October and November 2009, we granted warrants to purchase 1,207,500 shares of common stock at $.35 per share which expire five years from the date of issuance as finder’s fees, as described below. The warrants are derivatives (see Note 7) and the fair value of the warrants was classified as a liability at issuance.

On December 9, 2009, the Company issued 300,000 shares of its restricted common stock pursuant to a Corporate Development Services Agreement. The Company recorded the $127,500 fair value of the shares issued as stock-based consulting.

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On December 9, 2009, the Company issued 50,000 shares of its restricted common stock pursuant to a Consulting Services Agreement. The Company recorded the $21,250 fair value of the shares issued as stock-based consulting.

On December 15, 2009, the Company approved a year-end bonus plan. In accordance with the bonus plan, the Company will issue 284,285 shares of its restricted common stock having an aggregate value of $113,714 in addition to a cash component of $36,250, payable to consultants, directors and officers for performance bonuses. The aggregate fair value of the shares was recorded as an issuance obligation.

Other than derivative warrants, the Company has not separately disclosed the fair market value of the warrants attached to the unit private placements during the current and prior fiscal periods.

Share Purchase Warrants

During October and November 2009, we granted warrants to purchase 1,207,500 shares of common stock at $.35 per share which expire five years from the date of issuance as finder’s fees. The fair value of the warrants was calculated using the Black-Sholes method as $354,367 with an expected life of five years, a risk free interest rate of 2.28-2.41%, a dividend yield of 0%, and an expected volatility of 138.91-140.18%. The warrants are derivatives (see Note 7) and the fair value of the warrants was classified as a liability at issuance.

In November 2009, we also granted warrants to purchase 50,000 shares of common stock at $.35 per share which expire five years from the date of issuance to a consultant for business development services. The fair value of the warrants was calculated using the Black-Sholes method as $13,157 with an expected life of five years, a risk free interest rate of 2.28%, a dividend yield of 0%, and an expected volatility of 138.91%. The warrants are derivatives (see Note 7) and the fair value of the warrants was classified as a liability at issuance.

Warrant modification (Restated)

During August 2009, we extended the term of 5,158,238 warrants which were originally issued in conjunction with equity issues during 2006, 2007, and 2008. The modification resulted in a deemed dividend of $679,200 which was calculated as the difference in the fair value of the warrants immediately before and after the modification using the Black-Scholes option pricing model. We recorded these as interest and finance charges in our previously filed financial statements. The following table details the significant assumptions used to compute the fair market value of the warrant modification:

	Before			After
Risk-free interest rate		0.47	%		0.47	%
Dividend yield		0	%		0	%
Volatility factor		154.60	%		154.60	%
Remaining term (years)		0			1

A summary of the Company's common share purchase warrants as at January 31, 2010 and changes during the period is presented below:

	Number of Warrants			Weighted Average Exercise Price		Weighted Average Remaining Life (years)

BALANCE, JULY 31, 2008		7,117,425		$	0.83		0.79

Issued		1,544,999			1.00		1.33
Cancelled or expired		(2,302,145	)		0.60		-

BALANCE, JULY 31, 2009		6,360,279			0.91		0.20

Issued		20,146,998			0.35		5.00
Cancelled or expired		-			-		-

BALANCE, JANUARY 31, 2010		26,507,277		$	0.49		3.61

Stock Compensation Plan

On July 5, 2007, the Company adopted the 2007 Stock Incentive Plan allowing for the issuance of up to 10,000,000 common shares. On May 21, 2009, the Board of Directors authorized and approved the adoption of the 2009 Re-Stated Stock Incentive Plan (the "2009 Plan"), which absorbs and replaces the 2007 Stock Incentive Plan, under which an aggregate of 10,000,000 of the Company's shares may be issued. The Stock Incentive Plan is administered by the Board of Directors which determines, among other things, (i) the persons to be granted awards under the Plan; (ii) the number of shares or amount of other awards to be granted; and (iii) the terms and conditions of the awards granted.

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On March 18, 2009, the Company granted a total of 500,000 stock options at an exercise price of $0.35 per share to a consultant. The term of the options is three years. The $130,000 fair value of the options at the date of grant was estimated using the Black-Scholes option pricing model with an expected life of 3 years, a risk free interest rate of 1.7%, a dividend yield of 0%, and an expected volatility of 129%. An amount of $130,000 was recorded as stock based consulting fees during the fiscal year ended July 31, 2009.

On May 21, 2009, the Company granted a total of 2,230,000 stock options with an exercise price of $0.35 per share to consultants, officers and directors. The term of the options is ten years. The $1,070,400 fair value of the options at the date of grant was estimated using the Black-Scholes option pricing model with an expected life of 5 years, a risk free interest rate of 1.7%, a dividend yield of 0%, and an expected volatility of 105%. During the six months ended January 31, 2010 an amount of $153,600 was recorded as stock based consulting fees.

On November 27, 2009, the Company granted a total of 2,600,000 stock options with an exercise price of $0.20 per share to a consultant and an officer. The term of the options is ten years. The $832,000 fair value of the options at the date of grant was estimated using the Black-Scholes option pricing model with an expected life of 5 years, a risk free interest rate of 2.03%, a dividend yield of 0%, and an expected volatility of 105%. During the six months ended January 31, 2010 an amount of $10,667 was recorded as stock based consulting fees and an amount of $266,667 was recorded as stock based management fees.

A summary of the Company's stock options as at January 31, 2010 and changes during the period is presented below:

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Life (years)

BALANCE, JULY 31, 2008		3,800,000	$	0.33		8.83
Issued		2,730,000		0.35		10.00

BALANCE, JULY 31, 2009		6,530,000		0.34		8.16
Issued		2,600,000		0.20		10.00

BALANCE, JANUARY 31, 2010		9,130,000	$	0.30		8.28

A summary of the status of the Company's unvested options as of January 31, 2010 and changes during the six months ended January 31, 2010 is presented below:

	Number of Shares			Weighted-Average Grant Date Fair Value

UNVESTED, JULY 31, 2008		33,333		$	0.50
Issued		1,280,000			0.48
Vested		(353,333	)		(0.48	)

UNVESTED, JULY 31, 2009		960,000			0.48
Issued		2,600,000			0.20
Vested		(970,000	)		(0.25	)

UNVESTED, JANUARY 31, 2010		2,590,000		$	0.24

NOTE 11: COMMITMENTS

On June 1, 2009, the Company entered into a business development services agreement which was amended on August 1, 2009. Under the terms of the amended agreement, the Company will (i) pay a monthly fee of $10,000, or (ii) issue 50,000 common shares per month through July 31, 2010. The agreement will automatically renew on a monthly basis subject to written termination, and can be terminated subsequent to February 1, 2010. As of January 31, 2010, the Company was obligated to issue 50,000 common shares pursuant to the amended agreement. The $14,500 fair value of the 50,000 shares was recorded as a share issuance obligation and expensed as stock-based consulting fees.

On November 13, 2009, the Company entered into a restated corporate development consulting agreement. Under the terms of the agreement, the Company will issue 10,811 common shares per month through May 13, 2010. The agreement will automatically renew on a monthly basis subject to written termination. As of January 31, 2010, the Company was obligated to issue 21,622 common shares pursuant to the agreement. The $7,243 fair value of the 21,622 shares was recorded as a share issuance obligation and expensed as stock-based consulting fees.

Effective November 1, 2009, the Company entered into a one-year corporate development services agreement. Under the terms of the agreement, the Company will pay a monthly fee of $5,000.

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Effective November 15, 2009, the Company entered into a one year corporate development services agreement. Under the terms of the agreement, the Company will: (i) pay a monthly fee of $5,000; and (ii) issue 500,000 shares, as fully paid and non-assessable, of its restricted common stock. The 500,000 shares will be issued as follows: (a) 300,000 shares within five business days from the effective date of the agreement (issued); and (b) 50,000 shares on each of the days which are three, six, nine and 12 months, respectively, from the effective date of the agreement (refer to Note 9).

Effective December 1, 2009, the Company entered into a one year executive services agreement following the appointment of a new Chief Executive Officer and President. Under the terms of the agreement, the Company will: (i) pay a monthly fee of $8,333, (ii) pay a one-time signing bonus of $20,000 (paid), and (iii) issue options to purchase an aggregate of not less than 2,500,000 common shares of the Company, at an exercise price of $0.20, for a term of three years (issued, refer to Note 9).

Effective December 1, 2009, the Company entered into a one year consulting services agreement. Under the terms of the agreement, the Company will: (i) pay a monthly fee of $4,000, (ii) issue a one-time signing bonus of 50,000 shares (issued, refer to Note 9), and (iii) issue options to purchase an aggregate of not less than 100,000 common shares of the Company, at an exercise price of $0.20, for term of three years (issued, refer to Note 9).

The Company entered into an agreement with a consultant which allows access to certain oil and gas exploration database records. Under the terms of the agreement, the Company will grant the consultant a 1.0% ORRI on any project brought to production resulting from usage of the database records.

NOTE 12 SUPPLEMENTAL CASH FLOW INFORMATION AND NONCASH INVESTING AND FINANCING ACTIVITIES

	Six Months Ended January 31,
	2010		2009

Interest paid	$	-	$	-
Income taxes paid	$	-	$	-

Refer to Note 10.

NOTE 13: SUBSEQUENT EVENTS

On February 10, 2010 the Company agreed to extend the term of 419,701 warrants from February 12, 2010 to February 12, 2011. Of the 419,701 total warrants that were extended, 346,143 warrants entitle the holders to purchase an additional common share of the Company at an exercise price of $0.35 per share, and 73,558 warrants entitle the holders to purchase an additional common share of the Company at an exercise price of $0.60 per share.

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

FORWARD-LOOKING STATEMENTS

This Form 10-Q/A for the quarterly period ended January 31, 2010 contains forward-looking statements that involve risks and uncertainties. Forward-looking statements in this document include, among others, statements regarding our capital needs, business plans and expectations. Such forward-looking statements involve assumptions, risks and uncertainties regarding, among others, the success of our business plan, availability of funds, government regulations, operating costs, our ability to achieve significant revenues, our business model and products and other factors. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential" or "continue", the negative of such terms or other comparable terminology. In evaluating these statements, you should consider various factors, including the assumptions, risks and uncertainties set forth in reports and other documents we have filed with or furnished to the SEC, including, without limitation, our Form 10-K for the period ended July 31, 2009. These factors or any of them may cause our actual results to differ materially from any forward-looking statement made in this document. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding future events, our actual results will likely vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. The forward-looking statements in this document are made as of the date of this document and we do not intend or undertake to update any of the forward-looking statements to conform these statements to actual results, except as required by applicable law, including the securities laws of the United States.

OVERVIEW

As used in this Quarterly Report: (i) the terms "we", "us", "our", "Strategic", "Penasco" and the "Company" mean Strategic American Oil Corporation and its wholly owned subsidiary, Penasco Petroleum Inc., unless the context otherwise requires; (ii) "SEC" refers to the Securities and Exchange Commission; (iii) "Securities Act" refers to the Securities Act of 1933, as amended; (iv) "Exchange Act" refers to the Securities Exchange Act of 1934, as amended; and (v) all dollar amounts refer to United States dollars unless otherwise indicated.

The following discussion of our plan of operations, results of operations and financial condition as at and for the six months ended January 31, 2010 should be read in conjunction with our unaudited consolidated interim financial statements and related notes for the six months ended January 31, 2010 included in this Quarterly Report, as well as our Annual Report on Form 10-K for the year ended July 31, 2009.

General

We were incorporated under the laws of the State of Nevada on April 12, 2005 under the name "Carlin Gold Corporation". On July 19, 2005, we changed our name to "Nevada Gold Corp.". On October 18, 2005, we changed our name to "Gulf States Energy, Inc." and increased our authorized capital from 100,000,000 shares of common stock to 500,000,000 shares of common stock, par value $0.001 per share. On September 5, 2006, we changed our name to "Strategic American Oil Corporation". We own 100% of the issued and outstanding share capital of Penasco, which was formed under the laws of the State of Nevada on November 23, 2005.

Our principal offices are located at 600 Leopard Street, Suite 2015, Corpus Christi, Texas, 78401. Our telephone number is (361) 884-7474 and our fax number is (361) 884-7347.

Our Business Operations

We are a natural resource exploration and production company engaged in the exploration, acquisition and development of oil and gas properties in the United States. We maintain an aggregate of approximately 395 gross (217 net) developed acres and approximately 4,841 gross (4,668 net) undeveloped acres pursuant to leases or acquisitions as described below. Of that acreage, we maintain approximately 176 gross (132 net) developed acres in Louisiana, 219 gross (85 net) developed acres in Texas, 3,335 gross (3,335 net) undeveloped acres in Illinois, 160 gross (150 net) undeveloped acres in Louisiana, and 1,346 gross (1,183 net) undeveloped acres in Texas. Total developed and undeveloped acreage is approximately 5,336 gross acres (4,885 net).

Acreage

The following table sets forth information regarding our gross and net developed and undeveloped oil and natural gas acreage under lease through the date of this Quarterly Report:

	Gross Acres		Net Acres (*)

DEVELOPED ACREAGE
Louisiana		175.89		131.92
Texas		219.00		85.14

UNDEVELOPED ACREAGE
Illinois		3,335.43		3,335.43
Louisiana		160.00		150.08
Texas		1,345.72		1,182.84

		5,236.04		4,885.41

(*) Certain of our interests in oil and natural gas properties are less than 100%. Accordingly, we have presented the acreage of our mineral properties on a net acre basis.

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Productive Wells

The following table sets forth information regarding the total gross and net productive wells, expressed separately for oil and gas. All of our productive oil and gas wells were located in Texas and Louisiana. For the purposes of this subsection: (i) one or more completions in the same bore hole have been counted as one well, and (ii) a well with one or multiple completions at least one of which is an oil completion has been classified as an oil well. We do not have any wells with multiple completions.

	Oil				Natural Gas
	Gross		Net		Gross		Net

LOUISIANA		4		3.00		-		-
TEXAS		2		2.00		1		0.03

		6		5.00		1		0.03

A productive well is an exploratory well, development well, producing well or well capable of production, but does not include a dry well. A dry well, or a hole, is an exploratory or a development well found to be incapable of producing either oil or gas in sufficient quantities to justify completion as an oil or gas well.

A gross well is a well in which a working interest is owned, and a net well is the result obtained when the sum of fractional ownership working interests in gross wells equals one. The number of gross wells is the total number of wells in which a working interest is owned, and the number of net wells is the sum of the fractional working interests owned in gross wells expressed as whole numbers and fractions thereof. The "completion" of a well means the installation of permanent equipment for the production of oil or gas, or, in the case of a dry hole, to the reporting of abandonment to the appropriate agency.

Production and Price History

We began production of oil in August 2006 with the acquisition of the Holt, Strahan and McKay leases in Franklin and Richland Parish, Louisiana. In November 2006, we completed the acquisition of the Welder lease in Calhoun County, Texas, which produces both oil and gas. The effective date of the Welder acquisition was August 1, 2006 and accordingly, production results from the effective date through the closing date have been included in operating results. The table below sets forth the net quantities of oil and gas production, net of royalties, attributable to us from initial production in August 2006 through January 31, 2010. For the purposes of this table, the following terms have the following meanings: (i) "Bbl" means one stock tank barrel or 42 U.S. gallons liquid volume; (ii) "MBbls" means one thousand barrels of oil; (iii) "Mcf" means one thousand cubic feet; (iv) "Mcfe" means one thousand cubic feet equivalent, determined using the ratio of nine Mcf of natural gas to one Bbl of oil; (v) "MMcfe/d" means one million cubic feet equivalent per day, determined by using the ratio of nine Mcf of natural gas to one Bbl of oil; and (vi) "MMcf" means one million cubic feet.

	Six Months Ended January 31, 2010		Six Months Ended January 31, 2009		Period from Inception to January 31, 2010

PRODUCTION DATA
Oil (MBbls)		2.5		2.6		28.5
Natural gas (MMcf)		7.6		6.0		54.8

Total (MMcfe)		23.0		22.1		226.1

AVERAGE PRICES
Oil (per Bbl)	$	70.33	$	80.16	$	75.61
Natural gas (per Mcf)	$	3.41	$	6.94	$	5.63

Total (per Mcfe)	$	9.01	$	11.61	$	10.91

AVERAGE COSTSs (per Mcfe)
Lease operating expenses(*)	$	8.87	$	7.89	$	5.57
Production tax expense	$	0.44	$	0.75	$	0.31

(*) Transportation and administrative expenditures are included in lease operating expenses.

Net production includes only production that is owned by us, whether directly or beneficially, and produced to our interest, less royalties and production due to others. Production of natural gas includes only marketable production of gas on an "as sold" basis. Production of natural gas includes only dry, residue and wet gas, depending on whether liquids have been extracted before we passed title, and does not include flared gas, injected gas and gas consumed in operations. Recovered gas, lift gas and reproduced gas are not included until sold.

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Drilling Activity

As of the date of this quarterly report, we have participated in one (1) drilling venture with Brayton Operating Company based in Corpus Christi, Texas. A 12.5% working interested was purchased in a middle-lower Frio test (Meeks No. B-1) in Victoria County, Texas. The prospect was based on 3-D seismic data and adjacent well information. The well was drilled, logged and plugged as indicated gas sands were deemed uneconomic. We have completed five (5) workovers of producing or previously producing wells on our leases in the Delhi South and Big Creek fields in Richland and Franklin Parishes, Louisiana. We also participated in the side-track re-entry on the Janssen No. A-1 in Karnes County, Texas. All producing wells in Louisiana are operated for us by Tradestar Energy based in Hot Springs, Arkansas. The Welder (Barge Canal) wells are operated for us by Carter E&P, LLC, based in Corpus Christi, Texas. The Janssen lease (Karnes Co., Texas) is operated by PROEX Energy Management Company ("Proex") based in Houston, Texas. We pay a monthly management fee to the operating companies for their services.

Our Properties

Barge Canal, Texas

On November 16, 2006 we completed an assignment and purchase agreement with OPEX Energy, LLC with an effective date of August 1, 2006. Under the terms of the agreement, we acquired a 100% working interest (90% after payout) and a 72.5% net revenue interest (65.25% after payout) in approximately 81 acres of an oil and gas lease (the "Welder Lease") located in Calhoun County, Texas. At the time of the acquisition, the two wells on the Welder lease were producing assets. On January 1, 2010, we purchased an assignment from Treydan Corporation for the remaining 10% working interest for a total cost of $70,000, bringing our ownership to 100% of the working interest.

As of the date of this quarterly report, two wells are producing gas and oil from the property. The wells are operated using a gas lift system. A third well is utilized for salt water disposal. The wells have additional proven non-producing zones behind pipe. We intend to develop the proved developed non-producing (PDNP) zones as current producing horizons deplete.

Janssen Lease, Texas

In October 2005, we entered into an agreement to purchase a 25% working interest and an 18.75% net revenue interest in approximately 138 acres of an oil and gas lease (the "Janssen Lease") located in Karnes County, Texas. This lease interest was acquired from Rockwell Energy. An unsuccessful attempt was made to re-enter and re-complete a Roeder gas sand at 10,300 feet using side track drilling techniques. As the original lease was set to expire, we negotiated a new oil and gas lease with the mineral owners and farmed out 97% of the working interest to ETG Energy Resources. We retained a 3% working interest on any producing zones and a 5% non-promoted option to participate in any offset drilling within the leased area. ETG successfully re-completed in the Roeder Sand and the Janssen A-1 well is currently producing between 250-300 mcf gas per day and approximately six (6) barrels per day of condensate.

Koliba Lease, Texas

Through the date of this quarterly report, we have entered into to several lease agreements with certain mineral owners of a 79 acre tract (the "Koliba Lease") in Victoria County, Texas. We have leased over 95% of the mineral rights with additional leases pending. Additionally, we acquired an Assignment of oil and gas leases on 64 adjacent and contiguous acres from Ensley Properties, Inc. This Assignment includes several leases with numerous mineral owners. We paid $70,000 to Ensley Properties, Inc. for this Assignment. The property underlying these lease agreements is located near our Welder lease and has one shut-in oil/gas well. The well has proven oil and gas zones behind pipe that previously produced 30 Bbls oil per day plus water. The well is in close proximity to our Welder gas sales line and salt water disposal system. Through the date of this quarterly report, we entered into participation agreements whereby 75% of our working interest has been assigned to other parties. We will retain a carried 16.33% working interest to casing point, and have a 25% working interest (not carried) after casing point in the completed well. We will drill one well as an offset to the former Koliba No. 1 well.

Kenedy Lease, Texas

Through the date of this quarterly report, we have entered into a lease agreement with certain mineral owners of a 1,203 acre tract (the "Kenedy Lease") in Kenedy County, Texas. We have leased over 86% of the mineral rights with additional leases pending. This lease was initiated to potentially exploit a prospect identified through our recently acquired 3D seismic database. We are currently still evaluating this prospect and will initiate marketing of working interest to potential partners once we have completed all preliminary geological and geophysical assessments.

South Delhi/Big Creek Field, Louisiana

On August 24, 2006, we entered into an assignment of oil and gas interests purchase agreement with Energy Program Accompany, LLC (the "EPA Purchase Agreement"). At the time of the acquisition, one of four wells on the Holt lease, the one well on the Strahan lease, and no wells on the McKay lease were producing assets. Under the terms of the EPA Purchase Agreement, we paid $250,000 to acquire the Holt Lease, the Strahan Lease and the McKay Lease, as described below.

The Holt Lease

Pursuant to the EPA Purchase Agreement, we acquired a 97% working interest and an 81.25% net revenue interest in approximately 136 acres in Franklin Parish, Louisiana (the "Holt Lease"). In the months following the acquisition, we re-worked the Holt No. 10 well, pulling the well and replacing the rods, tubing and downhole pump. For Holt No. 24, we pulled the well, replaced the rods, tubing and downhole pump. On Holt No. 22, we pulled the well, replaced the tubing, rods and downhole pump. We also installed new surface pumping unit (320 pump jack). For the salt water disposal well, we cleaned up and installed a new triplex pump. We built new all weather roads to wells and built new tank battery (oil storage tanks and separators) for Holt No. 22 and 24. We also buried flow lines (oil and salt water), installed overhead power to all wells with transformer capable of handling additional load (wells), removed old tanks and separators, and built an equipment storage location.

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As of the date of this quarterly report, we are producing oil from the Holt No.'s 10, 22 and 24 wells. The Holt No. 4 well is off-line pending workover or offset drilling. The Holt No. 15 well is utilized as a salt water disposal well.

The Strahan Lease

Pursuant to the EPA Purchase Agreement, we acquired a 100% working interest and an 81.25% net revenue interest in approximately 40 acres in Richland Parish, Louisiana (the "Strahan Lease").

As of the date of this quarterly report, we are producing oil from the Strahan No. 1 well.

The McKay Lease

Pursuant to the EPA Purchase Agreement, we acquired a 100% working interest and an 82.08% net revenue interest in approximately 80 acres in Richland Parish, Louisiana (the "McKay Lease"). On the McKay lease, we re-worked the well but did not improve production. On November 1, 2008 we assigned 100% of our interest in and to the McKay No. 1 well bore and leasehold. Pursuant to the Assignment Agreement, we retained ownership to all surface equipment, which was subsequently moved to our Holt Lease in Franklin Parish. Additionally, all plugging liabilities were transferred to the purchaser and we retained no ORRI or working interest in the McKay No. 1 well.

Assignment of Interests to Tradestar Resources Corporation

In conjunction with our acquisition of the Holt Lease, the Strahan Lease and the McKay Lease, we assigned a 25% working interest with respect to each lease to Tradestar Resources Corporation ("Tradestar Resources") as a finder's fee. The 25% working interest consisted of two parts, (i) a 12.5% working interest assigned upon acquisition of the leases, and (ii) a 12.5% back in assigned with an effective date of January 1, 2007. Tradestar Energy Inc. ("Tradestar Energy"), a wholly owned subsidiary of Tradestar Resources Corporation, became the operator of record for the Holt, Strahan and McKay Leases as of December 1, 2007.

Dixon Prospect, Louisiana

Through the date of this quarterly report, we have entered into numerous oil and gas leases with certain mineral owners of a 160 acre tract (the "Dixon Lease") in Franklin Parish, Louisiana. We have leased over 93% of the mineral rights. The Dixon lease has two temporarily abandoned oil wells and one currently permitted salt water disposal well.

Markham City North, Oakdale NE, Donoho and DST Prospects, Illinois

Through the date of this quarterly report, we have entered into many oil and gas leases in Jefferson County, Illinois. Currently these leases total approximately 3,335 gross acres pursuant to which we have a working interest of 100% and a net revenue interest of 87.5%. We plan to initiate a pilot water-flood program in 2010 to test the reservoir characteristics of the Markham City North field as well to gather more data necessary to fully exploit the remaining oil in place. The target depths do not exceed 4000 feet.

Recent Activities

Much of the developed leasehold in Louisiana is adjacent to offset production. A number of offset in-field drilling locations are indicated. Additionally, Denbury Resources, Inc. (NYSE: DNR) has acquired a substantial acreage position in the Delhi-Holt-Bryant Unit in the immediate area of our holdings. Denbury has begun work to institute a tertiary carbon dioxide flood and are shooting 3-D seismic in the immediate area of our leases. We are currently negotiating to purchase a 220 acre lease containing five wells and one salt water disposal well in the area of our Strahan and McKay Leases (Richland Parish, Louisiana). We have leased 93.82% of 81.25% net revenue mineral interests in the Dixon 160 acre tract in Franklin Parish, Louisiana. The Dixon lease has two temporarily abandoned oil wells that will be re-worked, re-equipped and put back into production. The lease also has one (1) currently permitted salt water disposal well. Tradestar Energy will operate the lease for us.

Our undeveloped acreage in the Illinois basin is adjacent to current or past producing wells. Drilling and completion costs are lower than in many other producing basins and the net revenues are higher. Our leases in Illinois average 87.5% net revenue interest with 100% working interest. Multiple pay zones are indicated in leasehold areas including the Cypress, Levias, Aux Vases, Ste. Genevieve, Salem, Saint Lewis and Warsaw formations. Maximum drill depths will be approximately 4,000 feet.

We are also currently evaluating oil well logs, maps and other data in the Welder (Barge Canal) lease area (Texas). Initial reviews indicate the potential for possible offset drilling sites. We continue to review and evaluate submittals on properties in Louisiana, Texas, Illinois and other areas of the continental United States.

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RESULTS OF OPERATIONS

Three Months Ended January 31, 2010 Compared to Three Months Ended January 31, 2009

	Three Months Ended January 31, 2010 (As reported)			Three Months Ended January 31, 2010 (As restated)			Three Months Ended January 31, 2009

OIL AND GAS REVENUES	$	137,763		$	137,763		$	124,233

EXPENSES
Consulting fees		277,845			277,845			73,052
Consulting fees - stock based		310,269			323,426			5,555
Depreciation and depletion		23,651			23,651			17,310
Direct operating costs		161,702			161,702			103,632
General and administrative		51,484			51,484			32,410
Impairment of properties		-			-			3,700
Interest and financing charges		32,098			32,098			9,757
Management fees		166,297			166,297			81,224
Management fees - stock based		374,667			374,667			-
Professional fees		152,571			152,571			50,617
Travel and promotion		23,638			23,638			263

TOTAL EXPENSES		1,574,222			1,587,379			377,520

LOSS BEFORE OTHER ITEMS		(1,436,459	)		(1,449,616	)		(253,287	)

OTHER ITEMS
Gain on debt settlement		8,364			8,364			-
Interest and other income		513			513			3,536
Foreign exchange		(4,565	)		(4,565	)		-
Gain on derivative warrant liability		-			680,739			-

NET LOSS FOR THE PERIOD	$	(1,432,147	)	$	(764,565	)	$	(249,751	)

Revenue

Revenue from oil and gas properties was $137,763 for the three months ended January 31, 2010 compared to $124,233 in the prior period. Significant developments or changes between these periods are outlined below:

Barge Canal: Revenue from the Barge Canal project was $86,605 for the three months ended January 31, 2010 as compared to $87,215 in the prior period. Average sale prices for oil were 20% higher in the current period while average sale prices for natural gas (per Mcf) were 36% lower in the current period. Production decreased by 11% for oil and increased by 21% for natural gas from the prior period. The decrease in oil production resulted from unscheduled maintenance in the current period, while the increase in natural gas production resulted from flooding in the prior period. The market price of oil and gas increased slightly over the current period, and decreased significantly over prior period.

South Delhi/Big Creek Field: Revenue from the South Delhi / Big Creek Field project was $49,930 for the three months ended January 31, 2010 as compared to $33,870 in the prior period. As with Barge Canal, average sale prices for oil were 20% higher in the current period. Production decreased by 5% from the prior period. The production changes were nominal as compared to the prior period, and the change in gross sales resulted from the differences and trend for average sale prices. The market price of oil and gas increased slightly over the current period, and decreased significantly over prior period.

Janssen Lease: Revenue from the Janssen Lease project was $1,228 for the three months ended January 31, 2010 as compared to $3,148 in the prior period. As with Barge Canal and South Delhi/Big Creek Field, average sale prices for oil were 20% higher while average sale prices for natural gas (per Mcf) were 36% lower in the current period. Oil production was nominal in both the current and prior periods, and production for natural gas decreased by 46% from the prior period. The market price of oil and gas increased slightly over the current period, and decreased significantly over prior period.

Operating Expenses

Operating expenses incurred during the three months ended January 31, 2010 were $1,587,379, as restated, compared to $377,520 in the prior period. Significant changes and expenditures are outlined as follows:

Consulting fees increased to $277,845 during the three months ended January 31, 2010 from $73,052 during the prior period, due primarily to additional technical consulting and corporate development in the current period. Market conditions in the prior period limited the scope and effectiveness of corporate development work.

Consulting fees - stock based increased to $323,426, as restated, during the three months ended January 31, 2010 from $5,555 during the prior period. The current and prior period expense consists of the fair value of shares and option grants issued to consultants that were earned during the period.

Direct operating costs were $161,702 during the three months ended January 31, 2010 compared to $103,632 during the prior period. Significant developments or changes in direct operating costs per project are outlined as follows:

Barge Canal: Direct operating costs of $40,375 during the three months ended January 31, 2010 represented approximately 47% of gross production sales during the current period. Direct operating costs of $42,927 during the prior period represented approximately 49% of gross production sales. The current and prior period operating costs were relatively consistent throughout the quarter.

ii.

South Delhi/Big Creek Field: Direct operating costs of $119,945 for the three months ended January 31, 2010 represented approximately 240% of gross production sales during the current period. Direct operating costs of $59,185 during the prior period represented approximately 175% of gross production. Operating costs in the current period included significant maintenance to accommodate a gas injection project in the area. Operating costs in the prior period included planned and weather related maintenance charges.

iii.

Janssen Lease: Direct operating costs of $1,382 for the three months ended January 31, 2010 represented approximately 113% of gross production sales during the current period. Direct operating costs of $1,520 during the prior period represented approximately 48% of gross production sales during the prior period.

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General and administrative costs increased to $51,484 during the three months ended January 31, 2010 from $32,410 during the prior period, due to significantly limited activity in the prior period due to market conditions.

Interest and financing charges increased to $32,098, as restated, during the three months ended January 31, 2010 from $9,757 during the prior period. Interest and financing charges in the current period includes the accretion of the fair value of warrants issued with convertible debentures. Interest and financing charges in the prior period consisted of accrued interest on outstanding promissory notes.

Management fees increased to $166,297 during the three months ended January 31, 2010 from $81,224 during the prior period. Some executive services vary from month to month based on activities and requirements of our company. Additionally, during the current period we added a new member to the executive team.

Management fees - stock based increased to $374,667 during the three months ended January 31, 2010 from $Nil during the prior period. The current and prior period expense consists of the fair value of option grants issued to our officers and directors that were earned during the period.

Professional fees increased to $152,571 during the three months ended January 31, 2010 from $50,617 during the prior period, due primarily to increases in legal services relating to corporate and business development during the current period. Market conditions in the prior period resulted in significantly limited activity.

Travel and promotion increased to $23,638 during the three months ended January 31, 2010 from $263 during the prior period. As with other operating costs, market conditions during the prior period resulted in significantly limited activity which is reflected in comparatively lower expenditures.

A $8,364 gain on the settlement of debt was realized during the three months ended January 31, 2010. Additionally, interest and other income decreased to $513 during the three months ended January 31, 2010 from $3,536 during the prior period. We also realized a foreign exchange loss of $4,565 during the three months ended January 31, 2010.

Gain on warrant derivative liability was $680,739 during the three months ended January 31, 2010, compared to $Nil during the prior period. This represents an increase of 100%. This is due to the warrants issued during the current period which qualify as derivative financial instruments under the provisions of FASB ASC Topic No. 815-40, “Derivatives and Hedging – Contracts in an Entity’s Own Stock.” The fair value of these warrants was determined using the Black-Scholes option pricing method with any change in fair value during the period recorded in earnings as “Other income (expense) – Gain (loss) on warrant derivative liability.

Our net loss during the three months ended January 31, 2010 was $764,565 as restated or ($0.02) per share compared to a net loss of $249,751 or ($0.01) per share during the prior period. The weighted average number of shares outstanding was 47,761,124 for the three months ended January 31, 2010 compared to 28,610,350 in the prior period.

Transactions with Officers and Directors

Of the $1,587,379, as restated, incurred as operating expenses during the three months ended January 31, 2010 an aggregate of $166,297 was incurred payable to certain officers and directors and recorded as management fees and an aggregate of $374,667 in stock based compensation was incurred for the incremental fair value of options granted to directors and officers that were earned during the period. As at January 31, 2010, management fees and expense reimbursements of $29,326 are outstanding with no specified terms of repayment.

Of the $137,763 reported revenues and $161,702 direct operating costs for the three months ended January 31, 2010 we recorded production revenues of $86,605 and incurred production costs of $40,375 for the Barge Canal property which is operated by company controlled by one of our officers.

Six Months Ended January 31, 2010 Compared to Six Months Ended January 31, 2009

	Six Months Ended January 31, 2010 (As reported)			Six Months Ended January 31, 2010 (As restated)			Six Months Ended January 31, 2009

OIL AND GAS REVENUES	$	220,696		$	220,696		$	259,442

EXPENSES
Consulting fees		411,830			411,830			244,444
Consulting fees - stock based		485,347			498,504			11,111
Depreciation and depletion		39,701			39,701			27,237
Direct operating costs		214,171			214,171			190,792
General and administrative		94,037			94,037			92,978
Impairment of properties		-			-			3,700
Interest and financing charges		463,243			102,166			9,757
Management fees		268,843			268,843			171,744
Management fees - stock based		375,667			375,667			-
Professional fees		254,950			254,950			108,019
Travel and promotion		48,545			48,545			13,287

TOTAL EXPENSES		2,655,334			2,307,414			873,069

LOSS BEFORE OTHER ITEMS		(2,434,638	)		(2,086,718	)		(613,627	)

OTHER ITEMS
Gain on debt settlement		12,559			12,559			-
Interest and other income		625			625			3,754
Foreign exchange		(38,093	)		(38,093	)		-
Gain (loss) on derivative warrants		-			(1,357,487	)		-

NET LOSS FOR THE PERIOD	$	(2,459,547	)	$	(3,469,114	)	$	(609,873	)

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Revenue

Revenue from oil and gas properties was $220,696 for the six months ended January 31, 2010 compared to $259,442 in the prior period. Significant developments or changes between these periods are outlined below:

Barge Canal: Revenue from the Barge Canal project was $133,789 for the six months ended January 31, 2010 as compared to $186,005 in the prior period. Average sale prices for oil were 12% lower in the current period while average sale prices for natural gas (per Mcf) were 51% lower in the current period. Production decreased by 16% for oil and increased by 36% for natural gas from the prior period. The decrease in oil production resulted from unscheduled maintenance in the current period, while the increase in natural gas production resulted from flooding in the prior period. The market price of oil and gas increased slightly over the current period, and decreased significantly over prior period.

South Delhi/Big Creek Field: Revenue from the South Delhi / Big Creek Field project was $84,673 for the six months ended January 31, 2010 as compared to $65,125 in the prior period. As with Barge Canal, average sale prices for oil were 12% lower in the current period. Production increased by 24% from the prior period resulting from significant maintenance downtime in the prior period. The market price of oil and gas increased slightly over the current period, and decreased significantly over prior period.

Janssen Lease: Revenue from the Janssen Lease project was $2,234 for the six months ended January 31, 2010 as compared to $8,312 in the prior period. As with Barge Canal and South Delhi/Big Creek Field, average sale prices for oil were 12% lower while average sale prices for natural gas (per Mcf) were 51% lower in the current period. Oil production was nominal in both the current and prior periods, and production for natural gas decreased by 45% from the prior period. The market price of oil and gas increased slightly over the current period, and decreased significantly over prior period.

Operating Expenses

Operating expenses incurred during the six months ended January 31, 2010 were $2,307,414, as restated, compared to $873,069 in the prior period. Significant changes and expenditures are outlined as follows:

Consulting fees increased to $411,830 during the six months ended January 31, 2010 from $244,444 during the prior period, due primarily to additional technical consulting and corporate development in the current period. Market conditions in the prior period limited the scope and effectiveness of corporate development work.

Consulting fees - stock based increased to $498,504 as restated during the six months ended January 31, 2010 from $11,111 during the prior period. The current and prior period expense consists of the fair value of shares and option grants issued to consultants that were earned during the period.

Direct operating costs were $214,171 during the six months ended January 31, 2010 compared to $190,792 during the prior period. Significant developments or changes in direct operating costs per project are outlined as follows:

iv.

Barge Canal: Direct operating costs of $70,194 during the six months ended January 31, 2010 represented approximately 52% of gross production sales during the current period. Direct operating costs of $74,120 during the prior period represented approximately 40% of gross production sales. The current period operating costs were a higher percentage of gross production sales than in the prior period due to unscheduled maintenance costs.

South Delhi/Big Creek Field: Direct operating costs of $141,849 for the six months ended January 31, 2010 represented approximately 168% of gross production sales during the current period. Direct operating costs of $113,929 during the prior period represented approximately 175% of gross production. Operating costs in the current period included significant maintenance to accommodate a gas injection project in the area. Operating costs in the prior period included planned and weather related maintenance charges.

vi.

Janssen Lease: Direct operating costs of $2,128 for the six months ended January 31, 2010 represented approximately 95% of gross production sales during the current period. Direct operating costs of $2,743 during the prior period represented approximately 33% of gross production sales during the prior period.

Interest and financing charges increased to $102,166 as restated during the six months ended January 31, 2010 from $9,757 during the prior period. Interest and financing charges in the current period includes accrued interest and the accretion of the fair value of warrants issued with convertible debentures. Interest and financing charges in the prior period consisted of accrued interest on outstanding promissory notes.

Management fees increased to $268,843 during the six months ended January 31, 2010 from $171,744 during the prior period. Some executive services vary from month to month based on activities and requirements of our company. Additionally, during the current period we added a new member to the executive team.

Management fees - stock based increased to $374,667 during the six months ended January 31, 2010 from $Nil during the prior period. The current and prior period expense consists of the fair value of option grants issued to our officers and directors that were earned during the period.

Professional fees increased to $254,950 during the six months ended January 31, 2010 from $108,019 during the prior period, due primarily to increases in legal services relating to corporate and business development during the current period. Market conditions in the prior period resulted in significantly limited activity.

Travel and promotion increased to $48,545 during the six months ended January 31, 2010 from $13,287 during the prior period. As with other operating costs, market conditions during the prior period resulted in significantly limited activity which is reflected in comparatively lower expenditures.

A $12,559 gain on the settlement of debt was realized during the six months ended January 31, 2010. Additionally, interest and other income decreased to $625 during the six months ended January 31, 2010 from $3,754 during the prior period. We also realized a foreign exchange loss of $38,093 during the six months ended January 31, 2010.

Loss on warrant derivative liability was $1,357,487 during the six months ended January 31, 2010, compared to $Nil during the prior period. This represents an increase of 100%. This is due to the warrants issued during the current period which qualify as derivative financial instruments under the provisions of FASB ASC Topic No. 815-40, “Derivatives and Hedging – Contracts in an Entity’s Own Stock.” The fair value of these warrants was determined using the Black-Scholes option pricing method with any change in fair value during the period recorded in earnings as “Other income (expense) – Gain (loss) on warrant derivative liability.

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Our net loss during the six months ended January 31, 2010 was $3,469,114, as restated, or ($0.09) per share compared to a net loss of $609,873 or ($0.02) per share during the prior period. The weighted average number of shares outstanding was 39,872,984 for the six months ended January 31, 2010 compared to 28,423,004 in the prior period.

Transactions with Officers and Directors

Of the $2,307,414, as restated, incurred as operating expenses during the six months ended January 31, 2010 an aggregate of $268,843 was incurred payable to certain officers and directors and recorded as management fees and an aggregate of $374,667 in stock based compensation was incurred for the incremental fair value of options granted to directors and officers that were earned during the period. As at January 31, 2010, management fees and expense reimbursements of $29,326 are outstanding with no specified terms of repayment.

During the six months ended January 31, 2010 we issued a $100,000 promissory note to a direct family member of an officer and a director, and which was fully repaid in the period. Additionally, we issued, as fully paid and non-assessable, 100,000 non-transferable and registerable share purchase warrants to acquire an equivalent number of common shares of the Company at an exercise price of $0.25 per share, and for an exercise period of three years.

Of the $220,696 reported revenues and $214,171 direct operating costs for the six months ended January 31, 2010 we recorded production revenues of $133,789 and incurred production costs of $70,194 for the Barge Canal property which is operated by company controlled by one of our officers.

LIQUIDITY AND CAPITAL RESOURCES

	January 31, 2010 (As reported)		January 31, 2010 ( As restated)			January 31, 2009

Cash and cash equivalents	$	1,093,379	$	1,093,379		$	18,252
Working capital (deficit)		1,027,303		(3,712,203	)		(306,659	)
Total assets		2,826,242		2,826,242			1,569,154
Total liabilities		221,884		4,961,390			471,511
Shareholders' equity (deficit)		2,604,358		(2,135,148	)		1,097,643

At January 31, 2010 we had $1,093,379 in cash and working deficit as restated of $(3,712,203). We have financed our operations through proceeds from the private placement of equity securities and debt instruments. We increased net cash by $1,074,586 during the six months ended January 31, 2010 compared to a decrease in cash of $49,398 during the prior period. See "Plan of Operation and Funding" below.

Operating Activities

Net cash used in operating activities during the six months ended January 31, 2010 was $1,469,885 compared to $422,128 during the prior period. Significant operating expenditures during the current period included consulting fees, direct operating costs, in addition to management and professional fees.

Financing Activities

Net cash provided by financing activities during the six months ended January 31, 2010 was $2,812,362 compared to $477,177 during the prior period. During the current period, we received net proceeds of $2,858,862 from private placement subscriptions and issuance of derivative warrants and repaid $46,500 in advances from related parties.

Investing Activities

Net cash used in investing activities during the six months ended January 31, 2010 was $267,891 compared to $104,447 in the prior period. Significant investing expenditures in the current period include production equipment and investment in oil and gas properties. There were no significant investing expenditures during the prior period.

Stock Options and Warrants

As at January 31, 2010 we had 9,130,000 stock options and 26,507,277 share purchase warrants outstanding. The outstanding stock options have a weighted average exercise price of $0.30 per share and the outstanding warrants have a weighted average exercise price of $0.49 per share. Accordingly, as at January 31, 2010 the outstanding options and warrants represented a total of 35,637,277 shares issuable for proceeds of approximately $15,727,566 if these options and warrants were exercised in full. The exercise of these options and warrants is at the discretion of the holders and, accordingly, there is no assurance that any of these options or warrants will be exercised.

Plan of Operation and Funding

At January 31, 2010 we had $1,093,379 of cash on hand and a working deficit of $(3,712,203). As such, our working capital at January 31, 2010 will not be sufficient to enable us to pursue our lease operating costs, to pay our general and administrative expenses, and to pursue our plan of operations over the next twelve months. Our management is currently making efforts to obtain the required financing, but we have not yet secured any commitments with respect to such financing. If we are not able to obtain financing in the amounts required or on terms that are acceptable to us, we may be forced to scale back, or abandon, our plan of operations.

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Various conditions outside of our control may detract from our ability to raise the capital needed to execute our plan of operations, including the price of oil as well as the overall market conditions in the international and local economies. We recognize that the United States economy has suffered through a period of uncertainty during which the capital markets have been depressed from levels established twelve months ago, and that there is no certainty that these levels will stabilize or reverse. We also recognize that the price of oil increased from approximately $30 per barrel in 2003 to over $140 per barrel in the summer of 2008 but has decreased to lows of below $40 in December 2008 and February 2009, and then increased to approximately $80 per barrel as of late February 2010. If the price of oil continues to fluctuate significantly, we recognize that it will adversely affect our ability to raise additional capital. Any of these factors could have a material impact upon our ability to raise financing and, as a result, upon our short-term or long-term liquidity.

Going Concern

Our current sources of revenue are inadequate to provide incoming cash flows to sustain our future operations. As outlined above, our ability to pursue our planned business activities is dependent upon our successful efforts to raise additional equity financing. These factors raise substantial doubt regarding our ability to continue as a going concern. Our consolidated financial statements have been prepared on a going concern basis, which implies that we will continue to realize our assets and discharge our liabilities in the normal course of business. As at January 31, 2010, we had accumulated losses of $11,039,391 since inception. Our financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Current Economic Conditions

During 2008 and the beginning of 2009, particularly in the fourth quarter of 2008, the ongoing global credit crisis and economic weakness have made for extremely volatile capital markets characterized by plunging equity and commodity prices and an environment in which few opportunities exist to raise additional capital. We have taken precautions where we can, and implemented initiatives to preserve our cash resources. We will be reviewing our operating activities, exploration plans and capital position on an ongoing basis during fiscal 2010 and may revise our operations or abandon properties if management deems it necessary in order to maintain the long-term viability of the Company.

Off-Balance Sheet Arrangements

As of the date of this quarterly report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Critical Accounting Policies

Our consolidated financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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.

We regularly evaluate the accounting policies and estimates that we use to prepare our consolidated financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

Accounting Standards Codification

Oil and Gas Properties

We follow the full cost method of accounting for our oil and gas operations whereby all costs related to the acquisition of petroleum and natural gas interests are capitalized. Such costs include land and lease acquisition costs, annual carrying charges of non-producing properties, geological and geophysical costs, costs of drilling and equipping productive and non-productive wells, and direct exploration salaries and related benefits. We operate in one cost center, being the United States.

All costs included in properties subject to amortization, are amortized on the unit-of-production method using estimates of proved reserves. Investments in unproved properties and development projects are not amortized until proved reserves associated with the projects can be determined or impairment occurs. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is added to the capitalized costs to be amortized. Abandonment of oil and natural gas properties are charged to the full cost pool and amortized.

Under the full cost method, the net book value of oil and natural gas properties are subject to a "ceiling" amount. The ceiling is the estimated after-tax future net cash flows from proved oil and natural gas properties, discounted at 10% per annum plus the lower of cost or fair market value of unevaluated properties. In calculating future net revenues, prices and costs in effect at the time of the calculation are held constant for the lives of the oil and natural gas reserves, except for changes that are fixed and determinable by existing contracts. The excess, if any, of the net book value above this ceiling is impaired.

Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in the statement of operations.

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Restoration and Remediation Costs (Asset Retirement Obligations)

Various federal and state laws and regulations require us to reclaim the surface areas and restore underground water quality for our projects to the pre-existing area average quality after the completion of production. Future reclamation and remediation costs, which include production equipment removal and environmental remediation, are accrued based on management's best estimate at the end of each period of the costs expected to be incurred at each project. Such estimates would be determined by engineering studies calculating the cost of future surface and groundwater activities, current regulations, actual expenses incurred, and technology and industry standards.

In accordance with ASC 410, Asset Retirement and Environmental Obligations, we capitalize the measured fair value of asset retirement obligations to oil and gas properties. The asset retirement obligations would be accreted to an undiscounted value until the time at which it they are expected to be settled. Actual retirement costs will be recorded against the asset retirement obligations when incurred. Any difference between the recorded asset retirement obligations and the actual retirement costs incurred will be recorded as a gain or loss in the period of settlement.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability of these assets is measured by comparison of its carrying amount to future undiscounted cash flows the assets are expected to generate. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.

Stock-Based Compensation

We record stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are currently not subject to any material market risks.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective, due to certain deficiencies in our internal control over financial reporting as of July 31, 2009, as described in our management's report on internal control over financial reporting included in our annual report on Form 10-K for our fiscal year ended July 31, 2009, which deficiencies have not been remedied as of January 31, 2010.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the second quarter of our fiscal year ended July 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II- OTHER INFORMATION

Item 1. Legal Proceedings

As of the date of this quarterly report, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceeding. Management is not aware of any other legal proceedings pending or that have been threatened against us or our properties.

Item 1A. Risk Factors

There have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended July 31, 2009 which was filed with the SEC on November 12, 2009.

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

Effective on November 13, 2009, we issued 5,250,000 units to 12 accredited investors at a subscription price of $0.20 per Unit and for gross proceeds of $1,050,000. Each unit consists of one share of our common stock and one share purchase warrant to purchase an additional share of common stock at an exercise price of $0.35 until November 13, 2014. We relied on exemptions from registration under the Securities Act, provided by Rule 506 of Regulation D. In addition, on such date we issued share purchase warrants to purchase an additional 730,000 shares of our common stock (on the same warrant terms as described above in this paragraph) to seven holders pursuant to finders' fee agreements; we relied on exemptions from registration under the Securities Act provided by Section 4(2) thereof and Rule 506 of Regulation D. These issued shares and shares issuable upon exercise of these warrants were subsequently registered pursuant to our S-1 registration statement filed with the SEC on November 24, 2009, which was declared effective on December 7, 2009.

Effective on November 13, 2009, we issued share purchase warrants to purchase 50,000 shares of our common stock at an exercise price of $0.35 until November 13, 2014 as payment for prior business development services provided to us. We relied on exemptions from registration under the Securities Act, provided by Section 4(2) thereof and Rule 506 of Regulation D. The shares issuable upon exercise of these warrants were subsequently registered pursuant to our S-1 registration statement filed with the SEC on November 24, 2009, which was declared effective on December 7, 2009.

Effective November 27, 2009, we entered into a restated corporate development consulting agreement. In accordance with the terms of the agreement on December 9, 2009, we issued 10,811 shares of our restricted common stock to one shareholder pursuant to Regulation S and/or Section 4(2) of the Securities Act.

Effective November 30, 2009, we entered into a corporate development services agreement. In accordance with the terms of the agreement on December 9, 2009, we issued 300,000 shares of our restricted common stock to one shareholder pursuant to Rule 506 of Regulation D and/or Section 4(2) of the Securities Act.

Effective December 1, 2009, we entered into a consulting services agreement. In accordance with the terms of the agreement on December 9, 2009, we issued 50,000 shares of our restricted common stock to one shareholder pursuant to Rule 506 of Regulation D and/or Section 4(2) of the Securities Act.

Effective January 12, 2010, we issued 150,000 shares of restricted common stock to one shareholder pursuant to the terms of a services agreement at a deemed price of $0.20 per share. We relied on an exemption from registration under the Securities Act provided by Regulation S.

Item 3. Defaults Upon Senior Securities

None.

Item 4. (Removed and Reserved)

Item 5. Other Information

None.

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Item 6. Exhibits

The following exhibits are included with this Quarterly Report on Form 10-Q/A:

Exhibit	Description of Exhibit

31.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).

31.2	Certification of Chief Financial Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).

32.1	Certifications pursuant to Securities Exchange Act of 1934 Rule 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

STRATEGIC AMERICAN OIL CORPORATION

/s/ "Jeremy Glenn Driver"

Jeremy Glenn Driver

President, Chief Executive Officer, Principal Executive Officer and a director

Date: January 7, 2011

/s/ "Johnathan Lindsay"

Johnathan Lindsay

Secretary, Treasurer, Chief Financial Officer, Principal Accounting Officer and a director

Date: January 7, 2011

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