SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
20-F





[
]  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934





OR





[X]   ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
fiscal year endedDecember 31, 2008





OR





[   ]           TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
transition period from ____________ to __________





OR





[
]   SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934





Date
      of event requiring this shell company report:
  ______





Commission
file number: 333-104670





STRATA OIL & GAS
INC.


(formerly
Stratabase Inc.)


(Exact
name of Registrant as specified in its charter)





Alberta,
Canada


(Jurisdiction
of incorporation or organization)





717 - 7th Avenue SW, Suite
1750, Calgary, Alberta, Canada, T2P 0Z3


(Address
of principal executive offices)





Securities
to be registered pursuant to Section 12(b) of the Act:





None





Securities
to be registered pursuant to Section 12(g) of the Act:





Common Stock, Fully Paid and
Non-Assessable Common Shares, Without Par Value


(Title of
Class)





Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None





Indicate
the number of outstanding shares of each of the issuer's classes of capital or
common stock as of the close of the period covered by the annual report: The
registrant has one class of Common Stock with 61,881,088 shares outstanding at
December 31, 2008 and 63,531,088 shares outstanding as of July 10,
2009.  No preferred shares issued and outstanding.





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act Yes [  ] No [X]





If this
report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934. Yes [  ] No [X]


i




Note –
Checking the box above will not relieve any registrant required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from
their obligations under those Sections.







Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past ninety days.


Yes [X] No
[  ]





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.





Large
accelerated filer [  ]    Accelerated filer
[  ]     Non-accelerated filer
[X]





Indicate
by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing:





U.S.
      GAAP [ X ]
            International
      Financial Reporting Standards as issued
            Other
      [  ]by
      the International Accounting Standards Board
[  ]





If “Other”
has been checked in response to the previous question, indicate by check mark
which financial statement item the registrant has elected to
follow.





Item 17
[  ] Item 18 [  ]








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


Yes
[  ]  No [X]


ii





STRATA
OIL & GAS INC.





FORM
20-F ANNUAL REPORT 2008





TABLE
OF CONTENTS








Oil
      and Gas GlossaryIntroductionPart
      IItem
      1.
              Identity
      of Directors, Senior Management and Advisors
              1Item
      2.
              Offer
      Statistics and Expected Timetable
              1Item
      3.
              Key
      Information
              1Item
      4.
                Item
      4A.
              Information
      on the Company
                Unresolved
      Staff Comments
              11
                26Item
      5.
              Operating
      and Financial Review and Prospects
              26Item
      6.
              Directors,
      Senior Management and Employees
              35Item
      7.
              Major
      Shareholders and Related Party Transactions
              41Item
      8.
              Financial
      Information
              42Item
      9.
              The
      Offer and Listing
              43Item
      10.
              Additional
      Information
              44Item
      11.
              Quantitative
      and Qualitative Disclosures About Market Risk
              49Item
      12.
              Description
      of Other Securities Other Than Equity Securities
              50Part
      IIItem
      13.
              Defaults,
      Dividend Arrearages and Delinquencies
              51Item
      14.
              Material
      Modifications to the Rights of Security Holders and Use of
      Proceeds
              51Item
      15.
              Controls
      and Procedures
              51Item
      16.
              Reserved
              52Part
      IIIItem
      17.
              Not
      Applicable
              54Item
      18.
              Financial
      Statements
              54Item
      19.
              Exhibits
              81Financial
      StatementsSignature
      Page





iii


OIL
AND GAS GLOSSARY








Term
              DefinitionBasin
              A
      depressed area where sediments have accumulated during geologic time and
      considered to be prospective for oil and gas deposits.Bitumen
              Heavy,
      viscous crude oilBluesky
      Formation
              The
      Bluesky is fine to medium grained, usually glauconitic, partly calcareous
      or sideritic, salt and pepper sandstone with fair porosity. Chert granules
      and pebbles occur near the top, with thin shale interbedded throughout.
      The thickness is 0-46 meters in the Peace River plains subsurface. It
      thins to the south and southeastCHOPS
              Cold
      Heavy Oil Production with SandCarboniferous
              The
      period of geological time between 360 and 286 million years
      ago.  A series of stratified rocks and associated volcanic rocks
      which occur above the Devonian or Old Sandstone and below the Permian or
      Triassic systems belonging to the Carboniferous period.Cretaceous
      Period
              A
      period 144 to 65 million years agoDebolt
      Formation
              Lies
      above the Elkton Formation and ranges from mid- to upper Visean in age
      (345.3 to 326.4 million years ago)Development
              The
      phase in which a proven oil or gas field is brought into production by
      drilling production (development) wells.Drilling
              The
      using of a rig and crew for the drilling, suspension, production testing,
      capping, plugging and abandoning, deepening, plugging back, sidetracking,
      re-drilling or reconditioning of a well.Drilling
      logs
              Recorded
      observations made of rock chips cut from the formation by the drill bit,
      and brought to the surface with the mud, as well as rate of penetration of
      the drill bit through rock formations. Used by geologists to obtain
      formation data.Exploration
              The
      phase of operations which covers the search for oil or gas by carrying out
      detailed geological and geophysical surveys followed up where appropriate
      by exploratory drilling. Compare to "Development" phase.Jurassic
      Period
              Between
      206 and 144 million years agoMineral
      Lease
              A
      legal instrument executed by a mineral owner granting exclusive right to
      another to explore, drill, and produce oil and gas from a piece of
      landOil
      Sands
              Sand,
      clay and rock material containing bitumenPorosity
              The
      ratio of the volume of void spaces in a rock or sediment to the total
      volume of the rock or sediment.Reserves
              Generally
      the amount of oil or gas in a particular reservoir that is available for
      production.Reservoir
              The
      underground rock formation where oil and gas has accumulated. It consists
      of a porous rock to hold the oil or gas, and a cap rock that prevents its
      escape





iv





INTRODUCTION





Strata Oil
& Gas Inc. (formerly Stratabase Inc.) was incorporated under the laws of the
State of Nevada on November 18, 1998 and commenced operations in January 1999.
We completed our initial public offering in February 2000.   In
January 2003, the Company filed a proposal to effect a continuation of the
corporate jurisdiction from the State of Nevada to Canada on Form S-4 with the
United States Securities and Exchange Commission (SEC).  The Form S-4
was declared effective on or about July 7, 2004 and submitted to the
shareholders of the Company.  The special meeting of stockholders to
vote on the adoption of the plan of conversion was held on August 17, 2004 and a
majority of the shareholders approved the plan of
conversion.  Accordingly, the Company changed its name to "Stratabase
Inc.," and continued to operate under the Canada Business Corporations
Act.





On June
29, 2005 at an annual general and special meeting of shareholders, a majority of
the shareholders of the Company approved the sale of all of the rights to the
Company’s software assets.  At the same meeting, a majority of the
Company’s shareholders also approved the change in business of the Company from
software development to oil and gas exploration.  Our headquarters are
located at 717 - 7th Avenue
SW, Suite 1750, Calgary, Alberta, Canada, T2P 0Z3.  The telephone
number is (403) 237-5443.  The Company’s web address is
strataoil.com.





On May 9,
2006, at a Special Meeting of the Company’s stockholders, a majority of the
Company’s stockholders approved a 2:1 forward stock split.  The record
and payment dates of the forward split were May 10 and May 11, 2006
respectively.   In addition, on July 13, 2007, at a Special
Meeting of the Company’s stockholders, a majority of the Company’s stockholders
approved a 2:1 forward stock split.  The record and payment dates of
the forward split were October 8 and October 9, 2007
respectively.  All references to share and per share amounts have been
restated in this 20-F to reflect these splits.





In this
Annual Report, the “Company”, “Strata Oil & Gas Inc.”, “Strata”, "we",
"our", and "us", refer to Strata Oil & Gas Inc. (unless the context
otherwise requires).  Summary discussions of documents referred to in
this Annual Report may not be complete, and we refer you to the actual documents
for more complete information.







BUSINESS
OF STRATA OIL & GAS INC.





The
Company operates in the oil and gas industry with a focus on Canada’s
carbonate-hosted bitumen deposits.  The Company currently has
interests in a total of 43 oil sands leases located in Northern Alberta,
Canada.







FINANCIAL
AND OTHER INFORMATION





In this
Annual Report, unless otherwise specified, all dollar amounts are expressed in
United States Dollars (“USD$” or “$”).







FORWARD-LOOKING
STATEMENTS





This
Annual Report includes forward-looking statements, principally in ITEM #4,
“Information on the Company” and ITEM #5, “Operating and Financial Review and
Prospects".  We have based these forward-looking statements largely on
our current expectations and projections about future events and financial
trends affecting our business.  These forward-looking statements are
subject to risks, uncertainties and assumptions including, among other things,
the factors discussed in this Annual Report under ITEM #3, “Key Information,
Risk Factors" and factors described in documents that we may furnish from time
to time to the Securities and Exchange Commission.





The words
"believe", "may", "estimate", "continue", "anticipate", "intend", "expect", and
similar words are intended to identify forward-looking statements.  In
light of these risks and uncertainties, the forward-looking information, events
and circumstances discussed in this Annual Report might not
occur.  Our actual results and performance could differ substantially
from those anticipated in our forward-looking statements.  We
undertake no obligation to update publicly or revise any forward-looking
statements because of new information, future events or
otherwise.


5


PART I





Item
1. Identity of Directors, Senior Management and Advisors





Not
applicable.





Item
2. Offer Statistics and Expected Timetable





Not
applicable.





Item
3. Key Information





A.
Selected Financial Data





The
following sets forth selected financial information of Strata prepared in
accordance with accounting principles generally accepted in the United States
for the fiscal years ended December 31, 2008, 2007, 2006, 2005 and
2004.  On June 29, 2005 at an annual general and special meeting of
shareholders, a majority of the shareholders of the Company approved the sale of
all of the rights to the Company’s software assets.  At the same
meeting, a majority of the Company’s shareholders also approved the change in
business of the Company from software development to oil and gas
exploration.  Subsequent to entering the oil and gas exploration
business, we have entered into 43 oil sands leases in Alberta,
Canada.  These leases have not previously generated revenue nor did we
earn any revenue during the year ended December, 31 2008.  As a
result, the selected financial information may not be indicative of Strata’s
future performance and should be read in conjunction with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and
the financial statements and the notes thereto included elsewhere in this annual
report.








SELECTED OPERATIONS DATA


(in U.S.
dollars)





Strata
      Oil & Gas Inc.Years
      Ended December 31,2008
              2007
              2006
              2005
              2004Revenue
              $                   -
              $                  -
              $                  -
              $                  -
              $                  -Expenses
              654,240
              468,031
              7,059,245
              2,003,105
              347,052Other
      income (expense), net
              12,497
              13,306
              181,840
              (16,589)
              2,489Loss
      from continuing operations
              (641,743)
              (454,725)
              (6,877,405)
              (2,019,694)
              (344,563)Income
      (loss) from discontinued operations
              $                   -
              $                   -
              $       130,000
              $       (64,916)
              $   (350,296)Net
      income (loss)
              $
      (641,743)
              $
      (454,725)
              $
      (6,747,405)
              $  (2,084,610)
              $   (694,859)Basic
      and diluted income (loss) per share:From
      continuing operations
              $          (0.01)
              $          (0.01)
              $          (0.13)
              $          (0.05)
              $         (0.01)From
      discontinued operations
              $          (0.00)
              $          (0.00)
              $          (0.00)
              $          (0.00)
              $         (0.01)After
      discontinued operations
              $          (0.01)
              $          (0.01)
              $          (0.13)
              $          (0.05)
              $         (0.02)Basic
      weighted average number of common shares outstanding (in
      millions)
              61.7
              57.4
              51.8
              43.2
              39.6Diluted
      weighted average number of common shares outstanding (in
      millions)
              N/A
              N/A
              N/A
              N/A
              N/A





1


Item
3. Key Information  - continued





A.
Selected Financial Data  - continued





BALANCE
SHEET DATA


(in
      U.S. Dollars)
              Strata
      Oil & Gas Inc.December
      31,2008
              2007
              2006
              2005
              2004Cash
      and cash equivalents
              $    121,776
              $    27,963
              $    3,779,527
              $       74,436
              $      52,187Other
      current assets
              47,504
              23,449
              81,893
              6,638
              5,329Deposits
              94,533
              16,596
              -
              -
              -Property
      and equipment, net
              6,692
              8,712
              -
              -
              14,520Oil
      and gas property interests
              7,039,208
              7,717,683
              2,786,842
              128,733
              -Total
      assets
              7,309,713
              7,794,403
              6,648,262
              209,807
              72,036Current
      liabilities
              120,350
              364,528
              164,213
              57,229
              34,729Asset
      retirement obligations
              88,606
              68,563
              -
              -
              -Common
      stock
              9,472,278
              7,712,278
              7,210,518
              549,668
              39,668Other
      capital accounts
              10,087,660
              11,466,472
              10,636,244
              4,218,218
              2,528,337(Accumulated
      deficit) retained earnings
              (12,459,181)
              (11,817,438)
              (11,362,713)
              (4,615,308)
              (2,530,698)Total
      liabilities and stockholders’ equity
              7,309,713
              7,794,403
              6,648,262
              $     209,807
              $      72,036







Dividends




We have
never paid or declared dividends on our shares of common stock.




Exchange
Rates




Our
Financial Statements, as provided under Items 8 and 18 and all dollar amounts
presented in this Registration Statement, are presented in US dollars, unless
otherwise expressly stated. For comparison purposes, exchange rates into U.S.
dollars are provided. The following tables set forth the exchange rate as of the
latest practicable date, high and low exchange rates for the months indicated
and the average exchange rates for the reporting periods indicated, based on the
noon U.S. dollar buying rate in New York City for cable transfers in Canadian
dollars as certified for customs purposes by the Federal Reserve Bank of New
York (Canadian Dollar = U.S. $1.00).






Exchange
Rates for Canadian Versus U.S. Dollars




The
exchange rate as of July 10, 2009 was CDN $1.1647 per U.S.
$1.00.




Exchange
      Rates for Canadian Versus U.S. Dollars(High/low
      rates for latest six months)
                  
                  High
                  
                  
                  LowJune,
      2009
                  
                  
                  1.08
                  
                  
                  
                  1.16May,
      2009
                  
                  
                  1.09
                  
                  
                  
                  1.19April,
      2009
                  
                  
                  1.19
                  
                  
                  
                  1.27March,
      2009
                  
                  
                  1.22
                  
                  
                  
                  1.31February,
      2009
                  
                  
                  1.21
                  
                  
                  
                  1.29January,
      2009
                  
                  
                  1.18
                  
                  
                  
                  1.27





Exchange
      Rates for Canadian Versus U.S. Dollars
              Average
      ($)For
      the twelve months ended December 31, 2008
              1.07For the twelve months ended December 31,
      2007
              1.07For
      the twelve months ended December 31, 2006
              1.13For
      the twelve months ended December 31, 2005
              1.21For
      the twelve months ended December 31, 2004
              1.30







2









B.
Capitalization and Indebtedness





Not
applicable.







C.
Reasons for the offer and use of proceeds





Not
applicable.







D.
Risk Factors





This investment has a high degree of
risk.  Before you invest you should carefully consider the risks and
uncertainties described below and the other information in this
prospectus.  If any of the following risks actually occur, our
business, operating results and financial condition could be harmed and the
value of our stock could go down.  This means you could lose all or a
part of your investment.





RISKS
RELATING TO OUR COMPANY





1.
            We
      are an exploration stage company, with limited operating history, which
      raises substantial doubt as to our ability to successfully develop
      profitable business operations and makes an investment in our common
      shares very risky.





On June
29, 2005 at an annual general and special meeting of shareholders, a majority of
the shareholders of the Company approved the sale of all of the rights to the
Company’s software assets to a private company controlled by Trevor Newton, our
former president.  At the same meeting, a majority of the Company’s
shareholders also approved the change in business of the Company from software
development to oil and gas exploration.  As a result we have only
recently commenced oil and gas exploration operations. Our prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered in establishing a business in the oil and natural gas industries. We
have yet to generate any revenues from operations.  There is nothing
at this time on which to base an assumption that our business operations will
prove to be successful or that we will ever be able to operate profitably. Our
future operating results will depend on many factors, including:





•
      our ability to raise adequate working
capital;


•
      success of our development and
exploration;


•
      demand for natural gas and oil;


•
      the level of our competition;


•
      our ability to attract and maintain key management and employees;
      and


•
      our ability to efficiently explore, develop and produce sufficient
      quantities of marketable natural gas or oil in a highly competitive and
      speculative environment while maintaining quality and controlling
      costs.





To achieve
profitable operations, we must, alone or with others, successfully execute on
the factors stated above.  If we are not successful in executing any
of the above stated factors, our business will not be profitable and may never
even generate any revenue, which make our common shares a less attractive
investment and may harm the trading of our common shares trading on the OTC
Bulletin Board.





2.
            At
      this stage of our business, even with our good faith efforts, potential
      investors have a high probability of losing their
    investment.





Because
the nature of our business is expected to change as a result of shifts in the
market price of oil and natural gas, competition, and the development of new and
improved technology, management forecasts are not necessarily indicative of
future operations and should not be relied upon as an indication of future
performance.





3


Our
Management may incorrectly estimate projected occurrences and events within the
timetable of its business plan, which would have an adverse effect on our
results of operations and, consequently, make our common shares a less
attractive investment and harm the trading of our common shares trading on the
OTC Bulletin Board.  Investors may find it difficult to sell their
shares on the OTC Bulletin Board.





3.
            If
      capital is not available to us to fund future operations, we will not be
      able to pursue our business plan and operations would come to a halt and
      our common shares would be nearly
worthless.





Cash on
hand is not sufficient to fund our anticipated operating needs of approximately
$500,000 for the next twelve months.  We will require substantial
additional capital to participate in the development of our properties which
have not had any production of oil or natural gas as well as for acquisition
and/or development of other producing properties.  Because we
currently do not have any cash flow from operations we need to raise additional
capital, which may be in the form of loans from current shareholders and/or from
public and private equity offerings.  Our ability to access capital
will depend on our success in participating in properties that are successful in
exploring for and producing oil and gas at profitable prices.  It will
also be dependent upon the status of the capital markets at the time such
capital is sought.  Should sufficient capital not be available, the
development of our business plan could be delayed and, accordingly, the
implementation of our business strategy would be adversely affected. In such
event it would not be likely that investors would obtain a profitable return on
their investments or a return of their investments at all.





4.
            We
      are heavily dependent on Manny Dhinsa, our CEO, President and
      Chairman.  The loss of Mr. Dhinsa, whose knowledge, leadership
      and technical expertise upon which we rely, would harm our ability to
      execute our business plan.





Our
success depends heavily upon the continued contributions of Manny Dhinsa, whose
knowledge, leadership and technical expertise would be difficult to
replace.  Our success is also dependent on our ability to retain and
attract experienced engineers, geoscientists and other technical and
professional staff.   Effective May 15, 2006 we entered into a
consulting agreement with Mr. Dhinsa under which Mr. Dhinsa will dedicate all of
his time to the operations of the Company.  We do not maintain any key
person insurance on Mr. Dhinsa.   If we were to lose his
services, our ability to execute our business plan would be harmed and we may be
forced to cease operations until such time as we could hire a suitable
replacement for Mr. Dhinsa.





5.
            Volatility of oil and gas prices
      and markets could make it difficult for us to achieve profitability and
      less likely investors in our common shares will receive a return on their
      investment.





Our
ability to achieve profitability is substantially dependent on prevailing prices
for natural gas and oil.  The amounts of and price obtainable for any
oil and gas production that we achieve will be affected by market factors beyond
our control.  If these factors are not favorable over time to our
financial interests, it is likely that owners of our common shares will lose
their investments. Such factors include:





•
      worldwide or regional demand for energy, which is affected by economic
      conditions;


•
      the domestic and foreign supply of natural gas and
  oil;


•
      weather conditions;


•
      domestic and foreign governmental
regulations;


•
      political conditions in natural gas and oil producing
    regions;


•
      the ability of members of the Organization of Petroleum Exporting
      Countries to agree upon and maintain oil prices and production levels;
      and


•
      the price and availability of other
fuels.








4


6.
            Drilling
      wells is speculative, often involving significant costs that may be more
      than our estimates.  Any material inaccuracies in drilling
      costs, estimates or underlying assumptions will reduce the profitability
      of our business and will negatively affect our results of
      operations.





Developing
and exploring for natural gas and oil involves a high degree of operational and
financial risk, which precludes definitive statements as to the time required
and costs involved in reaching certain objectives.  The budgeted costs
of drilling, completing and operating wells are often exceeded and can increase
significantly when drilling costs rise due to a tightening in the supply of
various types of oilfield equipment and related services.  Drilling
may be unsuccessful for many reasons, including title problems, weather, cost
overruns, equipment shortages and mechanical difficulties.  Moreover,
the successful drilling of a natural gas or oil well does not ensure a profit on
investment.  Exploratory wells bear a much greater risk of loss than
development wells.  A variety of factors, both geological and
market-related, can cause a well to become uneconomical or only marginally
economic such as:





•
      fires;


•
      explosions;


•
      blow-outs and surface cratering;


•
      uncontrollable flows of oil, natural gas, and formation
    water;


•
      natural disasters, such as hurricanes and other adverse weather
      conditions;


•
      pipe, cement, or pipeline failures;


•
      casing collapses;


•
      embedded oil field drilling and service
tools;


•
      abnormally pressured formations;
and


•
      environmental hazards, such as natural gas leaks, oil spills, pipeline
      ruptures and discharges of toxic
gases.





If we
experience any of these problems, it could affect well bores, gathering systems
and processing facilities, which could adversely affect our ability to conduct
operations. We could also incur substantial losses as a result of:





•
      injury or loss of life;


•
      severe damage to and destruction of property, natural resources and
      equipment;


•
      pollution and other environmental
damage;


•
      clean-up responsibilities;


•
      regulatory investigation and
penalties;


•
      suspension of our operations; and


•
      repairs to resume operations.





7.
            The
      unavailability or high cost of drilling rigs, equipment, supplies,
      personnel and other services could adversely affect our ability to execute
      on a timely basis our development, exploitation and exploration plans
      within our budget.





Shortages
or an increase in cost of drilling rigs, equipment, supplies or personnel could
delay or interrupt our operations, which could impact our financial condition
and results of operations.  Drilling activity in the geographic areas
in which we conduct drilling activities may increase, which would lead to
increases in associated costs, including those related to drilling rigs,
equipment, supplies and personnel and the services and products of other vendors
to the industry. Increased drilling activity in these areas may also decrease
the availability of rigs.  We do not have any contracts with providers
of drilling rigs and, consequently we may not be able to obtain drilling rigs
when we need them.  Therefore, our drilling and other costs may
increase further and necessary equipment and services may not be available to us
at economical prices.








5


8.
            We
      are subject to complex laws and regulations, including environmental
      regulations, which can adversely affect the cost, manner or feasibility of
      doing business.





Development,
production and sale of natural gas and oil in Canada are subject to extensive
laws and regulations, including environmental laws and
regulations.  We may be required to make large expenditures to comply
with environmental and other governmental regulations.  Matters
subject to regulation include:





•
      location and density of wells;


•
      the handling of drilling fluids and obtaining discharge permits for
      drilling operations;


•
      accounting for and payment of royalties on production from state, federal
      and Indian lands;


•
      bonds for ownership, development and production of natural gas and oil
      properties;


•
      transportation of natural gas and oil by
  pipelines;


•
      operation of wells and reports concerning operations;
  and


•
      taxation.





Under
these laws and regulations, we could be liable for personal injuries, property
damage, oil spills, discharge of hazardous materials, remediation and clean-up
costs and other environmental damages.  Failure to comply with these
laws and regulations also may result in the suspension or termination of our
operations and subject us to administrative, civil and criminal
penalties.  Moreover, these laws and regulations could change in ways
that substantially increase our costs.  Accordingly, any of these
liabilities, penalties, suspensions, terminations or regulatory changes could
materially adversely affect our financial condition and results of operations
enough to possibly force us to cease our business operations.





9.
            Our
      oil and gas operations may expose us to environmentalliabilities.





If we
experience any leakage of crude oil and/or gas from the subsurface portions of a
well, our gathering system could cause degradation of fresh groundwater
resources, as well as surface damage, potentially resulting in suspension of
operation of a well, fines and penalties from governmental agencies,
expenditures for remediation of the affected resource, and liabilities to third
parties for property damages and personal injuries.  In addition, any
sale of residual crude oil collected as part of the drilling and recovery
process could impose liability on us if the entity to which the oil was
transferred fails to manage the material in accordance with applicable
environmental health and safety laws.





10.
            Exploratory
      drilling involves many risks and we may become liable for pollution or
      other liabilities which may have an adverse effect on our financial
      position.





Drilling
operations generally involve a high degree of risk. Hazards such as unusual or
unexpected geological formations, power outages, labor disruptions, blow-outs,
sour gas leakage, fire, inability to obtain suitable or adequate machinery,
equipment or labour, and other risks are involved. We may become subject to
liability for pollution or hazards against which it cannot adequately insure or
which it may elect not to insure. Incurring any such liability may have a
material adverse effect on our financial position and operations.





11.
            The
      potential profitability of oil and gas ventures depends upon factors
      beyond the control of our company.





The
potential profitability of oil and gas properties is dependent upon many factors
beyond our control.  For instance, world prices and markets for oil
and gas are unpredictable, highly volatile, potentially subject to governmental
fixing, pegging, controls, or any combination of these and other factors, and
respond to changes in domestic, international, political, social, and economic
environments. Additionally, due to worldwide economic uncertainty, the
availability and cost of funds for production and other expenses have become
increasingly difficult, if not impossible, to project.  These changes
and events may materially affect our financial performance.





6


12.
            Our
      auditors’ opinion on our December 31, 2008 financial statements includes
      an explanatory paragraph in respect of there being substantial doubt about
      our ability to continue as a going
concern.





We have
incurred net losses of $9,710,391 from July 1, 2005 (the date we commenced our
oil and gas operations) to December 31, 2008.  Our financial
statements do not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts of and classification of
liabilities that might be necessary in the event the Company cannot continue in
existence.  We anticipate generating losses for at least the next 12
months.  Therefore, there is substantial doubt about our ability to
continue operations in the future as a going concern.  We will need to
obtain additional funds in the future.  Our plans to deal with this
cash requirement include loans from existing shareholders, raising additional
capital from the public or private sale of equity or entering into a strategic
arrangement with a third party.  If we cannot continue as a viable
entity, our shareholders may lose some or all of their investment in our
company.





13.
            If
      we do not maintain the property lease payments on our properties, we will
      lose our interest in the properties as well as losing all monies incurred
      in connection with the properties.





We have
two land packages in Alberta, Canada that were acquired through auction directly
from the government of Alberta.  The land packages are made up of a
number of underlying individual leases.  All of our leases require
annual lease payments to the Alberta provincial government.  See Item
4.D of the 20-F for a more detailed description of the property
obligations.  If we do not continue to make the annual lease payments,
we will lose our ability to explore and develop the properties and we will not
retain any kind of interest in the properties.








14.
            We
      may not be able to compete with current and potential exploration
      companies, some of whom have greater resources and experience than we do
      in locating and commercializing oil and natural gas
    reserves.





The
natural gas and oil market is intensely competitive, highly fragmented and
subject to rapid change.  We may be unable to compete successfully
with our existing competitors or with any new competitors.  We compete
with many exploration companies which have significantly greater personnel,
financial, managerial, and technical resources than we do.  This
competition from other companies with greater resources and reputations may
result in our failure to maintain or expand our business.








15.
            We
      expect losses to continue in the future because we have no oil or gas
      reserves and, consequently, no revenue to offset
  losses.





Based upon
the fact that we currently do not have any oil or gas reserves, we expect to
incur operating losses in next 12 months.  The operating losses will
occur because there are expenses associated with the acquisition and exploration
of natural gas and oil properties which do not have any income-producing
reserves.  Failure to generate revenues may cause us to go out of
business.  We will require additional funds to achieve our current
business strategy and our inability to obtain additional financing will
interfere with our ability to expand our current business
operations.








16.
            Because
      we are in the exploration stage of operations of our business our
      securities are considered highly
speculative.





We are in
the exploration stage of our business.  As a result, our securities
must be considered highly speculative.   We are engaged in the
business of exploring and, if warranted and feasible, developing natural gas and
oil properties.  Our current properties are without known reserves of
natural gas or oil.  Accordingly, we have not generated any revenues
nor have we realized a profit from our operations to date and there is little
likelihood that we will generate any revenues or realize any profits in the
short term.  Any profitability in the future from our business will be
dependent upon locating and developing economic reserves of natural gas and oil,
which itself is subject to numerous risk factors as set forth
herein.  Since we have not generated any revenues, we will have to
raise additional monies through loans from existing shareholders, the sale of
our equity securities or strategic arrangement with a third party in order to
continue our business operations.





7


17.
            Since
      our directors work for other natural resource exploration companies, their
      other activities for those other companies could slow down our operations
      or negatively affect our
profitability.





Not all of
our officers and directors are required to work exclusively for us and they do
not devote all of their time to our operations.  In fact, our
directors work for other natural resource exploration
companies.  Therefore, it is possible that a conflict of interest with
regard to their time may arise based on their employment by such other
companies.  Their other activities may prevent them from devoting
full-time to our operations which could slow our operations and may reduce our
financial results because of the slow down in operations.  It is
expected that each of our directors will devote approximately 1 hour per week to
our operations on an ongoing basis, and when required will devote whole days and
even multiple days at a stretch when property visits are required or when
extensive analysis of information is needed.





RISKS
RELATING TO OUR COMMON SHARES





18.
            We
      may, in the future, issue additional common shares, which would reduce
      investors’ percent of ownership and may dilute our share
      value.





Our
Articles of Incorporation authorize the issuance of an unlimited number of
common shares without par value and an unlimited number of preferred shares
without par value.  The future issuance of our unlimited authorized
common shares may result in substantial dilution in the percentage of our common
shares held by our then existing shareholders. We may value any common shares
issued in the future on an arbitrary basis.  The issuance of common
shares for future services or acquisitions or other corporate actions may have
the effect of diluting the value of the shares held by our investors, and might
have an adverse effect on any trading market for our common shares.





19.
            Our
      common shares are subject to the "Penny Stock" Rules of the SEC and we
      have no established market for our securities, which makes transactions in
      our stock cumbersome and may reduce the value of an investment in our
      stock.





The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than USD $5.00 per share or with an
exercise price of less than USD $5.00 per share, subject to certain
exceptions.  For any transaction involving a penny stock, unless
exempt, the rules require:





·
            that
      a broker or dealer approve a person's  account for transactions
      in  penny  stocks;  and


·
            the
      broker or dealer  receive from the investor a
      written  agreement to
      the  transaction,  setting forth the identity and
      quantity of the
      penny  stock  to  be  purchased.





In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must:





·
            obtain
      financial information and investment experience objectives of
      the  person;  and


·
            make
      a  reasonable  determination  that  the  transactions  in
      penny stocks are  suitable  for that person and the
      person has  sufficient
      knowledge  and  experience  in  financial  matters  to
      be capable of
      evaluating  the  risks  of  transactions  in  penny  stocks.





The broker
or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:





·
            sets  forth  the  basis
      on  which  the  broker  or  dealer  made
      the
  suitability  determination;  and


·
            that
      the broker or dealer received a signed,  written agreement from
      the  investor  prior  to  the  transaction.





Generally,
brokers may be less willing to execute transactions in securities subject to the
"penny stock" rules.  This may make it more difficult for investors to
dispose of our common shares and cause a decline in the market value of our
stock.





8


Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions.  Finally, monthly statements have
to be sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks.





20.
            We
      are a “foreign private issuer”, and you may not have access to the
      information you could obtain about us if we were not a “foreign private
      issuer”.





We are
considered a "foreign private issuer" under the Securities Act of 1933, as
amended.  As a foreign private issuer we will not have to file
quarterly reports with the SEC nor will our directors, officers and 10%
stockholders be subject to Section 16(b) of the Exchange Act.  As a
foreign private issuer we will not be subject to the proxy rules of Section 14
of the Exchange Act. Furthermore, Regulation FD does not apply to non-U.S.
companies and will not apply to us. Accordingly, you may not be able to obtain
information about us as you could obtain if we were not a “foreign private
issuer”.





21.
            Because
      we do not intend to pay any cash dividends on our Common shares, our
      stockholders will not be able to receive a return on their shares unless
      they sell them.





We intend
to retain any future earnings to finance the development and expansion of our
business. We do not anticipate paying any cash dividends on our common shares in
the foreseeable future.  Unless we pay dividends, our stockholders
will not be able to receive a return on their shares unless they sell
them.





22.
            We
      may become a passive foreign investment company, or PFIC, which could
      result in adverse U.S. tax consequences to U.S.
  investors.





If we are
a “passive foreign investment company” or “PFIC” as defined in Section 1297 of
the Code, U.S. Holders will be subject to U.S. federal income taxation under one
of two alternative tax regimes at the election of each such U.S. Holder. Section
1297 of the Code defines a PFIC as a corporation that is not formed in the
United States and either (i) 75% or more of its gross income for the taxable
year is “passive income”, which generally includes interest, dividends and
certain rents and royalties or (ii) the average percentage, by fair market value
(or, if we elect, adjusted tax basis), of its assets that produce or are held
for the production of “passive income” is 50% or more.  Whether we are
a PFIC in any year and the tax consequences relating to PFIC status will depend
on the composition of our income and assets, including cash. U.S. Holders should
be aware, however, that if we become a PFIC, we may not be able or willing to
satisfy record-keeping requirements that would enable U.S. Holders to make an
election to treat us as a “qualified electing fund” for purposes of one of the
two alternative tax regimes applicable to a PFIC, which would result in adverse
tax consequences to our shareholders who are U.S. citizens.





23.
            Because
      we are organized under the Canada Business Corporations Act and all of our
      assets and all of our officers and directors are located outside the
      United States, it may be difficult for an investor to enforce within the
      United States any judgments obtained against us or any of our officers and
      directors.





All of our
assets are located outside of the United States and we do not currently maintain
a permanent place of business within the United States. In addition, our
directors and officers are nationals and/or residents of countries other than
the United States, and all or a substantial portion of such persons' assets are
located outside the United States. As a result, it may be difficult for an
investor to effect service of process or enforce within the United States any
judgments obtained against us or our officers or directors, including judgments
predicated upon the civil liability provisions of the securities laws of the
United States or any state thereof. In addition, there is uncertainty as to
whether the courts of Canada would recognize or enforce judgments of United
States courts obtained against us or our directors and officers predicated upon
the civil liability provisions of the securities laws of the United States or
any state thereof.  There is even uncertainty as to whether the
Canadian courts would have jurisdiction to hear original actions brought in
Canada against us or our directors and officers predicated upon the securities
laws of the United States or any state thereof.








9


RISKS
RELATING TO THE CONTINUANCE








24.
            Due
      to the Company changing its domicile on August 17, 2004 from the United
      States to Canada we may owe additional U.S. taxes as a result of the
      conversion if our conclusions relating to the value of our assets are
      incorrect.





For U.S.
tax purposes, when we continued the company in Canada in the third quarter of
2004, it was treated as though we sold all of our property and received the fair
market value for those properties. We were taxed on any income or gains realized
on that "sale."  The fair market value of our assets was greater than
our tax basis of our assets and as a result we had a taxable gain on the deemed
"sale".





In
connection with the continuation, we reviewed our assets, liabilities and
paid-up capital and the extent of our losses carried forward and believe that we
do not owe any U.S. federal income taxes as a result of the
conversion/continuance. It is possible that the facts on which we based our
assumptions and conclusions may be challenged by the Internal Revenue
Service.  In particular, our determination of fair market value was
based upon a valuation of our assets and liabilities as of September 30, 2002.
The value was determined based upon the cash flows projected to be generated by
our intangible assets, discounted at a rate representative of an appropriate
rate of return for an alternative investment of equivalent risk. This discount
rate was estimated to be 25%. Underlying the valuation were key estimates of
management's projections of revenue and expenses for a six-year period which
were based upon on further estimates and assumptions surrounding our cost
structure, development of technology and continued market acceptance of our
database products and pricing.





There are
other valuation methodologies which, if employed, may have yielded a higher fair
market value for our assets which would have resulted in a larger taxable gain.
One such method is the "market capitalization method" where the implied value of
our net assets is equal to the number of our common shares outstanding
multiplied by the quoted market price of our common stock on the OTC Bulletin
Board on the transaction date. Had the market capitalization method been
applied, the valuation of our assets would have been substantially higher (as
much as $9.6 million higher as of the September 30, 2002 valuation date) than
the value determined using the discounted cash flow method and would have
yielded significant taxable capital gains and taxes owing as a result of the
continuance. Management assessed the two methods, but did not consider the
"market capitalization method" an appropriate reflection of the value of our
company as a whole. Our Company's common stock as quoted on the OTC Bulletin
Board, had a small public float and was relatively thinly traded. Because of
these factors, we considered the quoted market price of our stock to be an
unreliable measure of the fair value of our net assets and accordingly sought a
more appropriate measure of value.





The
valuation may be challenged by the Internal Revenue Service ("IRS"). Should the
IRS disagree with the valuation methodology we used or any of our assumptions,
they could reassess the deemed proceeds on the continuance to a higher amount.
We may not have tax losses carried forward from prior years sufficient to cover
any adjustments to the taxable gain required upon assessment by federal tax
authorities. Should our losses be insufficient, the tax liability to our company
could be significant and we may not have the available cash at that time to
settle the liability owing. Should we be unable to settle any such liability, we
may have to cease operations in which case our stockholders would likely lose
their investment in our company.





Management
believes the methodology, estimates and assumptions are not only reasonable but
the most appropriate in these circumstances. Hence, we did not apply to the
federal tax authorities (the Internal Revenue Service in the United States and
the Canada Revenue Agency in Canada) for a ruling on this matter and do not
intend to do so. We have also made certain other assumptions regarding the tax
treatment of this transaction in order to reach our conclusions and it may be
possible for some of these assumptions to be interpreted in a different manner
which would be less favorable to us. You should understand that it is possible
that the federal tax authorities will not accept our valuations or positions and
claim that we owe taxes as a result of this transaction.








10


Item 4. Information on Strata Oil & Gas
Inc.








A.
History and Development of Strata Oil & Gas Inc.





Strata Oil
& Gas Inc. (formerly Stratabase) was incorporated under the laws of the
State of Nevada on November 18, 1998 and commenced operations in January 1999.
We completed our initial public offering in February 2000.  Our
headquarters are located at 717 7th Avenue SW, Suite 1750, Calgary, Alberta,
Canada, T2P 0Z3.  The telephone number is (403)
237-5443.  The Company’s web address is
strataoil.com.   The Company operates in the oil and gas industry
with a focus on Canada’s carbonate-hosted bitumen deposits.  The
Company has interests in a total of 43 oil sands leases located in Northern
Alberta, Canada.





Continuance to
Canada





We are
presently incorporated under the Canada Business Corporations Act.  In
January 2003, the Company filed a proposal to effect a continuation of the
corporate jurisdiction from the State of Nevada to Canada on Form S-4 with the
United States Securities and Exchange Commission (SEC). The Form S-4 was
declared effective on or about July 7, 2004 and submitted to the shareholders of
the Company.  The special meeting of stockholders to vote on the
adoption of the plan of conversion was held on August 17, 2004 and a majority of
the shareholders approved the plan of conversion.  Accordingly, the
Company changed its name to "Stratabase Inc.," and continued to operate under
the Canada Business Corporations Act.  "Continuance" is a process by
which a corporation which is not incorporated under the laws of Canada may
change its jurisdiction of incorporation to Canada. Under the Canada Business
Corporations Act, if the laws of its home jurisdiction allow for it and a
resolution authorizing the continuance is approved by 66 2/3% of the company's
shareholders, the company may be "continued" as a Canadian corporation by filing
of Articles of Continuance with the Director under the Canada Business
Corporations Act. Under the corporate law of Nevada, this process is treated as
a conversion of the outstanding shares of a Nevada company to shares of a
Canadian company. The business and operations of Strata following the conversion
were identical in most respects to our current business, except that we will no
longer be subject to the corporate laws of the State of Nevada but are subject
to the Canada Business Corporations Act. The Canadian company is liable for all
the debts and obligations of the Nevada company, and the officers and directors
of the company are the officers and directors of Strata. On August 17, 2004,
Strata filed a Form 8-A with the SEC registering its securities under Section
12(g) of the Securities Act of 1933.





Discontinued
Operations





Until the
end of June, 2005 we had developed software which was designed to allow users to
interface with and manage databases and customer
relationships.   On June 29, 2005 at an annual general and
special meeting of shareholders, a majority of the shareholders of the Company
approved the sale of all of the rights to the Company’s software assets to a
private company controlled by our former president.  At the same
meeting, a majority of the Company’s shareholders also approved the change in
business of the Company from software development to oil and gas
exploration.





On June
29, 2005 pursuant to approval by a majority of the shareholders of the Company,
the Company entered into a letter of intent to dispose of all of its interest in
its proprietary software to a company (the “Purchaser”) controlled by its former
president for $130,000.    On July 11, 2005 a definitive
agreement was completed and in exchange for the rights to all of its software,
the Company received a non-interest bearing promissory note (the “Note”) which
was due July 11, 2006.  The entire amount of the promissory note was
received on June 30, 2006 and has been recorded as income from discontinued
operations in the Statement of Operations and Comprehensive Loss at December 31,
2006.  The Company had a lien and security interest in all of the
assets that were acquired by the Purchaser.





The assets
acquired by the Purchaser include all rights and use to the “Strata”, “Relata”,
and “Resync” names, all rights and use of the trademarks, web pages, and domain
names for “Strata”, “Relata”, and “Resync”, and all rights to the source code
and related documentation for the “Relata” and “Resync” software.  The
value of the assets disposed of was based on the results of an evaluation
prepared for the Company by an independent evaluator.





11


The entire
outstanding principal amount of the Note could have been converted, at the sole
discretion of the Purchaser into the Purchaser’s no par value common shares
(“Common Shares”), at any time prior to the maturity.  The Purchaser
could not have converted less than the entire principal amount of the
Note.  The Purchaser would not have been permitted to convert this
Note into Common Shares if there had been an event of default which had not been
cured and or was continuing.




The
Purchaser had at his sole discretion, the right to convert the promissory note
to equity in his private company.  If the Purchaser had chosen to
convert the promissory note to equity, it would have been converted into shares
of his company at market value.  The promissory note was secured by
all of the assets acquired by the Purchaser. The Purchaser could have assigned
his rights under the purchase agreement, provided that the terms of sale of the
software assets to such alternate buyer or assignee would have been
substantially the same as described above.





The
results of operations of the software operations have been segregated in the
financial statements as discontinued operations for the current and prior
periods.





Settlement of Loan
Receivable




In May
2002, the Company loaned $150,000 to Advanced Cell Technology ("ACT"), a private
biotechnology company, in exchange for a convertible promissory note receivable.
The note was unsecured, bore interest at 20% per annum, matured on April 30,
2003, and was to be converted into stock of ACT should ACT have proceeded with a
preferred stock financing prior to the note's maturity date. The Company accrued
a receivable for interest income, due under the terms of the promissory note, in
the amount of $21,206 at December 31, 2002. At April 30, 2003, the note
receivable was in default. The Company received notice from ACT of their
intention to settle the note receivable in full out of future
financing.  With the uncertainty regarding the recoverability of the
note receivable, in 2003 the Company reserved the principal amount of the note
receivable and accrued interest outstanding at December 31, 2002 and fully
reserved all additional accruals of interest.




On May 8,
2006 the Company completed an agreement with the current parent company of ACT,
Advanced Cell Technology, Inc. (“ACTC”) for settlement of the
loan.  The Company received 109,557 common shares of ACTC, a public
company, for settlement of the principal and interest of the loan.  As
part of the settlement, the Company had agreed to pay its legal counsel a
contingent fee based on the loan settlement amount.  As a result, of
the total 109,557 common shares of ACTC received by the Company, 14,232 were
assigned to the Company’s counsel for payment of legal fees.  At
December 31, 2006 the Company owned 95,325 shares of ACTC at a cost of $115,343
and a market value of $55,288.  The gross unrealized holding loss for
the twelve month period ended December 31, 2006 was $60,055.  The cost
and market values of the ACTC shares were determined by reference to their
closing prices on May 8 and December 31, 2006 respectively as quoted on the
OTC:BB.  As a result of the settlement of the loan with ACTC, the
Company recognized a gain of $115,343 at December 31, 2006.





During
2007, the Company disposed of all of its ACTC shares for gross proceeds of
$77,607 resulting in a loss of $37,736 at December 31, 2007.





B.
Business Overview





HISTORICAL CORPORATE
DEVELOPMENT





The
Company was originally a United States incorporated software development
company.  In August 2004 the Company formally completed the process of
becoming a Canadian-based company and on June 29, 2005 the Company sold all of
its interests in its software assets and became a business engaged in oil and
gas exploration.





The
Company currently has interests in oil sands properties located in the Wabasca
and Peace River areas of Northern Alberta, Canada.  A description of
the Company’s properties is set out below.





The
Company is an exploration stage company and there is no assurance that a
commercially viable oil or gas deposit exists on any of its properties. Further
evaluation will be required on each property before a final evaluation as to the
economics and legal feasibility of the property is determined.





12


The
Company currently has an interest in 43 oil sands leases in northern Alberta,
Canada.  Forty-two of the leases are in the Peace River oil sands area
and one is located in the Wabasca (a.k.a. Wabiskaw) oil sands
region.





MATERIAL EFFECTS OF
GOVERNMENT REGULATION





Development,
production and sale of natural gas and oil in Canada are subject to extensive
laws and regulations, including environmental laws and
regulations.  The oil and gas leases currently leased by the Company
are owned by the Province of Alberta and are managed by the Department of
Energy.  We may be required to make large expenditures to comply with
environmental and other governmental regulations.  Matters subject to
regulation include:





•
      location and density of wells;


•
      the handling of drilling fluids and obtaining discharge permits for
      drilling operations;


•
      accounting for and payment of royalties on production from state, federal
      and Indian lands;


•
      bonds for ownership, development and production of natural gas and oil
      properties;


•
      transportation of natural gas and oil by
  pipelines;


•
      operation of wells and reports concerning operations;
  and


•
      taxation.





Under
these laws and regulations, we could be liable for personal injuries, property
damage, oil spills, discharge of hazardous materials, remediation and clean-up
costs and other environmental damages.  Failure to comply with these
laws and regulations also may result in the suspension or termination of our
operations and subject us to administrative, civil and criminal
penalties.  Moreover, these laws and regulations could change in ways
that substantially increase our costs.  Accordingly, any of these
liabilities, penalties, suspensions, terminations or regulatory changes could
materially adversely affect our financial condition and results of operations
enough to possibly force us to cease our business operations.








ANTICIPATED CHANGES TO
FACILITIES AND EMPLOYEES





Management
of the Company anticipates no changes to either facilities or employees in the
near future.





SEASONALITY, DEPENDENCY UPON
PATENTS, LICENSES, CONTRACTS, PROCESSES, SOURCES AND AVAILIBILTY OF RAW
MATERIALS





Certain of
the Company’s properties are in remote locations and subject to significant
temperature variations and changes in working conditions.  It may not
be possible to actively explore the Company’s properties in Alberta throughout
the year because seasonal changes in the weather.  If exploration is
pursued at the wrong time of year, the Company may incur additional costs to
address issues relating to the weather.





Shortages
or an increase in cost of drilling rigs, equipment, supplies or personnel could
delay or interrupt our operations, which could impact our financial condition
and results of operations.  Drilling activity in the geographic areas
in which we conduct drilling activities may increase, which would lead to
increases in associated costs, including those related to drilling rigs,
equipment, supplies and personnel and the services and products of other vendors
to the industry. Increased drilling activity in these areas may also decrease
the availability of rigs.  We do not have any contracts with providers
of drilling rigs and, consequently we may not be able to obtain drilling rigs
when we need them.  Therefore, our drilling and other costs may
increase further and necessary equipment and services may not be available to us
at economical prices.





COMPETITION





The
natural gas and oil exploration industry is intensely competitive, highly
fragmented and subject to rapid change.  We may be unable to compete
successfully with our existing competitors or with any new
competitors.  We compete with many exploration companies which have
significantly greater personnel, financial, managerial, and technical resources
than we do.  This competition from other companies with greater
resources and reputations may result in our failure to maintain or expand our
business.





13


C.
Organizational Structure





The
Company is not part of a group and has no subsidiaries.





D.
Property Plant and Equipment





CORPORATE
OFFICES





We do not
own any real property. Our offices are located at 717 7th Avenue SW, Suite 1750,
Calgary, Alberta, Canada, T2P 0Z3.   The office is leased on a
24.5 month lease expiring October 30, 2009. The Company has the option to renew
the lease for an additional one year term.  We believe that the
facilities will be adequate for the foreseeable future. All costs described in
this section are stated in U.S. dollars as converted from Canadian
dollars.  Accordingly, the costs may vary to some degree with the
currency exchange rate.





OIL SANDS
LEASES





The
Company has an interest in 43 oil sands leases in northern Alberta,
Canada.  Forty-two of the leases are in the Peace River oil sands area
and one is located in the Wabasca (a.k.a. Wabiskaw) oil sands
region.





Oil
Sands Background





‘Oil
Sands’ refer to unconsolidated, bitumen-saturated sands containing varying
amounts of clay and rock material. The bitumen content refers to a heavy,
viscous crude oil that generally does not flow under natural reservoir
conditions.  As a result, it cannot be recovered from a conventional
well the way lighter oil is most often produced.  The oil sands are
contained in three major areas beneath an approximate 140,800 square kilometres
(54,363 square miles) of north-eastern Alberta - an area larger than the state
of Florida.  As of December 2002, according to the Alberta Department
of Energy, these three areas, Athabasca/Wabasca, Peace River, and Cold Lake,
contained 1.6 trillion barrels of bitumen in-place, of which 174 billion barrels
are proven reserves that can be recovered using current technology.





These
deposits contain a significant amount of oil but until recently the cost of
extraction has created a barrier to economic development.  Extraction
of oil from oil sands requires technologically intensive activity and the input
of significant amounts of energy to exploit the oil sands
deposits.  There are two main types of oil sands production
methods:  mining and in-situ.  Oil sands mining is
accomplished using an open pit operation whereby the oil sands are dug up and
trucked to a processing facility.  For oil sands reservoirs too deep
to support economic surface mining, some form of in-situ recovery is required to
produce bitumen.  In-situ production is similar to that of
conventional oil production where oil is recovered through a
well.  The Alberta Energy and Utilities Board estimates that 80
percent of the total bitumen ultimately recovered will be with in-situ
techniques.  Numerous in-situ technologies have been developed that
apply thermal energy to heat the bitumen and allow it to flow to the well
bore.





There are
some oil sands reservoirs where primary or “cold” production is
possible.  The lighter bitumen in these areas can flow towards a well
and bitumen production can be enhanced by the co-production of sand, thereby
creating a downhole cavity around the well bore which facilitates the flow of
oil towards the well.  This type of production technology is commonly
called Cold Heavy Oil Production with Sand (“CHOPS”).  While this type
of bitumen is marginally lighter and less viscous than the conventional bitumen
found in mineable and other in-situ reserves, it is also slightly heavier than
the conventional “Heavy Oil” reservoirs produced in the “heavy oil belt” region,
located around the central Alberta - Saskatchewan border.  Another
production technology, which may be suitable for some of the lighter oil sands
reservoirs is the use of horizontal well bores.  Horizontal production
wells, which have been drilled up to more than 2 kilometers away from their
surface locations, have been successfully applied to cold in-situ bitumen
production, where it is suitable.  In general, open pit oil sands
mines are found in central Athabasca deposits, while in-situ bitumen production
technology is used in the Cold Lake, south Athabasca, and Peace River deposits,
where the overburden thickness exceeds 50 meters.





14


Oil in oil
sands is found mainly in high porosity quartz arenites to arkosic sands that
cover large areas and lie up-dip from the purported source rocks to the
southwest.  There are also vast amounts of heavy oil as well in
fractured carbonate rocks of 10-14% porosity underlying a large triangular
region of north central Alberta.  In addition, there is a large amount
of heavy oil in a series of thinner blanket sands and channel sands extending
all the way from Suffield Alberta to zones overlying the Cold Lake Oil Sands
near Bonnyville, and extending well into Saskatchewan.  The latter
deposits called the ‘heavy oil belt” are the sites of the most development
attention because the oil is less viscous and it can be produced using either
CHOPS or horizontal well technology.





The source
rocks for the oil sands are from the Cretaceous and Jurassic shales in the
Alberta Syncline.  Rapid sedimentation of organic rich argillaceous
material caused large flow volumes to be generated as the result of
compaction.  Deep burial of the kerogeneous source rocks allowed
organic diagenesis to occur resulting in the generation of oil and gas from the
kerogen.  The oil sands are 98% un-cemented (unconsolidated
sandstones).  The ingress of bitumen has essentially stopped
diagenetic processes and the sands do show strong evidence of the early effects
of pressure solution and re-crystallization but true cementation is quite rare
as are significant calcite cemented zones.





Carboniferous
Oil Sands





Strata has
focused its efforts on carbonate-hosted bitumen sands.  The carbonates
are the next challenge in the Alberta oil sands industry.  Like oil
sands two decades ago, carbonates represent an enormous and relatively untapped
petroleum resource. The means for producing bitumen from carbonates is still
being understood. The nature of the carbonate triangle in Alberta tends to vary
and there is unlikely to be a single one-size-fits-all strategy for
production.  Cold production may be possible in some areas although in
most cases production requires an in-situ treatment.  Various
technologies have been tested and others considered, including similar
technologies to those employed in oil sands (cyclic steam, SAGD, etc). Bitumen
carbonates are still being understood, and as yet there are several techniques
which may prove to be effective.  We are in the process of determining
the most efficient means of producing the bitumen from our Peace River
project.





Carbonate
oil sands are an unconventional resource that remains almost untapped. While
much of the world now knows about Alberta’s vast oil sands resource, many people
are unaware that a bitumen resource of similar magnitude is locked in carbonate
rock. According to a report by Petroleum Technology Alliance Canada (PTAC), 26%
of Alberta’s bitumen resources are contained in carbonate rather than sand
formations. One northern Alberta carbonate formation alone — the Devonian-age
Grosmont complex — has bitumen volumes in place comparable to the huge Athabasca
oil sands deposit. This comparison is made in the 176-page official history of
the Alberta Oil Sands Technology and Research Authority (AOSTRA), the long-since
disbanded provincial agency set up in 1974 to promote bitumen recovery
technologies. The history devotes four well-illustrated pages to bitumen
carbonates. The resource received serious attention during the AOSTRA years with
a series of pilot tests running in the Grosmont formation between 1975 and
1987.   However, oil prices fell and funding was cut. The
remotely located and little known bitumen carbonates were largely forgotten
until Royal Dutch Shell plc paid nearly $500 million dollars for leases in
2006.





Contained
in a roughly triangular 70,000- square-kilometre area of northern Alberta called
the Carbonate Triangle, the deposits may be the most technically challenging of
the province’s bitumen resources. The basic difference between oil sands and
bitumen carbonates is the former is bitumen mixed with unconsolidated sand,
which can be either mined or produced from wells. The latter, as the name
implies, is bitumen in carbonate rock — both dense limestone and heavily karsted
rock. Grosmont bitumen is even heavier than the Athabasca bitumen and the
reservoir is extremely variable, meaning that a single recovery method is
unlikely to work throughout the formation.  The lack of understanding
of the heterogeneous nature of the reservoir is the main hurdle for developing
successful bitumen recovery schemes. The bitumen is contained in a dual porosity
system — both in the vugs (cavities or fractures) and in the rock matrix itself.
The vugs could potentially be good news in that they could conceivably improve
permeability once the viscosity of the bitumen is raised by heat or other means,
but bad news if they serve as channels for steam to escape from the area of
interest. In the karsted areas, these irregular cavities and tunnels are often
the diameter of a man’s arm, and sometimes much larger. According to the PTAC
review of the pilot results, challenges of drilling through this karsted rock
include the potential for loss of drilling fluids into the formation, and
problems with the placement of cement to maintain a strong well-to-formation
bond.





15


DROWNED AREA OIL SANDS
LEASE





Acquisition
of Interest





On
September 7, 2005 the Company acquired a 100% interest in Alberta Oil Sands
Lease #7400100011 (the ‘Drowned Property’).  The rights to the Drowned
Property were acquired for a payment of CDN $25,000 (USD $20,635) as well as
other closing costs of CDN$9,874 (USD $8,150).  The Drowned Property
covers 512 hectares of land in the Drowned Area of the Wabasca oil sands in the
West Athabasca area of Northern Alberta.  The lease gives the Company
the right to explore the Drowned Property covered by the lease.





Strata's
acquisition of the Drowned Property lease includes an overriding 4% royalty
agreement with the vendor.  The royalty is to be paid on a
well-to-well basis and is payable on all petroleum substances produced by any
well on the Property.   In addition, the Company must pay the
province of Alberta CDN $1,792 (USD $1,471) per year to maintain its right to
the lease.  The lease is subject to a royalty payable to the
government of Alberta.  The royalty is calculated using a
revenue-less-cost formula.  In years prior to the recovery of the
project’s capital investment, the royalty is 1% of gross
revenue.  Once the project costs have been recovered, the royalty is
the greater of 1% of gross revenue or 25% of net revenue.





Location





The
Drowned Property lies near the southern edge of the Wabasca Heavy Oil/Oil sands
field in west Athabasca approximately 45km south of the town of Wabasca or 60km
Northeast of Slave Lake.





Lease
      Number
              Hectares
              Townships
              Range
              Section7400100011
              512
              75,
      76
              23
              1
      and 36





Drowned
Project Lease Information





The
Drowned Property is comprised of a single lease with the government of the
province of Alberta, Canada.  The lease is a fifteen year lease and
expires on October 4, 2015.





Lease
      Number
              Hectares
              Rent
      / Hectare
              Annual
      Minimum Lease Payments7400100011
              512
              CDN
      $3.50 (USD $2.87) per year
              CDN
      $1,792 (USD $1,471) per year





Regional
Geology





Regionally,
the Wabiskaw Reservoir consist of three overlapping en-echelon sand bodies
interpreted as shoreface sand which coarsen upwards from shale to fine
sand.   The three bodies are informally referred to as Wabiskaw
“A” Sand, Wabiskaw “B” Sand, and Wabiskaw “C” Sand.   The three
bodies are separated from each other by shales and each has proven to be
correlatable and mappable over a wide area.  All three bodies contain
bitumen but only the bitumen sand of the Wabiskaw “A” is being cold produced at
the present time.  The “B” and “C” are generally thinner and contain
smaller bitumen accumulations.





Gas and
water are also significant components of the reservoir fluids in the Wabiskaw
sands.  Several associated gas fields are currently in
production.  There may be a distinct basal water leg below the
bitumen.  This is especially true in the southwestern part of the
Wabiskaw reservoirs.





16


The
deposit lies above the western part of the Athabasca oil sands and extends
westward somewhat beyond the McMurray Formation edge.  In many
regions, the Wabasca is oil rich and it overlies the McMurray forming two
stacked reservoirs.  Detrital matter arrived mainly from the west but
mixed with a small component of sediments from the shield.  The
bitumen is highly viscous and is at a depth of 100 to 700 meters.  The
Wabasca is classified as the lowest Member of the Clearwater Formation and
therefore overlies the McMurray Formation.  The reservoir and the
thickness of oil saturated material vary from 0 to 10 meters.





Property
Geology





Several
pre-existing bore holes indicate that neither the Wabiskaw “A” sand nor the
Wabiskaw “B” sand is present on the Company’s Drowned Property, although it
appears that 0 to 4 meters of a thin bitumen-bearing Wabiska “C” sand may be
present.  In addition, the McMurray Formation is present beneath the
Wabiskaw and fills a local north-south oriented valley system incised into the
older limestone basement. These McMurray valley filled sediments appear to be
complex, consisting mainly of water-bearing silts and clays, and hold only
minor, discontinuous, bitumen-bearing sands of an unknown
quality.    The Wabiskaw and McMurray sands lie at a depth
of 550 to 600 meters and the Grand Rapids reservoir lies at a depth of 425 to
500 meters.





Previous
Work





Historically,
the Drowned Project has had four wells drilled on it by companies owning the gas
exploration rights. The geophysical well logs demonstrate the presence of
bitumen in all four wells, one of which shows the presence of oil
sands.     The Company did not undertake any
exploration work on the Drowned Property in 2008.





Planned
Work by the Company for 2009





The
Company has focused its exploration efforts on its Peace River Property and as a
result, does not have any current plans to undertake an exploration program on
the Drowned Property in 2009.





17


PEACE RIVER OIL SANDS
LEASES





The
following are two maps showing the location of the Company’s 42 oil sands leases
in the Peace River region of northern Alberta, Canada.












18





19


Acquisition
of Interest





The
Company has entered into a series of leases in multiple transactions with the
province of Alberta in the Peace River area of Alberta, Canada (the “Peace River
Property”).  All of the leases were acquired through a public auction
process that requires the Company to submit sealed bids for land packages being
auctioned by the provincial government.  Upon being notified that it
has submitted the highest bid for a specific land parcel the Company immediately
pays the government the bid price and enters into a formal lease with the
government.    The bid price includes the first year’s
minimum annual lease payments.  The specific transactions entered into
by the Company are as noted below.





Date
            Number
      of Leases
            Land
      Area
              (Hectares)
            Annual
      Minimum Lease PaymentsDecember
      15, 2005
            7
            10,752
            CDN
      $37,632 / USD $30,897June
      15, 2006
            3
            4,864
            CDN
      $17,024 / USD $13,977August
      10, 2006
            9
            7,424
            CDN
      $25,984 / USD $21,333August
      24, 2006
            2
            2,048
            CDN
      $7,168 / USD $5,886October
      19, 2006
            4
            3,584
            CDN
      $12,544 / USD $10,299November
      2, 2006
            9
            14,336
            CDN
      $50,176 / USD $41,195January
      11, 2007
            4
            4,608
            CDN
      $16,128 / USD $13,241January
      24, 2007
            2
            2,304
            CDN
      $8,064 / USD $6,621April
      3, 2008
            2
            512
            CDN
      $1,792 / USD $1,47142
            50,432
            CDN
      $176,512 / USD $144,920







The Peace
River Property consists of a total of 50,432 hectares of land in a region of
northern Alberta known as Peace River.  The leases are subject to
royalties payable to the government of Alberta.  The royalty is
calculated using a revenue-less-cost formula.  In years prior to the
recovery of the project’s capital investment, the royalty is 1% of gross
revenue.  Once the project costs have been recovered, the royalty is
the greater of 1% of gross revenue or 25% of net revenue.




Location





The Peace
River Property lies in the Peace River oil sands field in Alberta in an
approximate 50 to 60 kilometer arc from the town of Peace River.  Our
holdings in the Peace River area are situated in three distinct areas consisting
of the Cadotte, Culp, and Bearhead groups of leases.  The Cadotte
leases lie northeast of the town of Peace River, the Bearhead lease are to the
southeast while the Culp lease are located almost due south.





Peace
River Project Lease Information





The Peace
River Property is comprised of 42 leases with the government of the province of
Alberta, Canada.  All of the leases are for a 15 year term, require
minimum annual lease payments, and grant the Company the right to explore for
potential oil sands opportunities on the respective lease.





Regional
Geology





The Peace
River Cretaceous clastic reservoir consists of a complex stratigraphy similar in
nature to the Athabasca Deposit to the east.  These are thought to
comprise fossil estuarine systems where the best reservoirs are contained in
tidal inlet and barrier sands.  Secondary reservoir targets may be
tidal delta, bayhead delta, tidal channel, and tidal flat sands.  The
Peace River Carboniferous reservoir consists of platform sediments with
relatively few reef building organisms. Structurally, the Peace River strata dip
to the southwest and the elevation of the bitumen-bearing interval lies between
50 and 100 meters below sea level or at a depth of between 680 to 790 meters
below the surface.





20


Property
Geology (Cadotte Leases)





The
Company has not yet undertaken significant exploration of its Bearhead and Culp
leases.  The discussion in the following sections of this report
relates to the Cadotte leases.





Strata has
focused its efforts on the bitumen resources contained in the Bluesky/Gething
clastic Cretaceous Formations and the Debolt/Elkton carbonate Carboniferous
Formation in the Cadotte area.  In particular, our exploration
programs to date have focused on 29 sections in the Cadotte area located in
Townships 86 and 87, Ranges 18 and 19W (the “Target Area”).





The nature
of the geology of the carbonate sequence in the Target Area has a significant
influence on the distribution of the bitumen resource.  The principal
reference source for this section is the Alberta Research Council’s publication,
“Geological Atlas of the Western Canada Sedimentary Basin”. The sequence that
hosts the bitumen deposits is the Rundle Group of Lower Carboniferous age. The
Rundle Group in this area includes three stratigraphic units which, in ascending
order, are the Pekisko, Shunda and Debolt Formations. From place-to-place the
Debolt Formation may also include another distinct unit, the Elkton Member. In
the Cadotte Lease area, the Elkton Member is usually present, as long as the
overlying unconformity with the Cretaceous sequence has not eroded the entire
Debolt Formation sequence. Although there are many intervals that are bitumen
enriched in the Rundle sequence in the Cadotte Lease area, the principal
enrichment zones occur in the Elkton Member, the upper half of the Debolt but
usually not right at the top of the formation and, to a lesser extent, in the
Shunda Formation. The high grade zones of enrichment are those that occur in the
Elkton Member and the Debolt Formation.





A
Cretaceous clastic sequence that includes the Gething and Bluesky Formations at
the base, unconformably overlies the Carboniferous rocks in this area. All the
beds dip gently to the west with those lying below the unconformity having a
somewhat greater dip than those above it. This causes the sequence below the
unconformity to be eroded to a greater degree to the east and to be less
complete, compared with the west. These westerly dips are the result of
post-depositional tectonic events and do not reflect the original orientation of
the accumulation of sediment. The Carboniferous sequence of the Rundle
assemblage accumulated as a result of a series of prograding events that
developed in a southerly to south-westerly direction.





The
Carboniferous sequence mainly includes platform sediments that show generally
shallower-water characteristics up-section. In a basinward direction the
depositional facies proceed from beach and lagoonal environments through shoals
of the shelf margin to marine basin muds. The lithologies that result include
high energy siliciclastics of the beach environment, through various types of
carbonates on the platform and its slope to shale in the deep marine
environment. There even appear to be beds present that have the character of
unconsolidated coarse sediments. Several transgressive events therefore resulted
in the accumulation of clastic sediments interbedded with carbonate
units.





The
carbonate units included relatively few reef building organisms and thus there
was little tendency for irregular geological bodies such as reefs to form in
this sequence in this area. From one well to the next the regular nature of the
deposition that took place at this time is apparent and it is relatively easy to
show the correlation that exists between the same units in adjacent wells in the
target area. This feature of regular bed continuity is in strong contrast to the
variability of the clastic units of the overlying Cretaceous sequence as seen in
the Athabasca region.





It is also
most noteworthy that the bitumen enrichment is strongly influenced by the bedded
nature and continuity of the sediments. It is readily possible in many cases to
show the same details of the enriched sequence in adjacent wells even when they
are spaced a kilometre or more apart. This has a very strong impact on the
selection of data separation distances for the classification of resources; in
this sequence an equivalent assurance of existence is achieved with much wider
spacing of wells than that used in the classification of bitumen resources for
the Cretaceous surface mineable oil sand deposits presently being explored and
developed near Fort McMurray.





21


Previous
Work





During the
winter drill season of 2006 – 2007, Strata drilled four wells on the Cadotte
leases.  Three of these wells were within the Cadotte Target Area and
one was in the Cadotte East leases.  All of the wells were drilled and
cored.  Three wells were drilled with cores in the Cadotte Target
Area, two of which were cased allowing for production testing with the ability
to re-enter these wells for future testing.  The other well was
abandoned due to drilling fluid losses during drilling which did not allow the
well to be cased for testing in the future.  The fourth well drilled
in the Cadotte East location was cored and cased.  Due to natural gas
flowing from the well, to which the Company did not have the rights to,
additional borehole tests were not conducted.  The cores of all of
these wells were tested and examined in a laboratory in Calgary.  The
results of these tests were that cold production was not
viable.  However, the results indicated that the bitumen would flow at
approximately 85°C.  These results will allow the company to explore
different means of extraction in addition to steam.





Former
lease holders have drilled wells on and around the Company’s Target
Area.  Geophysical well logs are of variable quality but generally
consist of a full suite of tools to evaluate the potential
reservoirs.  With respect to available drilling data, the leases of
the Target Area are drilled at an average spacing of one well per
section.  However, not all of these existing wells were drilled to
investigate the sequence located on the Company’s Cadotte leases. The effective
average spacing with wells that have penetrated the Carboniferous sequence is
approximately 0.8 wells per section. This spacing is from twenty-three wells on
or immediately adjacent to the leases. There are an additional two hundred
nineteen wells in the surrounding area, the data from which has also been
referenced and inspected by the Company to assist with its evaluation of the
Cadotte leases.





However,
the quality of the data from the wells of different vintage is quite variable.
Several of the wells were drilled in the 1950’s. The drilling records and logs
for these wells are sometimes poor or absent or they may be less complete than
those of more recently drilled wells. A database search was done to identify
higher quality data which was restricted to wells drilled since 1970 and this,
plus the new Strata wells was used as the primary reference data. A total of
eighteen wells of this vintage are located on or immediately adjacent to the
lease blocks. The well log data from these wells is the primary source of
information on the leases available for the present evaluation but this was
supplemented by high quality data from a further thirty-nine more distant wells
in the area.





Planned
Work by the Company for 2009





The
Company does not have any plans to undertake any additional drilling or land
acquisitions for 2009.  Due to the uncertainty that has resulted from
the recent worldwide economic conditions, the ability to acquire funding is
difficult.  The Company intends to continue to discuss a variety of
funding arrangements with potential partners but until funding can be secured,
the Company’s development plans will temporarily be put on hold.





Estimated ResourcesofBitumen





In the
United States, registrants, including foreign private issuers like us, are
required to disclose proved reserves using the standards contained in Rule
4-10(a) of the United States Securities and Exchange Commission’s (“SEC”)
Regulation S-X.





The
Company completed the drilling of its first four wells in the winter drilling
season of 2006 – 2007.  Strata has engaged Norwest Corporation
(”Norwest”) of Calgary, Alberta, Canada to assist Strata with the planning and
undertaking of its exploration of the Cadotte leases.  On August 16,
2007 Norwest completed a technical report titled Evaluation of In-Place Bitumen
Resources - Cadotte Leases and on February 29, 2008 Norwest Questa Engineering
Corporation  (“Norwest Questa”) of Golden, Colorado completed a report
titled Preliminary Feasibility Study of the Cadotte Leases,  Alberta,
Canada.  Both of these reports are available to the public on the
www.sec.gov web site.  All discussion in this section is qualified by
reference to the two reports and readers are advised to read the two technical
reports in their entirety.





22


Evaluation
of In-Place Bitumen Resources - Cadotte Leases – August 16, 2007




The study
was designed to comply with the requirements of National Instrument 51-101 and
the resource classification scheme and criteria elaborated in Volume 1, of the
Canadian Oil and Gas Evaluation Handbook. Recoverable bitumen volumes were not
addressed in this report because no estimate of the recovery factor was
available at the time.  Mr. Geoff Jordan, P. Geol., former Senior Vice
President of Norwest Corporation and a qualified person as defined by National
Instrument 51-101 was responsible for the preparation of the technical
information in the report.




The amount
of exploration drilling and testing on the Cadotte Target Area is sufficient for
that part of the Peace River Oil Sand deposit to be classified as a Discovered
Resource (the classification system was subsequently changed such that the
Discovered Resource would now be called Discovered Petroleum Initially In-Place
(PIIP)).  The classification of the Discovered Resource into Low, Best
(Most Likely) and High categories was based on the following
criteria:





·
            The
      Low Estimate includes all of the material that has a minimum grade of 8
      wt% and a minimum thickness of 10
m;


·
            The
      Best (Most Likely) Estimate includes all of the material that has a
      minimum grade of 8 wt% but no minimum thickness;
  and


·
            The
      High Estimate includes all of the material without any grade or thickness
      constraint. Hence the latter is an estimate of the original bitumen in
      place for the zones under investigation in the Cadotte Target
      Area.





The
results of the different estimates for the Original Bitumen In Place (“OBIP”)
are presented on the following table:





Effective
      OBIP for the Cadotte Area by Target Zone
                      in
      millions of Stock Tank Barrels (MMSTB), Using 8% wt Cut-offFormation
                    Low
                      Estimate
                    Best
      (Most Likely)
                      Estimate
                    High
                      EstimateBluesky/Gething
                    N/A
                    N/A
                    103Debolt
                    1,443
                    1,500
                    1,503Elkton
                    N/A
                    490
                    644Total
                    1,443
                    1,990
                    2,251








In the
Bluesky/Gething Formations the results indicate that there are some areas where
grades above the threshold of 8 wt% occur but these are somewhat scattered and
there are no areas where especially high grade results were found. At the same
time, the ore thickness is generally relatively low.





It is
important to note that the resource estimates presented in this report are made
for quantities on an in-place basis. This is not an estimate of quantities that
may be recovered. Such an estimate could not be made at the time because there
was no reliable value available for the bitumen recovery factor that should be
applied. Such a factor is determined as a result of the completion of various
engineering tests and analyses.





The
accuracy of resource estimates is, in part, a function of the quality and
quantity of available data and of engineering and geological interpretation and
judgment.  Given the data available at the time this report was
prepared, the estimates presented herein are considered
reasonable.  However, they should be accepted with the understanding
that additional data and analysis available subsequent to the date of the
estimates may necessitate revision.  These revisions may be
material.  There is no guarantee that all or any part of the estimated
resources of bitumen will be recoverable.





23


Neither
Strata nor Norwest make any express or implied warranties or guarantees of any
kind concerning this report; including without limitation any implied warranty
of merchantability or fitness for a particular purpose.  Specifically,
neither Strata nor Norwest make any warranties or guarantees that any property
identified in this report will produce oil and/or gas in any quantity, or that
any property identified in this report will produce or receive any economic,
commercial, or other benefit.





Readers of
this 20-F are advised to read the August 16, 2007 report titled Evaluation of
In-Place Bitumen Resources - Cadotte Leases, that is publicly available on the
www.sec.gov web
site, was filed on September 27, 2007 under cover of 6-K.





Preliminary
Feasibility Study of the Cadotte Leases,  Alberta, Canada – February
29, 2008





The
preliminary feasibility report was prepared in compliance with Canadian National
Instrument 51-101 guidelines for disclosure concerning oil and gas resources in
Canada.  NI 51-101 requires that the procedures and criteria of the
Canadian Oil and Gas Evaluation Handbook (“COGE Handbook) be used for resource
classification and these standards and criteria have been used in this
report.  In this case it has been found that the estimate of
potentially recoverable bitumen in the Cadotte Target Area cannot yet be
classified as a Contingent Resource. The major factor is that, at present, there
is no pilot project that is applying in-situ recovery methods to bitumen in a
hardrock carbonate host that can be used as a demonstration of
recoverability.  Not only is this the case for Canada but there are no
suitable examples anywhere in the world.  This means that existing
pilot projects in clastic hosts, which have different physical characteristics
from carbonates, have to be used for performance prediction.  This
additional risk prevents the “Contingent Resource” classification being
made.  The additional factors that also prevent classification as a
Contingent Resource include:





1.
            A
      lack of a cost estimate for the full-field development and operation of a
      bitumen recovery and upgrading
project;


2.
            Lack
      of permeability data for the target zones;
and


3.
            Limited
      geologic and reservoir data samples for the target
  zones





The
Norwest August 16, 2007 report resource estimate is classified as “Discovered
Resources”, in accordance with the criteria and former classification scheme of
the COGE Handbook.  The current version of the COGE Handbook has
re-titled “Discovered Resources” as “Discovered Petroleum Initially In Place”
(“Discovered PIIP”).  The Pre-Feasibility estimate prepared by Norwest
Questa is compliant with the requirements of National Instrument 51-101 with
respect to classifying the resource as Discovered PIIP.  Dr. John D.
Wright, Ph.D., P.E., who was President and Chief Engineer, of Norwest Questa
Engineering Corporation at the time of the preparation of the Preliminary
Feasibility, is a qualified person as defined by National Instrument
51-101.  Dr. Wright supervised the preparation of the technical
information in this report.





The
analogy method was utilized to develop recovery factors that were applied to the
OBIP estimates to obtain a low, most likely, and high estimate for potentially
recoverable bitumen.  Several projects using technology similar to
that expected to be implemented on the Cadotte leases were used as analogies for
a bitumen recovery method and a resultant range of recovery
factors.  Shell’s Carmon Project (“Carmon Creek”) was one of the
primary analogies utilized by Norwest for the recovery factor
estimates.  Norwest reviewed the Carmon Creek Project and concluded
that some bitumen bearing stratigraphy on Strata’s land correlates with the same
stratigraphy at Carmon Creek.  Over the last 25 years, Shell has
tested numerous recovery methods at Peace River and has recently concluded that
Horizontal Cyclic Steam (“HCS”) is the optimal recovery method for Carmon
Creek.  The present Preliminary Feasibility Study for Cadotte is based
on the application of that method of extraction, as well as the Shell Carmon
Project well layout and designs which were obtained from various public
disclosure reports.





24


For the
Cadotte leases a production schedule was developed over the key Target Area of
twenty nine sections.  Each section, which has an area of one square
mile, is about the same size as the Carmon Project pad and development block
design.  Each pad and development block includes 20 wells of 1,400 m
length, each of which is about 600 m in the vertical direction and 800 m
horizontally.  In the design the pads are “brought on stream” over a
four year build-up period.  The development block sequence is
implemented such that the highest grade and thickest ore blocks are addressed
first as long as the local infrastructure is able to service those
areas.  During the main period of development, the daily production
rate for the leases is about 56,000 barrels. The production life for this
schedule exceeds 20 years. Cost estimates for this preliminary feasibility study
were obtained from a review of public literature.





Based on
the analogy method with an adjustment for difference between gross and effective
OBIP calculations, Norwest Questa estimated the following recovery factors for
application to the effective OBIP deterministic cases:





·
            17
      percent for the Low estimate


·
            26
      percent for the Most Likely estimate,
and


·
            38
      percent for the High estimate.





Norwest
Questa then applied the estimated recovery factors shown above to the effective
OBIP estimates from the August 16, 2007 report, which is the in-place Best
estimate at an 8 wt% grade cut-off, to obtain the Low, Most Likely, and High
Resource estimates for the Cadotte Area as follows:





Potentially
      Recoverable Portion of Discovered PIIP for the Cadotte Area by Target Zone
      in millions of Stock Tank Barrels (MMSTB)Formation
                    Low
                      Estimate
                    Most
      Likely
                      Estimate
                    High
                      EstimateBluesky/Gething
                    N/A
                    N/A
                    39Debolt
                    245
                    390
                    571Elkton
                    N/A
                    127
                    245Total
                    245
                    517
                    855





Norwest
Questa conducted an initial economic evaluation of the Cadotte area, at a level
of study consistent with that of a Preliminary Feasibility Study, based on the
Most Likely potentially recoverable Discovered PIIP estimate of 517
MMSTB.  Based on a forecast price of $65 per barrel and constant
costs, this Preliminary Feasibility economic analysis indicates that the
development of the Cadotte area is economically viable with a net present value
(discounted at 10%) of cash flows before income taxes of about $1.2 billion.





Norwest
Questa also completed a sensitivity analysis based on three different oil prices
as noted below.


Summary
      of Economic Evaluations
                at
      Different Oil Price Assumptions ($US Billions)Oil
      Price
              Gross
      Oil Revenue
              Net
      Investment
              Total
      Operating Expenses
              Crown
      Royalties
              Cumulative
      Cash Flow
              Cumulative
      Disc. (10%) Cash Flow
              IRRConstant
      $65 WTI
              19.7
              1.6
              8.2
              2.1
              7.8
              1.2
              27%Constant
      $55 WTI
              14.8
              1.6
              8.2
              0.8
              4.2
              0.4
              17%Constant
      $75 WTI
              24.7
              1.6
              8.2
              3.3
              11.5
              2.0
              35%





25


Based on
forecast prices and costs, this preliminary feasibility economic analysis
indicates that the development of the Cadotte area is economically viable with a
return on capital investment of 27% and Net Present Value (“NPV”) discounted at
10% of $1.2 billion.  At a WTI crude oil pride of $65 per barrel, the
impact of the planned royalty change is only about a 1% reduction of return on
capital investment.  At a constant $55 per barrel WTI price, the
return on capital investment is just over 17%.  Based on the favorable
results of the pre-feasibility economic analysis, the Cadotte area warrants
further evaluation including a pilot well test program and feasibility level
project design and cost estimates.





This
report is limited in scope to document only the potentially recoverable portion
of the Discovered Petroleum Initially In Place (Discovered PIIP), formerly
referred to as Discovered Resources, within the Target Area of the Cadotte
properties.  This report does not attempt to place a Fair Market Value
on that resource portion.





Norwest
Questa reserves the right to revise its opinions of all estimates of resources
if new information is deemed sufficiently credible to do so.





The
accuracy of any estimate is a function of available time, data, geological
engineering, commercial interpretation, and judgment.  While the
resource estimates presented herein are believed to be reasonable, they should
be viewed with an understanding that additional analysis of new data may justify
their revision and Norwest Questa reserves the right to make such
revisions.





Readers of
this 20-F are advised to read the February 29, 2008 report titled Preliminary
Feasibility Study of the Cadotte Leases,  Alberta, Canada that is
publicly available on the www.sec.gov web site,
was filed on March 6, 2008 under cover of 6-K.





Item
4A.  Unresolved Staff Comments





Not
applicable.





Item
5. Operating and Financial Review and Prospects





Management’s
Discussion and Analysis of Financial Condition and Results of
Operations





Management’s
Discussion and Analysis of Financial Condition and Results of Operations should
be read in conjunction with the accompanying audited financial statements for
the fiscal years ended December 31, 2008, 2007, and 2006. These reports are
presented in United States dollars and have been prepared in accordance with
accounting principles generally accepted in the United States, referred to in
this annual report as US GAAP.





Certain
statements contained in the foregoing MD&A and elsewhere in this 20-F
constitute forward-looking statements.  Such forward-looking
statements involve a number of known and unknown risks, uncertainties and other
factors which may cause actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking
statements.  Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of the
financial statements were made, and readers are advised to consider such
forward-looking statements in light of the risks set forth in section 3.D.
above.





26


A. Overall Performance





The
following table sets forth the audited statement of operations data for Strata
for the fiscal years indicated:





2008
              
              
              2007
              
              
              2006Expenses
              
              $
              (654,240
              )
              
              $
              (468,031
              )
              
              $
              (7,059,245
              )Other
      income (expenses)
              
              $
              12,497
              
              
              $
              13,306
              
              
              $
              181,840Loss
      from continuing operations
              
              $
              (641,743
              )
              
              $
              (454,725
              )
              
              $
              (6,877,405
              )Income
      from discontinued operations
              
              $
              -
              
              
              $
              -
              
              
              $
              130,000Net
      loss
              
              $
              (641,743
              )
              
              $
              (454,725
              )
              
              $
              (6,747,405
              )From
      continuing operations
              
              $
              (0.01
              )
              
              $
              (0.01
              )
              
              $
              (0.13
              )From
      discontinued operations
              
              $
              (0.00
              )
              
              $
              (0.00
              )
              
              $
              (0.00
              )After
      discontinued operations
              
              $
              (0.01
              )
              
              $
              (0.01
              )
              
              $
              (0.13
              )Weighted
      average number ofcommon
      shares outstanding(in
      millions)
              
              
              61.7
              
              
              
              57.4
              
              
              
              51.8








Year
ended December 31, 2008 compared to the year ended December 31,
2007





RESULTS
OF OPERATIONS





During the
year ended December 31, 2008, we incurred a net loss of $641,743 compared to a
net loss of $454,725 for the year ended December 31, 2007, an increase net loss
of $187,018.





REVENUES





The
Company did not earn any revenue for the year ended December 31, 2008 or
2007.  We do not anticipate earning revenues until such time as we
have entered into commercial production of our oil and gas properties. We are
presently in the exploration stage of our business and we can provide no
assurance that we will discover commercially exploitable levels of oil or gas
resources on our properties, or if such resources are discovered, that we will
enter into commercial production of our oil and gas properties.





CONTINUING
OPERATIONS





The
Company incurred a loss from continuing operations of $641,743 for the year
ended December 31, 2008 compared to a loss from continuing operations in 2007 of
$454,725, an increase of $187,018.  A substantial portion of the
increase in the loss from continuing operations relates to the recognition of
$94,730 in stock-based compensation in 2008 compared to a reversal of the
expense of ($120,151) in 2007.  The reversal of stock-based
compensation expense that occurred in 2007 was due to the Company granting stock
options in 2006 when the Company’s share price was significantly higher than it
was when the unvested stock options were revalued during
2007.    For 2008, the share price of the Company’s stock
has not decreased as much since 2007 as it did between 2007 and
2006.  All stock options granted in 2008, 2007 and 2006 were to
non-employees. Stock options granted in 2008, 2007 and 2006 will continue to be
re-valued and amortized until all of the options vest.





A large
portion of the balance of the 2008 net loss from continuing operations is
comprised of costs related to general and administrative
activities.  Consulting expense increased to $386,143 in 2008 from
$168,372 in 2007.  A significant portion of the increase from 2007
relates to stock-based compensation of $94,730 in 2008 compared to a reversal of
expense of ($120,151) in 2007.  Excluding the effect of stock-based
compensation, consulting expense was $291,413 in 2008 compared to $288,523 in
2007.  Office and sundry decreased in 2008 to $125,805 from $188,371
in 2007 due to several factors including lower Annual General Meeting costs as
the Company completed much of the material handling in-house, lower on-going
costs related to the accounting software as implementation was completed in
2007, and lower costs related to printing and other promotional
material.  Rent increased in 2008 to $96,153 from $31,128 in 2007 as a
result of recording a full year of rent on office space in Calgary whose lease
began on October 15, 2007.  Professional fees have decreased to
$37,741 in 2008 from $75,286 in 2007.  The reduction is due to an
overall lower level of Company activity in 2008 compared to 2007 resulting in a
decreased need in legal and accounting services.


27





DISCONTINUED
OPERATIONS





There was
no discontinued operations activity in 2008 or 2007.





INTEREST
AND OTHER INCOME (EXPENSE)





During
2006 the Company received shares in settlement of a loan and during 2007 the
Company disposed of all the shares for gross proceeds of $77,607 resulting in a
realized loss of $37,736 at December 31, 2007.  No such transaction
took place in 2008.  Interest and miscellaneous income decreased to
$12,497 in 2008 from $51,042 in 2007 due to lower average cash balances and
lower interest rates in 2008 compared to 2007.





Year
ended December 31, 2007 compared to year ended December 31, 2006





RESULTS
OF OPERATIONS





During the
year ended December 31, 2007, we incurred a net loss of $454,725 compared to a
net loss of $6,747,405 for the year ended December 31, 2006.  Included
in the 2006 loss is an income from discontinued operations of $130,000 from the
sale of certain assets relating to our previous technology business (ceased on
June 29, 2005) while in 2007 there were no activities from discontinued
operations.





REVENUES





The
Company did not earn any revenue for the year ended December 31, 2008 or
2007.  We do not anticipate earning revenues until such time as we
have entered into commercial production of our oil and gas properties. We are
presently in the exploration stage of our business and we can provide no
assurance that we will discover commercially exploitable levels of oil or gas
resources on our properties, or if such resources are discovered, that we will
enter into commercial production of our oil and gas properties.





CONTINUING
OPERATIONS





The
Company incurred a loss from continuing operations of $454,725 for the year
ended December 31, 2007 compared to a loss from continuing operations in 2006 of
$6,877,405, a decrease of $6,422,680.  A substantial portion of the
decrease in the loss from continuing operations relates to the recognition of
$6,746,118 in stock-based compensation in 2006 compared to a reversal of the
expense of ($120,151) in 2007.  The large decrease in stock-based
compensation is due to the Company granting stock options in 2006 when the
Company’s share price was significantly higher than it was when the unvested
stock options were revalued during 2007.  In general, a lower share
price results in lower stock-based compensation expense when the fair value of
stock option grants is calculated using the Black-Scholes model.  All
stock options granted in 2007, 2006 and 2005 were to non-employees. Stock
options granted in 2007, 2006 and 2005 will continue to be re-valued and
amortized until all of the options vest.





28


A large
portion of the balance of the 2007 net loss from continuing operations is
comprised of costs related to general and administrative
activities.  Consulting expense decreased to $168,372 in 2007 from
$6,883,851 in 2006.  A significant portion of the decrease from 2006
relates to stock-based compensation of $6,746,118 in 2006 compared to a reversal
of expense of ($120,151) in 2007.  Aside from the effect of
stock-based compensation, consulting expense was $288,523 in 2007 compared to
$137,733 in 2006. The increase is primarily due to payments made to the
Company’s President and Chief Financial Officer.  The Company pays
each of its President and Chief Financial Officer CDN $10,000 (USD $9,913) per
month.  Payments to the President began in May 2006 and to the Chief
Financial Officer in June 2007.  Total compensation expense of
$178,770 has been recognized as consulting fees for the year ended December 31,
2007 while $61,842 was recognized for the same period in 2006.  Office
and Sundry increased in 2007 to $188,371 from $93,497 in 2006 due to several
factors including an increase in the number of shareholders of the Company
resulting in higher Annual General Meeting Costs, on-going costs related to the
implementation of new accounting software, and costs related to the printing of
a new corporate profile and other promotional material.  Rent
increased in 2007 to $31,128 compared to $2,081 in 2006.  On October
15, 2007 the Company began renting new office space in Calgary and during 2007
the Company began reimbursing the President of the Company for an office he
rents in Edmonton.  Salaries and benefits were $nil in 2007 compared
to $10,564 in 2006.  The decrease reflects the fact that since March
2006 the Company has utilized consultants for all of its
activities.





DISCONTINUED
OPERATIONS





There was
no discontinued operations activity in 2007.  Income from discontinued
operations in 2006 was $130,000 related to the receipt of the proceeds from the
sale of the Company’s former business operations to its former
President.   Even though the sale was completed in 2005 the gain
was not recognized until 2006 since the entire proceeds of sale consisted of the
note receivable from the Company’s former president.  The assets sold
to the Company’s former president had previously been fully depreciated, hence,
had no carrying value on the Company’s financial statements on the date of
sale.  The ultimate gain to be recognized then equaled the amount of
the note.  Given that the assets sold have not recently generated
positive cash flow from operations, the Company believed there to be significant
uncertainty as to the Company’s ability to realize non-cash proceeds (i.e. the
note receivable) in the transaction.  Because the proceeds were
entirely covered by the note receivable, the gain was not recognized until 2006
when the proceeds were received.





No
revenues were recognized from discontinued operations in 2007 and
2006.





INTEREST
AND OTHER INCOME (EXPENSE)





The
Company recognized a gain of $115,343 in 2006 relating to the settlement of a
loan that the Company had previously reserved.  In May 2002, the
Company loaned $150,000 to Advanced Cell Technology ("ACT"), a private
biotechnology company, in exchange for a convertible promissory note receivable.
The note was unsecured, bore interest at 20% per annum, matured on April 30,
2003, and was to be converted into stock of ACT should ACT have proceeded with a
preferred stock financing prior to the note's maturity date. The Company accrued
a receivable for interest income, due under the terms of the promissory note, in
the amount of $21,206 at December 31, 2002. At April 30, 2003, the note
receivable was in default.   On May 8, 2006 the Company completed
an agreement with the current parent company of ACT, Advanced Cell Technology,
Inc. (“ACTC”) for settlement of the loan.  The Company received
109,557 common shares of ACTC, a public company, for settlement of the principal
and interest of the loan.  As part of the settlement, the Company had
agreed to pay its legal counsel a contingent fee based on the loan settlement
amount.  As a result, of the total 109,557 common shares of ACTC
received by the Company, 14,232 were assigned to the Company’s counsel for
payment of legal fees.  Therefore, at December 31, 2006 the Company
owned 95,325 shares of ACTC at a cost of $115,343 and a market value of
$55,288.  The gross unrealized holding loss for the twelve month
period ended December 31, 2006 was $60,055.  The cost and market
values of the ACTC shares were determined by reference to their closing prices
on May 8 and December 31, 2006 respectively as quoted on the
OTC:BB.  As a result of the settlement of the loan with ACTC, the
Company recognized a gain of $115,343 at December 31, 2006.  During
2007, the Company disposed of all of its ACTC shares for gross proceeds of
$77,607 resulting in a realized loss of $37,736 at December 31,
2007.





Interest
and miscellaneous income decreased to $51,042 in 2007 from $66,497 in 2006
largely due to lower average cash balance in 2007 compared to
2006.


29





B.
Liquidity and Capital Resources





(in
      U.S. dollars)
                                                                                        
                                                                                        As
      at December 31,2008
                                                                                        
                                                                                        
                                                                                        2007
                                                                                        
                                                                                        
                                                                                        2006Cash
      and cash equivalents
                                                                                        
                                                                                        $
                                                                                        121,776
                                                                                        
                                                                                        
                                                                                        $
                                                                                        27,963
                                                                                        
                                                                                        
                                                                                        $
                                                                                        3,779,527Working
      capital (deficit)
                                                                                        
                                                                                        
                                                                                        48,930
                                                                                        
                                                                                        
                                                                                        
                                                                                        (313,116
                                                                                        )
                                                                                        
                                                                                        
                                                                                        3,697,207Net
      cash provided by (used in)Operating
      activities
                                                                                        
                                                                                        
                                                                                        (602,263
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (554,258
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (159,613
                                                                                        )Investing
      activities
                                                                                        
                                                                                        
                                                                                        (1,015,262
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (3,657,462
                                                                                        )
                                                                                        
                                                                                        
                                                                                        (2,622,576
                                                                                        )Financing
      activities
                                                                                        
                                                                                        
                                                                                        1,760,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        501,760
                                                                                        
                                                                                        
                                                                                        
                                                                                        6,660,850





As of
December 31, 2008, we had $121,776 in cash, an increase of $93,813 from December
31, 2007. The increase in cash is due to the receipt of $1,760,000 from a
private placement and the exercise of warrants.  Partially offsetting
the cash receipts is cash used in operations of $602,263, cash used for the
exploration of our oil and gas property interests of $937,325, and for the
payment of deposits of $77,937.  Management estimates that the Company
will require approximately $500,000 to fund the Company’s planned operations for
the next twelve months.  Therefore, current cash on hand is not
sufficient to fund planned operations for 2009.  Our policy is to pay
all operational expenses when due, provided that the vendor, in the normal
course of business, has satisfied all necessary conditions for
payment.





Net cash
used in operating activities during the twelve months ended December 31, 2008
was $602,263 compared to $554,258 in 2007.  A significant reason for
the increase in cash used for operations was due to a higher loss in 2008
($641,743) compared to 2007 ($454,725).  The loss increased in part
due to a non-cash item related to an increase in stock-based compensation of
$94,730 in 2008 compared to a reversal of expense of ($120,151) in
2007.  An additional non-cash item in 2007 related to the settlement
of the ACTC loan.  In 2007 all of the ACTC shares were sold resulting
in a realized loss of $37,736 being recognized while in 2008 no such item
occurred.   The net effect of working capital items in 2008 was
an outflow of $109,940 compared to an outflow of $35,105 in 2007.  The
primary factor relating to the change was the paying down of accounts payable in
2008.





Investing
activities in 2008 and 2007 of $1,015,262 and $3,657,462 respectively related
primarily to the Company’s exploration of its oil and gas property interests in
northern Alberta.  Partially offsetting the outflow from the
exploration activities in 2007 was the receipt of $77,607 from the sale of the
ACTC shares.  Cash from financing in 2008 totaled $1,760,000 relating
to proceeds from a private placement of $1,700,000 and $60,000 from the exercise
of share purchase warrants.  Cash from financing in 2007 related to
$164,260 from the exercise of stock options and $337,500 from the exercise of
share purchase warrants.





Net cash
used in operating activities during the twelve months ended December 31, 2007
was $554,258 compared to $159,613 in 2006.  While the net loss was
substantially lower in 2007 ($454,725) compared to 2006 ($6,747,405) a
significant portion of the 2006 loss consists of a non-cash item related to
stock-based compensation of $6,746,118.  Stock-based compensation
recognized in 2007 was a reversal of expense of
($120,151).  Additional non-cash items related to the settlement of
the ACTC loan and the receipt of the proceeds from the sale of the Company’s
software assets.  In 2007 all of the ACTC shares were sold resulting
in a realized loss of $37,736 being recognized while in 2006 the Company
recognized a gain of $115,343 related to the settlement of the ACTC
loan.  In 2006 the Company received $130,000 from the sale of its
software while no such item occurred in 2007.   The net effect of
working capital items in 2007 was an outflow of $18,509 compared to an inflow of
$87,017 in 2006.  The primary factor relating to the change was an
increase in accounts payable and accrued liabilities in 2007 compared to
2006.





Investing
activities in 2007 and 2006 of $3,657,462 and $2,622,576 respectively related
primarily to the Company’s acquisition and exploration of its interests in oil
sands properties in northern Alberta.  Partially offsetting the
outflow from the acquisition and exploration of oil sands properties in 2007 was
the receipt of $77,607 from the sale of the ACTC shares while in 2006 the
Company received $130,000 from the sale of the Company’s software
assets.  Cash from financing in 2007 totaled $501,760 relating to
proceeds from the exercise of share purchase warrants and common stock options
of $337,500 and $164,260 respectively.  Cash from financing in 2006
relates to $5,151,990 from the exercise of stock options, $1,000,000 from a
private placement, and $508,860 from the exercise of share purchase
warrants.


30





Our
previous business was primarily financed with proceeds of equity.  We
expect our oil and gas operations to similarly be financed by
equity.





We had
cash of $121,776 as of December 31, 2008. We anticipate that we will incur
through the end of our next fiscal year:





·
            $197,000
      in connection with property lease payments and follow up analysis on the
      Company’s oil sands properties;





·
            $303,000
      for operating expenses, including working capital, consulting fees,
      general and administrative, professional, legal and accounting
      expenses.





We have no
long-term debt.  In 2008 our most significant expense is expected to
be for the exploration of our oil and gas properties.  During 2008 we
received $1,700,000 in proceeds from a private placement and $60,000 from the
exercise of share purchase warrants. Even with this additional cash, we believe
that our available cash will not be sufficient to fund our working capital
requirements for the next twelve months.    If we are to
continue to explore and develop our oil sands properties, we will require
additional funding.  We cannot be certain that any required additional
financing will be available on terms favorable to us. If additional funds are
raised by the issuance of our equity securities, such as through the issuance
and exercise of warrants, then existing stockholders will experience dilution of
their ownership interest. We believe that debt financing will not be an
alternative for funding.  The risky nature of this enterprise and lack
of tangible assets places debt financing beyond the credit-worthiness required
by most banks or typical investors of corporate debt until such time as the
economic viability of our oil sands properties can be demonstrated. If adequate
funds are not available or not available on acceptable terms, we may be unable
to fund expansion, develop or enhance services or respond to competitive
pressures.





Critical
Accounting Estimates:





The
preparation of the Company's financial statements requires management to make
estimates and assumptions regarding future events. These estimates and
assumptions affect the reported amounts of certain assets and liabilities, and
disclosure of contingent liabilities.






The
Company follows the full cost method of accounting for natural gas and oil
operations.  Under the full cost method all costs incurred in the
acquisition, exploration and development of natural gas and oil reserves are
initially capitalized into cost centers on a country-by-country basis. The
Company’s current cost centers are located in Canada. Such costs include land
acquisition costs, geological and geophysical expenditures, carrying charges on
non-producing properties, costs of drilling and overhead charges directly
related to acquisition, exploration and development
activities.   Costs capitalized, together with the costs of
production equipment, are depleted and amortized on the unit-of-production
method based on the estimated net proved reserves, as determined by independent
petroleum engineers.  The percentage of total reserve volumes produced
during the year is multiplied by the net capitalized investment plus future
estimated development costs in those reserves.  Costs of acquiring and
evaluating unproved properties are initially excluded from depletion
calculations. These unevaluated properties are assessed periodically to
ascertain whether an impairment has occurred. When proved reserves are assigned
or the property is considered to be impaired, the cost of the property or the
amount of the impairment is added to costs subject to depletion
calculations.





Estimates
of undiscounted future cash flows that we use for conducting impairment tests
are subject to significant judgment decisions based on assumptions of highly
uncertain future factors such as, crude oil and natural gas prices, production
quantities, estimates of recoverable reserves, and production and transportation
costs. Given the significant assumptions required and the strong possibility
that actual future factors will differ, we consider the impairment test to be a
critical accounting procedure.  During the years ended December 31, 2008,
2007 and 2006 no property impairment adjustments were recorded.





31


In
accordance with Statement of Financial Accounting Standards No. 143, Accounting
for Asset Retirement Obligations (''SFAS 143''), the fair value of an asset
retirement cost, and corresponding liability, should be recorded as part of the
cost of the related long-lived asset and subsequently allocated to expense using
a systematic and rational method. The Company will record an asset retirement
obligation to reflect its legal obligations related to future abandonment of its
oil and gas interests using estimated expected cash flow associated with the
obligation and discounting the amount using a credit-adjusted, risk-free
interest rate. At least annually, the Company will reassess the obligation to
determine whether a change in any estimated obligation is necessary. The Company
will evaluate whether there are indicators that suggest the estimated cash flows
underlying the obligation have materially changed. Should those indicators
suggest the estimated obligation has materially changed the Company will
accordingly update its assessment.  During 2007 the Company drilled
four wells on its Cadotte leases.  At December 31, 2008 and 2007, the
Company has provided an estimate of its asset retirement
obligations.





Management
has made significant assumptions and estimates determining the fair market value
of stock-based compensation granted to employees and
non-employees.  These estimates have an effect on the stock-based
compensation expense recognized and the contributed surplus and share capital
balances on the Company’s Balance Sheet.  The value of each option
award is estimated on the date of grant using the Black-Scholes option-pricing
model.  For non-employees, such amount is revalued on a quarterly
basis.  To date, substantially all of our stock option grants have
been to non-employees.  Increases in our share price will likely
result in increased stock option compensation expense. The Black-Scholes
option-pricing model requires the input of subjective assumptions, including the
expected term of the option award and stock price volatility. The expected term
of options granted for the purposes of the Black-Scholes calculation is the term
of the award since all grants are to non-employees. Because our Company has only
recently become an oil and gas exploration company, the expected volatility is
based on comparable junior oil and gas companies who granted similar term
options.  These estimates involve inherent uncertainties and the
application of management judgment. An expected forfeiture rate of nil was used
in the recognition of compensation expense for those options not yet vested at
December 31, 2008.





These
accounting policies are applied consistently for all years presented. Our
operating results would be affected if other alternatives were used. Information
about the impact on our operating results is included in the notes to our
financial statements.




Inflation






We operate
in Canada only, where inflation for our operational costs is at low levels, i.e.
in the 2%-5% range.






Impact of Foreign Currency
Fluctuations






We hold
our cash reserves in Canadian dollars. We incur the majority of our expenses and
capital expenditures also in Canadian dollars. Therefore, an increase or
decrease in the value of the Canadian dollar versus the U.S. dollar would have a
minimal effect on us.






Government
Policies






We are
subject to regulations of the Government of Canada and the Government of
Alberta. Such regulations may relate directly and indirectly to our operations
including production, marketing and sale of hydrocarbons, royalties, taxation,
environmental matters and other factors. There is no assurance that the laws
relating to our operations will not change in a manner that may materially and
adversely affect us, however, there has been no material impact on us from
changes to such laws in the past three fiscal periods.







C.
Research and development, patents, and licenses, etc.





See Item
4.B Business Overview and 5.A Operating Results.





D.
Trends





No
disclosure necessary.





32


E.
Off-balance sheet arrangements





We do not have any off balance sheet
arrangements as of December 31, 2008 and December 31, 2007 or of the date of
this report.





F.  Contractual
obligations





The
following table list contractual obligations at December 31, 2008.





Contractual Obligations
                          
                          Payments due by periodTotal
                          
                          
                          Less
      than 1 year
                          
                          
                          1-3
      years
                          
                          
                          3-5
      years
                          
                          
                          More
      than five yearsAnnual
      Oil Sands Lease Payments:Drowned
      property lease
                          
                          $
                          10,297
                          
                          
                          $
                          1,471
                          
                          
                          $
                          2,942
                          
                          
                          $
                          2,942
                          
                          
                          $
                          2,942Peace
      River property leases
                          
                          $
                          1,730,944
                          
                          
                          $
                          144,920
                          
                          
                          $
                          289,840
                          
                          
                          $
                          289,840
                          
                          
                          $
                          1,006,344Capital
      (Finance) Lease Obligations
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          0Operating
      Lease Obligations
                          
                          $
                          43,100
                          
                          
                          $
                          43,100
                          
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          0Purchase
      Obligations
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          0Other
      Long-Term Liabilities Reflected on the Company’s Balance Sheet Under the
      GAAP of the primary financial statements
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          0
                          
                          
                          
                          0Total
                          
                          $
                          1,784,341
                          
                          
                          $
                          189,491
                          
                          
                          $
                          292,782
                          
                          
                          $
                          292,782
                          
                          
                          $
                          1,009,286





The
Drowned Property is comprised of a single lease with the government of the
province of Alberta, Canada requiring annual lease payments of
$1,471.  The lease is a fifteen year lease and expires on October 4,
2015.





The Peace
River Project is currently comprised of 42 leases with the government of the
province of Alberta, Canada requiring annual lease payments of
$144,920.  The leases are fifteen year leases that begin expiring on
December 15, 2020.





The
Company leases office space in Calgary, Alberta under a lease that commenced
October 15, 2007 with a term to October 30, 2009.  The basic rent for
the office is CDN $5,250 (USD $4,310) per month.  The Company has the
option to renew the lease for a one year term.





At
December 31, 2008, the Company had trade payables and accrued liabilities of
$120,350.  All of these obligations are due in less than one
year.





Recent
Accounting Pronouncements:








SFAS 157





In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value
Measurements” (“FAS 157”). FAS 157 defines fair value, establishes a framework
for measuring fair value in accordance with generally accepted accounting
principles, and expands disclosures about fair value measurements. The
provisions of FAS 157 are effective fiscal years beginning after November 15,
2007.   The adoption of SFAS 157 did not have a material impact
on the Company’s financial statements.





33


SFAS 159





In
February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial
Assets and Financial Liabilities - including an amendment of FASB Statement No.
115” (“SFAS No. 159”) which permits entities to choose to measure many financial
instruments and certain other items at fair value. This statement is effective
for fiscal periods beginning after November 15, 2007.  The adoption of
SFAS 159 did not have a material impact on the Company’s financial
statements.





SFAS
141(R)





In
December 2007, the FASB issued SFAS 141(R) “Business Combinations” and SFAS 160
“Non-controlling Interests in Financial Statements”, which are both effective
for fiscal years beginning after December 15, 2008. SFAS 141(R), which will
replace FAS 141, is applicable to business combinations consummated after the
effective date of December 15, 2008.  The implementation of SFAS
141(R) is not expected to have a material impact on the Company’s financial
statements.





SFAS 160





In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements – An amendment of ARB No. 51".  SFAS
160 requires companies with noncontrolling interests to disclose such interests
clearly as a portion of equity but separate from the parent's
equity.  The noncontrolling interest's portion of net income must also
be clearly presented on the Income Statement.  SFAS 160 is effective
for financial statements issued for fiscal years beginning after on or after
December 15, 2008.  The implementation of SFAS 160 is not expected to
have a material impact on the Company’s financial statements.





SFAS 161





In March
2008, the FASB issued SFAS 161 “Disclosures about Derivative Instruments and
Hedging Activities – an amendment of SFAS 133.  This Statement
requires enhanced disclosures about an entity’s derivative and hedging
activities and thereby improves the transparency of financial reporting. This
Statement is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. This Statement encourages, but does not require, comparative
disclosures for earlier periods at initial adoption. The implementation of SFAS
161 is not expected to have a material impact on the Company’s financial
statements.





SFAS 162





In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles".  SFAS 162 identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of non-governmental entities that are
presented in conformity with generally accepted accounting principles in the
United States.  It is effective 60 days following the SEC's approval
of the Public Company Accounting Oversight Board amendments to AU Section 411,
"The Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles".  The implementation of SFAS 162 is not expected to have a
material impact on the Company’s financial statements.





FSP
142-3





In April
2008, the FASB issued FSP No. 142-3, "Determination of the Useful Life of
Intangible Assets" ("FSP 142-3").  FSP 142-3 amends the factors an
entity should consider in developing renewal or extension assumptions used in
determining the useful life of recognized intangible assets under FASB Statement
No. 142, "Goodwill and Other Intangible Assets".  This new guidance
applies prospectively to intangible assets that are acquired individually or
with a group of other assets in business combinations and asset
acquisitions.  FSP 142-3 is effective for financial statements issued
for fiscal years and interim periods beginning after December 15,
2008.  Early adoption is prohibited. The implementation of FSP 142-3
is not expected to have a material impact on the Company’s financial
statements.





34


APB 14-1





In May
2008, FASB issued FASB Staff Position ("FSP") APB 14-1, "Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)" ("FSP APB 14-1").  FSP APB 14-1
clarifies that convertible debt instruments that may be settled in cash upon
either mandatory or optional conversion (including partial cash settlement) are
not addressed by paragraph 12 of APB Opinion No. 14, "Accounting for Convertible
Debt and Debt issued with Stock Purchase Warrants."  Additionally, FSP
APB 14-1 specifies that issuers of such instruments should separately account
for the liability and equity components in a manner that will reflect the
entity's nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods.  FSP APB 14-1 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. The implementation of APB 14-1 is not
expected to have a material impact on the Company’s financial
statements.





Modernization of Oil and Gas
Reporting





In January
2009, the Securities and Exchange Commission issued revisions to the oil and gas
reporting disclosures, “Modernization of Oil and Gas Reporting; Final Rule”
(“the Final Rule”). In addition to changing the definition and disclosure
requirements for oil and gas reserves, the Final Rule changes the requirements
for determining quantities of oil and gas reserves. The Final Rule also changes
certain accounting requirements under the full cost method of accounting for oil
and gas activities. The amendments are designed to modernize the requirements
for the determination of oil and gas reserves, aligning them with current
practices and updating them for changes in technology. The Final Rule is
effective for annual reports on Form 10-K or Form 20F for fiscal years ending on
or after December 31, 2009. The Company has not yet determined the impact, if
any, on the financial statements.





Item
6. Directors, Senior Management and Employees





A.
Directors and Senior Management





The
directors, officers and designers upon whose work the Company is dependent of
Strata are as follows:





Name
                
                Position
                
                Position
      Held
                  SinceManny
      Dhinsa
                
                President,
      Secretary, Treasurer, Chief Executive Officer and Chief Financial
      Officer
                
                August
      19, 2005Pratt
      Barndollar
                
                Director
                
                October
      12, 2005Charlie
      Perity
                
                Director
                
                January
      1, 2006Pol
      Brisset
                
                Director
                
                August
      23, 2005





The
following summarizes certain biographical data concerning the directors and
senior management of Strata:





MANNY DHINSA, age 37, is an
accomplished petroleum specialist who has been working in the Alberta oil patch
for more than a decade. His clients have included world-class oil and gas
companies such as Encana, Nexen, Devon and CNRL. He has been involved in
advanced exploration programs throughout Alberta, Saskatchewan and northeast
British Columbia, including heavy oil exploration in the Lloydminster area
(CNRL) and Encana's natural gas resource in the Greater Sierra
play.  Mr. Dhinsa graduated from the University of Alberta with a
Bachelor of Science degree in geology.





35


PRATT BARNDOLLAR, age 50, is
an experienced geophysicist who has served as senior geoscience manager and
interpreter for large and small oil companies during the span of his
career.  He has broad US and international experience in prospect
evaluation, operations and planning and currently holds the position of Manager,
Exploration Planning at Talisman Energy Inc. Between 2006 and 2008 he was Vice
President, Exploration of Napa Energy Ltd.  Mr. Barndollar served as
Chief Geophysicist and Exploration Portfolio Manager for Devon Energy between
2002 and 2005, Senior Geophysicist for Samson Canada between 2000 and 2002,
Chief Geophysicist for Apache Canada between 1997 and 2000, and Senior Explorer
and Project Leader for Phillips Petroleum between 1982 and 1997.  Mr.
Barndollar earned two Bachelor of Science degrees from Kansas State University,
in Geophysics and Civil Engineering.  His professional affiliations
include the Association of Professional Engineers, Geologists, and Geophysicists
of Alberta; Texas Board of Professional Geoscientists; American Association of
Petroleum Geologists; Canadian Society of Petroleum Geologists; and the Canadian
Society of Exploration Geophysicists.





CHARLIE PERITY, age 54, is an
experienced oil sands geologist who has worked for large and small oil companies
during the span of his career.  He currently serves as a consultant to
various companies in the oil and gas industry in Alberta where much of his work
is focused on oil sands projects.  From 2005 to 2006 he was employed
as a Senior Geologist for Terracon Geotechnique of Calgary.  Prior to
that Mr. Perity served as Hydrogeologist for Lifewater Resources and AGC
Woodward-Clyde, both of Australia, after running a technology company from 1995
through 2002.  Mr. Perity served as Oil Sands Project Geologist for BP
Canada between 1984 and 1990.  Mr. Perity earned a Bachelor of Science
degree in Earth Sciences (Geology) from the University of Waterloo, and a Master
of Science degree in Hydrogeology from the University of Technology in
Sydney.





POL BRISSET, age 33, is a
Montreal-based finance and marketing professional. During his career he has
worked for such multi-billion dollar corporations as Coors and Molson. His
knowledge and experience in business operations and team development is of
specific importance to Strata.  Mr. Brisset is fluent in English and
French, and received his Business degree from the University of Quebec at
Montreal.





Our
directors have been elected to serve until the next annual meeting of
stockholders and until their successor(s) have been elected and qualified, or
until death, resignation or removal.





There are
no family relationships between any directors or executive officers. There are
no arrangements or understandings pursuant to which any director or member of
senior management was selected as a director or member of senior
management.





36


B.
Compensation





The
following table shows compensation paid to the Company’s executives for the last
three years.





Name
                          Title
                          Year
                          Salary
                          Bonus
                          Stock
                            Options
                            Granted
                          Other
                            Annual
      Compensation
                          Restricted
      Stock Awarded
                          LTIP
      Payouts ($)
                          All
      Other CompensationMany
      Dhinsa(1)
                          Director,
      President, Secretary, and Treasurer
                          2008
                          69,096
                          0
                          0
                          0
                          0
                          0
                          02007
                          126,191
                          0
                          200,000
                          0
                          0
                          0
                          02006
                          61,842
                          0
                          0
                          0
                          0
                          0
                          0Scott
      Praill(2)
                          Chief
      Financial Officer
                          2008
                          69,096
                          0
                          0
                          0
                          0
                          0
                          02007
                          52,579
                          0
                          0
                          0
                          0
                          0
                          02006
                          0
                          0
                          0
                          0
                          0
                          0
                          0Geoff
      Jordan(3)
                          Director
                          2008
                          33,973
                          0
                          600,000
                          0
                          0
                          0
                          0








(1)
            Manny
      Dhinsa was appointed to his position on August 19, 2005 and did not
      receive any salary or fees in 2005.  Commencing May 15, 2006,
      Mr. Dhinsa has received CDN$10,000 (USD $8,210) per month in consulting
      fees.  Commencing August 1, 2008, Mr. Dhinsa agreed to amend his
      compensation arrangement whereby he is compensated based on an hourly
      rate.  Mr. Dhinsa has been granted 800,000 stock options
      exercisable into common shares at $0.11 per option until expiry on August
      24, 2015.  On March 19, 2007 Mr. Dhinsa was granted an
      additional 200,000 options exercisable into common shares at a price of
      $0.61 per option until March 19,
2017.





(2)
            Scott
      Praill was appointed to his position on June 1, 2007 and received
      CDN$10,000 (USD $8,210) per month in consulting fees.  On
      September 10, 2008 Mr. Praill resigned as the Company’s Chief Financial
      Officer.  Mr. Praill has been granted 400,000 stock options
      exercisable into common shares at $0.11 per option until expiry on August
      24, 2015.





(3)
            Geoff
      Jordan was appointed to the Board of Directors on June 16,
      2008.  Mr. Jordan performs consulting services for the Company
      at the discretion of the Company’s CEO.  Mr. Jordan was granted
      600,000 options exercisable into common shares at $0.82 per option until
      expiry on June 16, 2018.  Mr. Jordan resigned from the Board of
      Directors on April 3, 2009 and his options were subsequently
      cancelled.








37


Stock
Options Outstanding at December 31, 2008








Name
                Number
      of Options Outstanding
                Grant
      Date
                Expiration
      Date
                Exercise
      Price per Option
                Market
      Value of Securities Underlying Options on Date of Grant(7)
                Number
      of Securities Underlying Unexercised Options, Exercisable
                Number
      of Securities Underlying Unexercised Options,
Unexercisable
                Grant
      Date Fair Value of Stock Options(8)Manny
      Dhinsa(1)
                680,000
                8/24/05
                8/24/15
                $0.11
                $0.11
                680,000
                -
                75,400200,000
                3/19/07
                3/19/17
                $0.61
                $0.61
                -
                200,000
                114,400Pol
      Brisset(2)
                134,000
                8/24/05
                8/24/15
                $0.11
                $0.11
                134,000
                -
                37,700Scott
      Praill(3)
                336,000
                8/24/05
                8/24/15
                $0.11
                $0.11
                336,000
                -
                37,700Geoff
      Jordan(4)
                600,000
                6/16/08
                6/16/18
                $0.82
                $0.82
                -
                600,000
                450,000Pratt
      Barndollar(5)
                100,000
                7/24/08
                7/24/18
                $0.74
                $0.74
                -
                100,000
                67,700Charlie
      Perity(6)
                -
                -
                -
                -
                -
                -
                -
                -





(1) Manny
Dhinsa was granted 800,000 options on August 24, 2005 vesting in equal
installments of 133,334 every six months commencing February 24, 2007 and ending
August 24, 2008.  He exercised 120,000 stock options during
2006.     On March 19, 2007 Mr. Dhinsa was granted an
additional 200,000 options that all vest on March 19, 2010.





(2) Pol
Brisset was granted 400,000 options on August 24, 2005, vesting in equal
installments of 66,666 every six months commencing February 24, 2007 and ending
August 24, 2008.  He exercised 266,000 stock options during
2007.





(3) Scott
Praill was granted 400,000 options on August 24, 2005 vesting in equal
installments of 66,666 every six months commencing February 24, 2007 and ending
August 24, 2008.  He exercised 64,000 stock options during
2006.    On September 10, 2008 Mr. Praill resigned as the
Company’s Chief Financial Officer.





(4) Geoff
Jordan was granted 600,000 options on June 16, 2008 that vest in three equal
installments of 200,000 on each of June 16, 2009, 2010, and 2011
respectively.  Mr. Jordan resigned from the Board of Directors on
April 3, 2009 and his options were subsequently cancelled.





(5) Pratt
Barndollar was granted 100,000 options on July 24, 2008 that vest as to 30,000
on July 24, 2009, 30,000 on July 24, 2010, and 40,000 on July 24,
2011.





(6)
Charlie Perity has not been granted stock options.  He receives CDN
$500 per month for serving on the Board of Directors.





(7) The
exercise price of the Company’s stock option grants is determined based on the
closing share price of the Company’s common stock as quoted on the OTC:BB on the
date of grant.





(8) The
figures in this column represent the grant date fair value of stock option
grants as determined using the Black-Scholes model.  For more
information regarding the assumptions used to value stock option grants, please
refer to note 3 of the Company’s audited financial statements for the fiscal
year ended December 31, 2008 filed with this Form 20-F.





38


Change of Control
Remuneration.





The
Company had no plans or arrangements in respect of remuneration received or that
may be received by Executive Officers of the Company in Fiscal 2008 to
compensate such officers in the event of termination of employment (as a result
of resignation, retirement, change of control) or a change of responsibilities
following a change of control. However, effective August 1, 2008, the Company
amended the compensation arrangement with its President of the Company and has
agreed to pay for his services based on a needed basis and on a hourly
rate.





C. Board Practices





6.C.1.  Terms of
Office.





Refer to
ITEM 6.A.1.





6.C.2.  Directors’
Service Contracts.





Mr.
Brisset, Mr. Barndollar and Mr. Perity each have a service contract providing
for payment of CDN $500 per month for their services as Directors of our
Company.  The agreements are to remain in effect as long as the
respective individual continues to serve as a Director.  The
agreements do not provide for any termination benefits of any kind.





6.C.3.  Board of
Director Committees.





The Audit
Committee oversees the accounting and financial reporting processes of the
Company and all audits and external reviews of the financial statements of the
Company on behalf of the Board, and has general responsibility for oversight of
internal controls, accounting and auditing activities of the Company. The
Committee reviews, on a continuous basis, any reports prepared by the Company's
external auditors relating to the Company's accounting policies and procedures,
as well as internal control procedures and systems. The Committee is also
responsible for examining all financial information, including annual financial
statements, prepared for securities commissions and similar regulatory bodies
prior to filing or delivery of the same. The Audit Committee also oversees the
annual audit process, the Company's internal accounting controls, any complaints
and concerns regarding accounting, internal controls or auditing matters and the
resolution of issues identified by the Company's external auditors. The Audit
Committee recommends to the Board the firm of independent auditors to be
nominated for appointment by the shareholders and the compensation of the
auditors. The Audit Committee meets on an as needed basis.





The Board
has established an Option Committee and Compensation Committee, each consisting
of the independent Directors of the Company which includes Messrs. Barndollar,
Perity, and Brisset. The Option Committee recommends and grants options to
individuals under the option plans adopted by the company. The Compensation
Committee recommends and grants compensation to individuals who work for the
company.





The audit
committee consists of Pol Brisset, Charlie Perity and Pratt
Barndollar.





6.D.  Employees





As of
December 31, 2008, 2007, and 2006 we had 1, 2 and 1 full-time employees
respectively, including Mr. Dhinsa, Chairman of the Board, President, Secretary,
Treasurer and CEO. Mr. Dhinsa supervises the company's operations.  It
is anticipated that we will need to add additional managerial, technical and
administrative staff in the future in order to realize our business objectives.
As of May 15, 2006 Mr. Dhinsa began dedicating 100% of his time working for the
Company.  On August 1, 2008, recognizing that his time required had
declined significantly due to declines in activity, Mr. Dhinsa agreed amend his
compensation to be paid on an hourly basis.  We currently outsource to
outside engineers and geologists on an as-needed basis.





39


E.
Share Ownership





As of July
10, 2009 Management is not aware of any persons or entity that is the beneficial
owner of more than 5% of our outstanding common stock.  The table
below indicates as of July 10, 2009 the share ownership of each of our officers
and directors and all of our officers and directors as a group. Information
relating to beneficial ownership of common stock by our principal stockholders
and management is based upon information furnished by each person using
"beneficial ownership" concepts under the rules of the Securities and Exchange
Commission. Under these rules, a person is deemed to be a beneficial owner of a
security if that person has or shares voting power, which includes the power to
vote or direct the voting of the security, or investment power, which includes
the power to vote or direct the voting of the security. The person is also
deemed to be a beneficial owner of any security of which that person has a right
to acquire beneficial ownership within 60 days. Under the Securities and
Exchange Commission rules, more than one person may be deemed to be a beneficial
owner of the same securities, and a person may be deemed to be a beneficial
owner of securities as to which he or she may not have any pecuniary beneficial
interest.





The
percentages below are calculated based on 63,531,088 shares of common stock
issued and outstanding as of July 10, 2009, plus in the case of a person who has
the right to acquire additional shares within 60 days, any new shares which
would be issued to effect such acquisition.





Officers,
      Directors,And
      5% Shareholders
              Number
      of Shares
              
              Beneficial
      Ownership (%)Manny
      Dhinsa
              691,000
              (1)
              1.1%Pol
      Brisset
              134,000
              (2)
              *Charlie
      Perity
              110,500
              
              *Pratt
      Barndollar
              -
              
              -All
      Directors and Executive Officers as a Group (5 persons)
              935,500
              
              1.5%





*
Represents less than 1%.





(1)
      Includes stock options to purchase up to 680,000 shares of our common
      stock, exercisable within sixty
days.


(2)
      Includes stock options to acquire up to 134,000 shares of our common
      stock, exercisable within sixty
days.





The
persons or entities named in this table, based upon the information they have
provided to us, have sole voting and investment power with respect to all shares
of common stock beneficially owned by them.





Stock
Option Plans:





The
Company has three option plans pursuant to which employees, directors and
consultants and other agents of the Company could receive shares. The Company
has a 2006 Stock Option Plan (“the 2006 Plan”), a 2002 Stock Option Plan (“the
2002 Plan”) and a 2000 Stock Option Plan (“the 2000 Plan”).





The
principal purposes of the Company’s stock option program are to (a) promote a
proprietary interest in the Company among the officers, directors, employees and
consultants of the Company, (b) retain and attract the qualified officers,
directors, employees and consultants the Company requires, (c) provide a
long-term incentive element in overall compensation, and (d) promote the
long-term profitability of the Company.





40


Item
7. Major Shareholders and Related Party Transactions





A.
Major Shareholders





7.A.1.a.  Holdings
By Major Shareholders.





See Item
6.E.  As of July 10, 2009, management is not aware of any persons or
entity that is the beneficial owner of more than 5% of our outstanding common
stock.





7.A.1.b.  Significant
Changes in Major Shareholders’ Holdings.





There were
no major shareholders during 2008 or 2007.





7.A.1.c.  Different
Voting Rights.





The
Company’s major shareholders do not have different voting rights.





7.A.2.  Canadian
Share Ownership.





On June 8,
2009, the Company had one hundred thirty-four (134) registered shareholders
representing 20,789,840 shares.  Of these, twenty-two (22) registered
shareholders representing 18,064,732 have addresses in Canada.





7.A.4.  Change of
Control of Company Arrangements.





There are
no arrangements, known to the Company, the operation of which may at a
subsequent date result in a change in control of the Company.





B.
Related Party Transactions





As part of
the sale of the Company’s software assets the Company had a promissory note with
a face value of $130,000 owing from a private company controlled by the
Company’s former President.  In June 2006, the total proceeds of the
promissory note were received.





The
Company began paying its each of its current President and Chief Financial
Officer CDN $10,000 (USD $8,210) per month in May 2006.  Commencing
August 1, 2008, the President (Mr. Dhinsa) agreed to amend his compensation
arrangement whereby he is compensated based on an hourly rate.  On
September 10, 2008 the Company’s CFO resigned.  Total compensation
expense of $172,165 has been recognized as consulting fees at December 31, 2008
(2007 - $178,770, 2006 - $61,842).





Mr. Geoff
Jordan joined the Board of Directors on June 16, 2008.  Mr. Jordan is
an experienced geologist who performs consulting services for the
Company.  During 2008 Mr. Jordan was paid $33,973 for services
rendered to the Company.  Mr. Jordan resigned from the Board of
Directors on April 3, 2009.





Shareholder
Loans





There are
no loans to shareholders outstanding at December 31, 2008 or 2007.  At
December 31, 2005 the Company had an amount owing of $130,000 from a private
company controlled by our former president in connection with the disposal of
our technology assets in July 2005 pursuant to the agreement.  In June
2006, the total proceeds of the promissory note were received.














41


Amounts Owing to Senior
Management/Directors





At
December 31, 2008 and 2007 no amounts were owed to senior management or
directors.  Other than as noted above, there have been no transactions
since inception, or proposed transactions, which have materially affected or
will materially affect the Company in which any director, executive officer, or
beneficial holder of more than 5% of the outstanding common shares, or any of
their respective relatives, spouses, associates or affiliates has had or will
have any direct or material indirect interest.  Management believes
the transactions referenced above were on terms at least as favorable to the
Company as the Company could have obtained from unaffiliated
parties.





C.
Interests of Experts and Counsel





Not
applicable.





Item
8. Financial Information





A.
Financial Statements and Other Financial Information





The
Company's financial statements are stated in United States Dollars and are
prepared in accordance with U.S. Generally Accepted Accounting Principles
(GAAP).





The
financial statements as required under ITEM #18 are attached hereto and found
immediately following the text of this Annual Report.  The audit
report of BDO Dunwoody LLP are included herein immediately preceding the
financial statements.





Audited Financial
Statements:





Fiscal
years ended December 31, 2008, 2007 and 2006.





8.A.7.  Legal/Arbitration
Proceedings





The
Directors and the management of the Company do not know of any material, active
or pending, legal proceedings against them; nor is the Company involved as a
plaintiff in any material proceeding or pending litigation.





The
Directors and the management of the Company know of no active or pending
proceedings against anyone that might materially adversely affect an interest of
the Company.





8.A.8.  Policy on
dividend distributions





We have
never declared or paid any cash dividends on our common stock nor do we
anticipate paying any in the foreseeable future. Furthermore, we expect to
retain any future earnings to finance our operations and expansion. The payment
of cash dividends in the future will be at the discretion of our Board of
Directors and will depend upon our earnings levels, capital requirements, any
restrictive loan covenants and other factors the Board considers
relevant.





42


B.  Significant
Changes





At the
Annual and Special Meeting of the Company’s shareholders held on July 13, 2007 a
majority of the Company’s shareholders voted in favor of splitting the Company’s
stock.   The Company’s Board of Directors determined that it was
in the best interests of our shareholders to split the issued and outstanding
share capital of the Company on a two (2) to one (1) basis (the “Share
Split”).  The definitive Share Split ratio was determined by the
management based on a review of market liquidity and trading volumes at the time
the split is effected.  The record date of the stock split was October
8, 2007 and the payment date was October 9, 2007.





All of the
29,320,544 shares issued on the record date of October 9, 2007 were split on a
two for one basis.  The Share Split was completed via a stock dividend
that did not require any further action to be taken by the shareholders on the
record date of October 8, 2007.





Item 9. The Offer and Listing





A.  Offer
and Listing Details





The following tables set forth the
price history of the Company’s stock.  All share prices have
beenadjusted to reflect the 2:1 forward split of the Company’s stock completed
in October 2007.





1.
            Annual
      high and low market prices for the last five full financial
      years:





Year
                    Market PriceHigh Price
                    Low Price2008
                    $1.54
                    $0.102007
                    $1.74
                    $0.252006
                    $3.98
                    $0.442005
                    $0.74
                    $0.072004
                    $0.32
                    $0.04





2.           High
and low market prices for each full financial quarter during the two most recent
full financialyears:


Financial Quarter
                              Market PriceYear
                              Quarter
                              High Price
                              Low Price2008
                              Fourth
      Quarter of 2007
                              $0.38
                              $0.10Third
      Quarter of 2007
                              $0.84
                              $0.36Second
      Quarter of 2007
                              $0.95
                              $0.74First
      Quarter of 2007
                              $1.54
                              $0.852007
                              Fourth
      Quarter of 2006
                              $1.74
                              $0.64Third
      Quarter of 2006
                              $0.58
                              $0.25Second
      Quarter of 2006
                              $1.03
                              $0.58First
      Quarter of 2006
                              $1.22
                              $1.17





43


3.           High
and low market prices for each of the six most recent months:


Month
                    Market PriceHigh Price.
                    Low PriceJune
      2009
                    $0.55
                    $0.305May
      2009
                    $0.54
                    $0.15April
      2009
                    $0.18
                    $0.14March
      2009
                    $0.18
                    $013February
      2009
                    $0.16
                    $0.12January
      2009
                    $0.21
                    $0.13





B.   Plan
of distribution.





Not
applicable.





C.   Markets.





In July
2000 our common stock began trading on the Over the Counter Bulletin Board
sponsored by the National Association of Securities Dealers, Inc. under the
symbol "SBSF.OB". Subsequent to our continuance to Canada, our symbol was
changed to “SBASF.OB”.  On June 29, 2005 the shareholders approved the
sale of the Company’s software assets as well as approved the Company’s change
of business to oil and gas exploration.  Subsequent to the meeting,
the Company’s symbol was changed to “SOIGF.OB”.  The Over the Counter
Bulletin Board is maintained by the NASDAQ Stock Market, but does not have any
of the quantitative or qualitative standards such as those required for
companies listed on the NASDAQ Small Cap Market or National Market
System.





D.
Selling shareholders.





Not
applicable.





E.  Dilution.





Not
applicable.





F.  Expenses
of the issue.





Not
applicable.





Item 10. Additional Information





A.   Share
Capital.





Not
applicable.





B.
Memorandum and Articles of Incorporation





This
section summarizes certain material provisions of the Company’s charter and
bylaws.





The
Company is authorized to issue an unlimited number of shares of common stock
(the “Common Shares”) as well as an unlimited number of shares of preferred
stock (the “Preferred Shares”).





44


Subject to
the rights of holders of Preferred Shares in the future, if any, holders of the
Common Shares are entitled to share equally on a per share basis in such
dividends as may be declared by the Board of Directors out of funds legally
available therefore. There are presently no plans to pay dividends with respect
to the Common Shares. Upon the Company’s liquidation, dissolution or winding up,
after payment of creditors and the holders of any of the Preferred Shares, if
any, the Company’s assets will be divided pro rata on a per share basis among
the holders of the Common Shares. The Common Shares are not subject to any
liability for further assessments. There are no conversions or redemption
privileges nor any sinking fund provisions with respect to the Common Shares and
the Common Shares are not subject to call. The holders of Common Shares do not
have any pre-emptive or other subscription rights.  Holders of the
Common Shares are entitled to cast one vote for each share held at all
shareholders’ meetings for all purposes, including the election of directors.
The Common Shares do not have cumulative voting rights.





None of
the Preferred Shares are currently outstanding.  The Board of
Directors has the authority, without further action by the holders of the
outstanding Common Shares, to issue preferred shares from time to time in one or
more series, to fix the number of shares constituting any series, and to fix the
terms of any such series, including dividend rights, dividend rates, conversion
or exchange rights, voting rights, rights and terms of redemption (including
sinking fund provisions), the redemption price and the liquidation preference or
such series.





The
Company’s Bylaws provide that Board of Directors may, from time to time, with or
without the  authority or the  authorization  of
the shareholders, in such amounts and on such terms as it deems expedient, cause
the Company to borrow money.  The board may from time to time delegate
to a committee,  to a director,  or to an officer of the
Company all or any of the powers  conferred on the board by law or the
by-laws to such extent and in such manner as the board from time to time
determines.





Annual and
special meetings of the shareholders may be called by the Board of
Directors.   Notice of a shareholder meeting shall be given not
less than 21 days and not more than 60 days prior to the date of such meeting to
each director, the auditor of the Company, and each shareholder of record
entitled to vote at the meeting.  A quorum for any shareholder meeting
shall be persons present not being less than two in number and holding or
representing by proxy not less than 5% of the total number of issued shares
entitled to vote at the meeting.





C.  Material
Contracts





We have
not entered into any material contracts, other than contracts entered into in
the ordinary course of business, for the two years immediately preceding
publication of this document.  Significant property contracts are as
described in Section 4.D.





D.
Exchange Controls





There are
no government laws, decrees or regulations in Canada which restrict the export
or import of capital or, subject to the following sentence, which affect the
remittance of dividends or other payments to nonresident holders of Strata’s
common shares. However, any such remittance to a resident of the United States
is generally subject to non-resident tax pursuant to Article X of the 1980
Canada-United States Income Tax Convention. See “Item 10.E Taxation” for
additional discussion on tax matters.





There are
currently no limitations of general application imposed by Canadian federal or
provincial laws on the rights of non-residents of Canada to hold or vote
Strata’s common shares. There are also no such limitations imposed by the
articles of incorporation with respect to Strata’s common shares. There are,
however, certain requirements on the acquisition of control of Strata’s
securities by non-residents of Canada. The Investment Canada Actrequires notification to and, in certain cases, advance review and
approval by, the Government of Canada, of the acquisition by a “non-Canadian” of
“control” of a “Canadian business”, all as defined in the Investment Canada Act.
Generally speaking, in order for an acquisition to be subject to advance review
and approval, the asset value of the Canadian business being acquired must meet
or exceed certain monetary thresholds.





45


E.
Taxation





The
following discussion is not intended to be, nor should it be construed to be,
legal or tax advice to any holder or prospective holder of common shares of
Strata and no opinion or representation with respect to the Canadian or United
States federal, state, provincial, local or other income tax consequences to any
such holder or prospective holder is made. Accordingly, holders and prospective
holders of common shares of Strata should consult their own tax advisors about
the federal, state, provincial, local and foreign tax consequences of
purchasing, owning and disposing of common shares of Strata.





CANADIAN
FEDERAL INCOME TAX CONSEQUENCES





This
summary is based upon the current provisions of the Income Tax Act (Canada), the
regulations there under, the current publicly announced administrative and
assessing policies of the Canada Revenue Agency, and all specific proposals (the
“Tax Proposals”) to amend the Income Tax Act and regulations announced by the
Minister of Finance (Canada) prior to the date hereof. This discussion is not
exhaustive of all possible Canadian federal income tax consequences and, except
for the Tax Proposals, does not take into account or anticipate any changes in
law, whether by legislative, governmental or judicial action, nor does it take
into account provincial or foreign tax considerations which may differ
significantly from those discussed herein.





The
summary applies to beneficial owners of common shares who, for the purposes of
the Income Tax Act, are residents of the United States and are not resident in
Canada, and who hold common shares of Strata as capital property.





Dividends





The Income
Tax Act provides that dividends and other distributions deemed to be dividends
paid or deemed to be paid by a Canadian resident corporation (such as Strata) to
a non-resident of Canada shall be subject to a non-resident withholding tax
equal to 25% of the gross amount of the dividend or deemed
dividend.





Provisions
in the Income Tax Act relating to dividend and deemed dividend payments to and
capital gains realized by non-residents of Canada who are residents of the
United States are subject to the 1980 Canada-United States Income Tax
Convention.





Article X
of the 1980 Canada-United States Income Tax Convention provides that the rate of
Canadian non-resident withholding tax on dividends or deemed dividends paid to a
United States corporation that beneficially owns at least 10% of the voting
shares of the corporation paying the dividend shall not exceed 5% of the
dividend or deemed dividend, and in any other case, the rate of non-resident
withholding tax shall not exceed 15% of the dividend or deemed
dividend.





Disposition
of Shares





The Income
Tax Act provides that a non-resident person is subject to tax in Canada on the
disposition of “taxable Canadian property.” Common shares of Strata are
considered to be “taxable Canadian property” as defined in the Income Tax Act.
Therefore, under the Income Tax Act, a non-resident would be subject to tax in
Canada on the disposition of common shares of Strata. Article XIII of the 1980
Canada-United States Income Tax Convention provides that gains realized by a
United States resident on the disposition of shares of a Canadian corporation
may not generally be taxed in Canada unless the value of the Canadian
corporation is derived principally from real property situated in
Canada.





Generally,
certain filing and reporting obligations exist where a non-resident of Canada
disposes of taxable Canadian property. In particular, the non-resident must make
an application to the Canada Revenue Agency in advance of the disposition for
the purpose of obtaining a certificate issued by the Canada Revenue Agency
pursuant to section 116 of the Income Tax Act. If the non-resident fails to
secure such certificate from the Canada Revenue Agency in advance of the
disposition, the purchaser is required to withhold and remit to the Canada
Revenue Agency 25% of the amount otherwise payable to the
non-resident.





46


UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES





The
following discussion is based on the U.S. Internal Revenue Code of 1986, as
amended (the “Code”), existing and proposed Treasury Regulations, published
Internal Revenue Service rulings, published administrative positions of the
Internal Revenue Service and court decisions that are currently applicable, any
or all of which could be materially and adversely changed, possibly on a
retroactive basis, at any time. In addition, this discussion does not consider
the potential effects, both adverse and beneficial, of any recently proposed
legislation that, if enacted, could be applied, possibly on a retroactive basis,
at any time. In addition, this discussion does not cover any state, local or
foreign tax consequences. The following is a discussion of United States federal
income tax consequences, under current law, generally applicable to a U.S.
Holder (as defined below) of common shares of Strata who holds such shares as
capital assets. This discussion does not address all potentially relevant
federal income tax matters and it does not address consequences peculiar to
persons subject to special provisions of federal income tax law, such as those
described below that are excluded from the definition of a U.S.
Holder.





U.S.
Holder





As used
herein, a “U.S. Holder” includes a holder of common shares of Strata who is a
citizen or resident of the United States, a corporation created or organized in
or under the laws of the United States or of any political subdivision thereof,
any United States entity which is taxable as a corporation for United States tax
purposes and any other person or entity whose ownership of common shares of
Strata is effectively connected with the conduct of a trade or business in the
United States. A U.S. Holder does not include persons subject to special
provisions of federal income tax law, such as tax-exempt organizations,
qualified retirement plans, financial institutions, insurance companies, real
estate investment trusts, regulated investment companies, broker-dealers,
nonresident alien individuals or foreign corporations whose ownership of common
shares is not effectively connected with the conduct of a trade or business in
the United States and shareholders who acquired their shares through the
exercise of employee stock options or otherwise as compensation.





Dividends





Except as
otherwise discussed below under “Passive Foreign Investment Company
Considerations,” U.S. Holders receiving dividend distributions (including
constructive dividends) with respect to common shares of Strata are required to
include in gross income for United States federal income tax purposes the gross
amount of such distributions to the extent that Strata has current or
accumulated earnings and profits, without reduction for any Canadian income tax
withheld from such distributions. Such Canadian tax withheld may be credited,
subject to certain limitations, against the U.S. Holder’s United States federal
tax liability or, alternatively, may be deducted in computing the U.S. Holder’s
federal taxable income (but in the case of individuals, only if they itemize
deductions). See “Foreign Tax Credit.” To the extent that distributions exceed
current or accumulated earnings and profits of Strata, they will be treated
first as a return of capital up to the U.S. Holder’s adjusted basis in the
common shares (which adjusted basis must therefore be reduced) and thereafter as
a gain from the sale or exchange of the common shares. Preferential tax rates
for long-term capital gains are applicable to a U.S. Holder that is an
individual, estate or trust. Moreover, “qualified dividends” received by U.S.
Holders who are individuals, during tax years beginning before January 1, 2009,
from any “qualified foreign corporation” are subject to a preferential tax rate,
provided such individual U.S. Holder meets a certain holding period requirement.
A “qualified foreign corporation” is generally any corporation formed in a
foreign jurisdiction which has a comprehensive income tax treaty with the United
States or, if not, the dividend is paid with respect to stock that is readily
tradable on an established United States market. However, a “qualified foreign
corporation” excludes a foreign corporation that is a foreign personal holding
company, a foreign investment company, or a passive foreign investment company
for the year the dividend is paid or the previous year. Strata believes that it
qualifies as a “qualified foreign corporation”. There are currently no
preferential tax rates for a U.S. Holder that is a corporation.





47


In
general, dividends paid on common shares of Strata will not be eligible for the
same dividends received deduction provided to corporations receiving dividends
from certain United States corporations. A U.S. Holder which is a corporation
may, under certain circumstances, be entitled to a 70% deduction of the United
States source portion of dividends received from Strata (unless Strata is a
“foreign personal holding company” as defined in Section 552 of the Code, or a
“passive foreign investment company” as defined below) if such U.S. Holder owns
shares representing at least 10% of the voting power and value of Strata. The
availability of this deduction is subject to several complex limitations that
are beyond the scope of this discussion.





Foreign
Tax Credit





A U.S.
Holder who pays (or has withheld from distributions) Canadian or other foreign
income tax with respect to the ownership of common shares of Strata may be
entitled, at the election of the U.S. Holder, to either a tax credit or a
deduction for such foreign tax paid or withheld. This election is made on a
year-by-year basis and generally applies to all foreign income taxes paid by (or
withheld from) the U.S. Holder during that year. There are significant and
complex limitations that apply to the credit, among which is the general
limitation that the credit cannot exceed the proportionate share of the U.S.
Holder’s United States income tax liability that the U.S. Holder’s foreign
source income bears to his or its worldwide taxable income. In the determination
of the application of this limitation, the various items of income and deduction
must be classified into foreign and domestic sources. Complex rules govern
income such as “passive income”, “high withholding tax interest”, “financial
services income”, “shipping income” and certain other classifications of income.
In addition, U.S. Holders that are corporations and that own 10% or more of the
voting stock of Strata may be entitled to an “indirect” foreign tax credit under
Section 902 of the Code with respect to the payment of dividends by Strata under
certain circumstances and subject to complex rules and limitations. The
availability of the foreign tax credit and the application of the limitations on
the foreign tax credit are fact specific and holders and prospective holders of
common shares should consult their own tax advisors regarding their individual
circumstances.





Disposition
of Shares





Except as
otherwise discussed below under “Passive Foreign Investment Company
Considerations,” a gain or loss realized on a sale of common shares will
generally be a capital gain or loss, and will be long-term if the shareholder
has a holding period of more than one year. The amount of gain or loss
recognized by a selling U.S. Holder will be measured by the difference between
(i) the amount realized on the sale and (ii) his or its tax basis in the common
shares. Gains and losses are netted and combined according to special rules in
arriving at the overall capital gain or loss for a particular tax year.
Deductions for net capital losses are subject to significant limitations.
Individual U.S. Holders may carryover unused capital losses to offset capital
gains realized in subsequent years. For U.S. Holders that are corporations
(other than corporations subject to Subchapter S of the Code), any unused
capital losses may only be carried back three and forward five years from the
loss year to offset capital gains until such net capital losses are
exhausted.





Foreign
Personal Holding Company Considerations





Special
rules apply to a U.S. Holder of a “foreign personal holding company” or “FPHC”
as defined in Section 552 of the Code. Strata will not be classified as a FPHC
for U.S. federal income tax purposes unless (i) five or fewer individuals who
are U.S. citizens or residents own or are deemed to own more than 50% of the
total voting power of all classes of stock entitled to vote or the total value
of Strata stock; and (ii) at least 60% (or 50% in certain cases) of Strata’s
gross income consists of “foreign personal holding company income,” which
generally includes passive income such as dividends, interest, gains from the
sale or exchange of stock or securities, certain rents, and royalties. Strata
believes that it is not a FPHC; however, no assurance can be provided that
Strata will not be classified as a FPHC in the future.





48


Passive
Foreign Investment Company Considerations





If Strata
is a “passive foreign investment company” or “PFIC” as defined in Section 1297
of the Code, U.S. Holders will be subject to U.S. federal income taxation under
one of two alternative tax regimes at the election of each such U.S. Holder.
Section 1297 of the Code defines a PFIC as a corporation that is not formed in
the United States and either (i) 75% or more of its gross income for the taxable
year is “passive income”, which generally includes interest, dividends and
certain rents and royalties or (ii) the average percentage, by fair market value
(or, if Strata elects, adjusted tax basis), of its assets that produce or are
held for the production of “passive income” is 50% or more. The rules applicable
to a FPHC take priority over the rules applicable to a PFIC, so that amounts
includable in gross income under the FPHC rules will not be taxable again under
the PFIC rules. Strata does not believe that it will be a PFIC for the current
fiscal year or for future years.  Whether Strata is a PFIC in any year
and the tax consequences relating to PFIC status will depend on the composition
of Strata’s income and assets, including cash. U.S. Holders should be aware,
however, that if Strata becomes a PFIC, it may not be able or willing to satisfy
record-keeping requirements that would enable U.S. Holders to make an election
to treat Strata as a “qualified electing fund” for purposes of one of the two
alternative tax regimes applicable to a PFIC.  U.S. Holders or
potential shareholders should consult their own tax advisor concerning the
impact of these rules on their investment in Strata.





F.
Dividends and Paying Agents





Not
applicable.





G.
Statement by Experts





Not
applicable.





H.
Documents on Display





Strata is
subject to the informational requirements of the United States Securities
Exchange Act of 1934, as amended, such as to file reports and other information
with the SEC. Shareholders may read and copy any of Strata’s reports and other
information at, and obtain copies upon payment of prescribed fees from, the
Public Reference Room maintained by the SEC at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549. The public may obtain information on the operation
of the Public Reference Room by calling the SEC at 1-800-SEC-0330.





Strata is
not required to file reports and other information with any securities
commissions in Canada.





As a
foreign private issuer, Strata is exempt from the rules under the United States
Securities Exchange Act of 1934, as amended, prescribing the furnishing and
content of proxy statements to shareholders.





Strata
will provide without charge to each person, including any beneficial owner, on
the written or oral request of such person, a copy of any or all documents
referred to above which have been or may be incorporated by reference in this
annual report (not including exhibits to such incorporated information that are
not specifically incorporated by reference into such information). Requests for
such copies should be directed to Strata at the following address: Strata Oil
and Gas Inc. Suite 1750 – 717 7th Ave.
SW, Calgary, Alberta, Canada, T2P 0Z3 Attention: President, telephone number:
403-237-5443.





I.
Subsidiary Information





Not
applicable.





Item
11. Quantitative and Qualitative Disclosures About Market Risk





Market
risk represents the potential risk of loss in the future earnings of Strata due
to adverse changes in financial markets. Strata is exposed to market risk from
changes in its common share price, foreign exchange rates and interest rates.
Inflation has not had a significant impact on Strata’s results of
operations.





49


Foreign Currency
Sensitivity





While our
financial statements are reported in US dollars and are intended to comply with
U.S. GAAP requirements, a significant portion of our business operations may be
conducted in Canadian dollars.  Since June 1, 1970, the government of
Canada has permitted a floating exchange rate to determine the value of the
Canadian dollar as compared to the United States dollar.  On July 10,
2009, the exchange rate in effect for Canadian dollars exchanged for United
States dollars, expressed in terms of Canadian dollars was
$1.1647.  This exchange rate is based on the noon buying rates in New
York City for cable transfers in Canadian dollars, as certified for customs
purposes by the Federal Reserve Bank of New York.





Interest Rate
Sensitivity





The
Company currently has no significant long-term or short-term debt requiring
interest payments. Thus, the Company has not entered into any agreement or
purchased any instrument to hedge against possible interest rate risks at this
time.





The
Company's interest earning investments are primarily short-term, or can be held
to maturity, and thus, any reductions in carrying values due to future interest
rate declines are believed to be immaterial. However, as the Company has a
significant cash or near-cash position, which is invested in such instruments,
reductions in interest rates will reduce the interest income from these
investments.





Item
12. Description of Securities Other than Equity Securities





Not
applicable.


50





PART II








Item
13. Defaults, Dividend Arrearages and Delinquencies





None.





Item
14. Material Modifications to the Rights of Security Holders and Use of
Proceeds





None.





Item
15. Controls and Procedures





Evaluation of Disclosure
Controls and Procedures





As
required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange
Act”), the Company’s management carried out an evaluation of the effectiveness
of the design and operation of its disclosure controls and procedures as of
December 31, 2008, being the date of the Company’s most recently completed
fiscal year end. This evaluation was carried out under the supervision and with
the participation of our Principal Executive Officer and Principal Financial
Officer, Mr. Manny Dhinsa.  Based upon that evaluation, our principal
executive officer and principal financial officer concluded that our disclosure
controls and procedures are not effective due to the material weakness noted in
the Internal Controls over Financial Reporting below.





Internal Controls over
Financial Reporting





The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act. Under the supervision of the Company’s
Principal Executive Officer, the Company’s internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles (“GAAP”). The Company’s controls include policies and procedures
that:





 ̈
            pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of the assets of the
      Company;


 ̈
            provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with GAAP;
      and


 ̈
            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of the Company’s assets that
      could have a material effect on the annual financial statements or interim
      financial statements.




Because of
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.






Management
conducted an evaluation of the design and operation of the Company’s internal
control over financial reporting as of December 31, 2008, based on the criteria
set forth in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. This evaluation included
review of the documentation of controls, evaluation of the design effectiveness
of controls, testing of the operating effectiveness of controls and a conclusion
on this evaluation. Based on this evaluation, management concluded that our
internal control over financial reporting was not effective as of December 31,
2008 due to the following material weakness:











51


·
            Our
      company’s administration is composed of a small number of administrative
      individuals resulting in a situation where limitations on segregation of
      duties exist. In order to remedy this situation we would need to hire
      additional staff to provide greater segregation of duties. Currently, it
      is not feasible to hire additional staff to obtain optimal segregation of
      duties.  Management will reassess this matter in the following
      year to determine whether improvement in segregation of duty is
      feasible.




Limitations of Controls and
Procedures




The
Company’s management, including the Principal Executive Officer and Principal
Financial Officer, believe that any disclosure controls and procedures or
internal controls over financial reporting, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, they cannot provide absolute
assurance that all control issues and instances of fraud, if any, within the
Company have been prevented or detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by unauthorized override of the control. The design of any systems of
controls also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Accordingly,
because of the inherent limitations in a cost effective control system,
misstatements due to error or fraud may occur and not be detected.




Attestation Report of
Registered Public Accounting Firm




This
annual report does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the
Company’s independent registered public accounting firm pursuant to temporary
rules of the SEC that permit the Company to provide only management’s report in
this annual report.





Changes in Internal Controls
over Financial Reporting





During the
most recently completed fiscal year ended December 31, 2008, the Company reduced
its staff and as a result, a limitation in the segregation of duties
occurred.  This weakness has been reported by the
Company.





Item
16A. Audit Committee Financial Expert





The
Company’s Audit Committee consists of three directors, all of whom are
financially literate and knowledgeable about the Company’s
affairs.  Mr. Pol Brisset is the audit committee’s financial expert
member as an experienced business manager.





Item
16B. Code of Ethics





The
Company has adopted a code of ethics that applies to its principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. For purposes of this Item,
the term code of ethics means written standards that are reasonably designed to
deter wrongdoing and to promote:





-
            honest
      and ethical conduct, including the ethical handling of actual or apparent
      conflicts of interest between personal and professional
      relationships;


-
            full,
      fair, accurate, timely, and understandable disclosure in reports and
      documents that the issuer files with, or submits to, the Commission and in
      other public communications made by the
issuer;


-
            compliance
      with applicable governmental laws, rules and
  regulations;


-
            the
      prompt internal reporting of violations of the code to the board of
      directors or another appropriate person or persons;
  and


-
            accountability
      for adherence to the code.





52


The
Company hereby undertakes to provide to any person without charge, upon request,
a copy of such code of ethics. Such request may be made in writing to the board
of directors at the address of the issuer.








Item
16C. Principal Accountant and Fees





BDO
Dunwoody LLP has served as the Company’s Principal Accountant since April 30,
2003. Their pre-approved fees to the Company (including an estimate of year end
audit fees) are set forth below:





Fiscal
      year ending
                                    December
      31, 2008
                                  
                                  
                                  Fiscal
      year ending
                                    December
      31, 2007Audit
      Fees
                                  
                                  $
                                  50,000
                                  
                                  
                                  $
                                  50,000Audit
      Related Fees
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -Tax
      Fees
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -All
      Other Fees
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -$
                                  50,000
                                  
                                  
                                  $
                                  50,000





As of
December 31, 2008, the Company’s Audit Committee did not have a formal
documented pre-approval policy for the fees of the principal
accountant.





Item
16D. Exemptions from the Listing Standards for Audit Committees





Not
applicable.





Item
16E. Purchases of Equity Securities by the Issuer and Affiliated
Purchasers





Neither
the Company nor any “affiliated purchasers” as defined in Section
240.10b-18(a)(3) of the Exchange Act purchased any shares of the
Company.


53





PART
III








Item
17. Financial Statements





The
Company has elected to provide financial statements pursuant to ITEM
18.





Item
18. Financial Statements





The
Company's financial statements are stated in United States Dollars and are
prepared in accordance with U.S. Generally Accepted Accounting Principles
(GAAP).





The
financial statements as required under ITEM 18 are attached hereto and found
immediately following the text of this Annual Report.  The audit
report of BDO Dunwoody LLP, is included herein immediately preceding the audited
financial statements.














54


Strata
Oil & Gas Inc.
 (An
Exploration Stage Company)
 FINANCIAL
STATEMENTS
  December
31, 2008 and 2007
  (Stated
in US Dollars)
  55
  
 Strata
Oil & Gas Inc.
 (An
Exploration Stage Company)
 Financial
Statements
 December
31, 2008
  Contents
 
 Report
of Independent Registered Public Accounting Firm
 
 Comments
by Auditors for US Readers on Canada – US Reporting Differences
  Financial
Statements
  Balance
Sheets
  Statements
of Operations and Comprehensive Income (Loss)
  Statements
of Changes in Stockholders’ Equity
  Statements
of Cash Flows
  Notes to
the Financial Statements
  56
  
 Report
      of Independent Registered Public Accounting
Firm
 
  To
the Directors and Stockholders of
 Strata
Oil & Gas Inc.
 (an
Exploration Stage Company)
   We have
audited the Balance Sheets of Strata Oil & Gas Inc. (an Exploration Stage
Company) as at December 31, 2008 and 2007 and the Statements of Operations and
Comprehensive Income (Loss), Changes in Stockholders’ Equity and Cash Flows for
each of the years ended December 31, 2008, 2007 and 2006 and for the period from
July 1, 2005 (the date of entering into exploration stage) to December 31,
2008.  These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
  We
conducted our audits in accordance with Canadian generally accepted auditing
standards and the standards of the Public Company Accounting Oversight Board
(United States).  Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
  In our
opinion, these financial statements present fairly, in all material respects,
the financial position of the Company as at December 31, 2008 and 2007 and the
results of its operations and its cash flows for each of the years ended
December 31, 2008, 2007 and 2006 and for the period from July 1, 2005 (the date
of entering into exploration stage) to December 31, 2008 in accordance with
accounting principles generally accepted in the United States.
 
 
 
 /s/ BDO
Dunwoody LLP
 
  Chartered
Accountants
  Vancouver,
Canada
 June 22,
2009 (except for Note 12(b), July 7, 2009)
  57
    
 Comments
      by Auditors for U.S. Readers
                On
      Canada-U.S. Reporting Differences
 
  In the
United States, reporting standards for auditors require the addition of an
explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company’s ability to continue as a going concern, such as those described in
Note 2 to the financial statements. Our report to the directors and stockholders
dated June 22, 2009 (except for Note 12(b), July 7, 2009) is expressed in
accordance with Canadian reporting standards which do not permit a reference to
such events and conditions in the auditors’ report when these are adequately
disclosed in the financial statements.
 
 
 
 /s/ BDO
Dunwoody LLP
 
   Chartered
Accountants
  Vancouver,
Canada
 June 22,
2009 (except for Note 12(b), July 7, 2009)
  
  58
 STRATA
OIL & GAS INC.
 (An
Exploration Stage Company)
 
 BALANCE
SHEETS
 (Expressed
in US Dollars)
  
 
 
 DECEMBER
      312008
                  
                  
                  2007AssetsCurrentCash
                  
                  $
                  121,776
                  
                  
                  $
                  27,963Receivables
                  
                  
                  46,788
                  
                  
                  
                  22,733Prepaid
      expenses
                  
                  
                  716
                  
                  
                  
                  716Total current
      assets
                  
                  
                  169,280
                  
                  
                  
                  51,412Deposits
                  
                  
                  94,533
                  
                  
                  
                  16,596Office equipment, net(Note 3)
                  
                  
                  6,692
                  
                  
                  
                  8,712Oil and gas property interests(Note 5)
                  
                  
                  7,039,208
                  
                  
                  
                  7,717,683Total
      Assets
                  
                  $
                  7,309,713
                  
                  
                  $
                  7,794,403Liabilities
      and Stockholders’ EquityLiabilitiesCurrentAccounts
      payable
                  
                  $
                  71,354
                  
                  
                  $
                  305,242Accrued
      liabilities
                  
                  
                  48,996
                  
                  
                  
                  59,286Total current
      liabilities
                  
                  
                  120,350
                  
                  
                  
                  364,528Asset retirement obligations(Note 8)
                  
                  
                  88,606
                  
                  
                  
                  68,563Total
      Liabilities
                  
                  
                  208,956
                  
                  
                  
                  433,091Stockholders’
      equityPreferred
      stock, no par value, unlimited shares
                    authorized
      and unissued
                  
                  
                  -
                  
                  
                  
                  -Common
      stock, no par value, unlimited shares authorized; 61,881,088 shares issued
      and outstanding at December 31, 2008 (2007 - 59,861,088)
                  
                  
                  9,472,278
                  
                  
                  
                  7,712,278Additional
      paid-in capital
                  
                  
                  10,969,121
                  
                  
                  
                  10,874,391Accumulated
      deficit
                  
                  
                  (2,748,790
                  )
                  
                  
                  (2,748,790
                  )Deficit
      accumulated during the exploration stage
                  
                  
                  (9,710,391
                  )
                  
                  
                  (9,068,648
                  )Accumulated
      other comprehensive income (loss)Foreign
      currency translation adjustments
                  
                  
                  (881,461
                  )
                  
                  
                  592,081Total stockholders’
      equity
                  
                  
                  7,100,757
                  
                  
                  
                  7,361,312Total
      Liabilities and Stockholders’ Equity
                  
                  $
                  7,309,713
                  
                  
                  $
                  7,794,403
 
 
 
 
 The
accompanying notes are an integral part of these financial
statements
 
 
  59
 STRATA
OIL & GAS INC.
 (An
Exploration Stage Company)
 
 STATEMENTS
OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
 (Expressed
in US Dollars)
  
 FOR
      THE YEARS ENDED DECEMBER 31From
      July 1, 2005 (the date of entering into exploration stage)
    to2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  DECEMBER
      31, 2008ExpensesSalaries
      and benefits
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  10,564
                  
                  
                  $
                  67,335Professional
      fees
                  
                  
                  37,741
                  
                  
                  
                  75,286
                  
                  
                  
                  65,652
                  
                  
                  
                  211,372Office
      and sundry
                  
                  
                  125,805
                  
                  
                  
                  188,371
                  
                  
                  
                  93,497
                  
                  
                  
                  428,172Rent
                  
                  
                  96,153
                  
                  
                  
                  31,128
                  
                  
                  
                  2,081
                  
                  
                  
                  138,776Consulting
      fees (including $94,730, $(120,151),and $6,746,118 of stock-based
      compensation expense for 2008, 2007 and 2006 respectively (Note
      3))
                  
                  
                  386,143
                  
                  
                  
                  168,372
                  
                  
                  
                  6,883,851
                  
                  
                  
                  9,149,111Transfer
      agent fees
                  
                  
                  640
                  
                  
                  
                  3,483
                  
                  
                  
                  3,600
                  
                  
                  
                  12,363Accretion
      expense (Note 8)
                  
                  
                  5,738
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5,738Depreciation
                  
                  
                  2,020
                  
                  
                  
                  1,391
                  
                  
                  
                  -
                  
                  
                  
                  9,018(654,240
                  )
                  
                  
                  (468,031
                  )
                  
                  
                  (7,059,245
                  )
                  
                  
                  (10,021,885
                  )Other
      income (expenses)Interest
      and miscellaneous income
                  
                  
                  12,497
                  
                  
                  
                  51,042
                  
                  
                  
                  66,497
                  
                  
                  
                  137,576Interest
      expense
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (26,444
                  )Loss
      on disposal of shares (Note 4)
                  
                  
                  -
                  
                  
                  
                  (37,736
                  )
                  
                  
                  -
                  
                  
                  
                  (37,736
                  )Gain
      on settlement of loan (Note 4)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  115,343
                  
                  
                  
                  115,34312,497
                  
                  
                  
                  13,306
                  
                  
                  
                  181,840
                  
                  
                  
                  188,739Loss
      from continuing operations
                  
                  
                  (641,743
                  )
                  
                  
                  (454,725
                  )
                  
                  
                  (6,877,405
                  )
                  
                  
                  (9,833,146
                  )Income (loss) from discontinued
      operations(Note 6)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  130,000
                  
                  
                  
                  122,755Net
      loss for the period
                  
                  
                  (641,743
                  )
                  
                  
                  (454,725
                  )
                  
                  
                  (6,747,405
                  )
                  
                  
                  (9,710,391
                  )Other
      comprehensive income (loss)Unrealized
      holding gain (loss) on investments available for sale (Note
    4)
                  
                  
                  -
                  
                  
                  
                  60,055
                  
                  
                  
                  (60,055
                  )
                  
                  
                  -Foreign
      currency translation adjustments
                  
                  
                  (1,473,542
                  )
                  
                  
                  890,324
                  
                  
                  
                  (268,037
                  )
                  
                  
                  (851,645
                  )Comprehensive
      income (loss)
                  
                  $
                  (2,115,285
                  )
                  
                  $
                  495,654
                  
                  
                  $
                  (7,075,497
                  )
                  
                  $
                  (10,562,036
                  )Basis
      and diluted loss per shareFrom
      continuing operations
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.13
                  )From
      discontinued operations
                  
                  
                  (0.00
                  )
                  
                  
                  (0.00
                  )
                  
                  
                  (0.00
                  )$
                  (0.01
                  )
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.13
                  )Weighted
      average shares outstanding
                  
                  
                  61,742,787
                  
                  
                  
                  57,368,984
                  
                  
                  
                  51,862,418
 
 The
accompanying notes are an integral part of these financial
statements
 
 60
 STRATA
OIL & GAS INC.
 (An
Exploration Stage Company)
 
 STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY
 (Expressed
in US Dollars)
 
 
 AccumulatedAdditional
                  
                  
                  
                  
                  
                  Other
                  
                  
                  TotalCommon
      Stock
                  
                  
                  Paid-in
                  
                  
                  Accumulated
                  
                  
                  Comprehensive
                  
                  
                  Stockholders’Shares
      (1)
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  Deficit
                  
                  
                  Loss
                  
                  
                  EquityBalance,
      July 1, 2005
                  
                  
                  43,667,888
                  
                  
                  $
                  339,668
                  
                  
                  $
                  2,556,753
                  
                  
                  $
                  (2,748,790
                  )
                  
                  $
                  (29,816
                  )
                  
                  $
                  117,815Private
      placement common stock issuances for cash, November 2005 (Note
      10)
                  
                  
                  560,000
                  
                  
                  
                  210,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  210,000Issuance
      of common shares as collateral for a loan (Note 7)
                  
                  
                  240,000,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Cancellation
      of common shares upon repayment of the loan (Note 7)
                  
                  
                  (240,000,000
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Stock-based
      compensation (Note 3)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,691,671
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,691,671Net
      loss and comprehensive loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (1,866,518
                  )
                  
                  
                  (390
                  )
                  
                  
                  (1,866,908
                  )Balance,
      December 31, 2005
                  
                  
                  44,227,888
                  
                  
                  
                  549,668
                  
                  
                  
                  4,248,424
                  
                  
                  
                  (4,615,308
                  )
                  
                  
                  (30,206
                  )
                  
                  
                  152,578Private
      placement common stock issuances for cash, June 2006 (Note
    10)
                  
                  
                  500,000
                  
                  
                  
                  1,000,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,000,000Stock
      option exercises February to August, 2006
                  
                  
                  7,324,000
                  
                  
                  
                  5,151,990
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5,151,990Warrant
      exercises May to July 2006
                  
                  
                  4,523,200
                  
                  
                  
                  508,860
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  508,860Stock-based
      compensation (Note 3)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  6,746,118
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  6,746,118Net
      loss and comprehensive loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (6,747,405
                  )
                  
                  
                  (328,092
                  )
                  
                  
                  (7,075,497
                  )Balance,
      December 31, 2006
                  
                  
                  56,575,088
                  
                  
                  
                  7,210,518
                  
                  
                  
                  10,994,542
                  
                  
                  
                  (11,362,713
                  )
                  
                  
                  (358,298
                  )
                  
                  
                  6,484,049Warrant
      exercises June to December 2007
                  
                  
                  2,120,000
                  
                  
                  
                  337,500
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  337,500Stock
      option exercises September to November, 2007
                  
                  
                  1,166,000
                  
                  
                  
                  164,260
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  164,260Stock-based
      compensation (Note 3)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (120,151
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (120,151
                  )Net
      loss and comprehensive income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (454,725
                  )
                  
                  
                  950,379
                  
                  
                  
                  495,654Balance,
      December 31, 2007
                  
                  
                  59,861,088
                  
                  
                  
                  7,712,278
                  
                  
                  
                  10,874,391
                  
                  
                  
                  (11,817,438
                  )
                  
                  
                  592,081
                  
                  
                  
                  7,361,312Warrant
      exercise January 2008
                  
                  
                  320,000
                  
                  
                  
                  60,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  60,000Private
      placement common stock issuances for cash, January 2008 (Note
      10)
                  
                  
                  1,700,000
                  
                  
                  
                  1,700,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,700,000Stock-based
      compensation (Note 3)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  94,730
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  94,730Net
      loss and comprehensive loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (641,743
                  )
                  
                  
                  (1,473,542
                  )
                  
                  
                  (2,115,285
                  )Balance,
      December 31, 2008
                  
                  
                  61,881,088
                  
                  
                  $
                  9,472,278
                  
                  
                  $
                  10,969,121
                  
                  
                  $
                  (12,459,181
                  )
                  
                  $
                  (881,461
                  )
                  
                  $
                  7,100,757
 
 (1)
Reflects the 2:1 forward stock splits completed on May 11, 2006 and on October
8, 2007.  See Note 10.
 
 
 
 
 
 The
accompanying notes are an integral part of these financial
statements
 
  61
 STRATA
OIL & GAS INC.
 (An
Exploration Stage Company)
 
 STATEMENTS
OF CASH FLOWS
 
 (Expressed
in US Dollars)
  
 FROMFOR
      THE YEARS ENDED DECEMBER 31
                                                                                                          
                                                                                                          
                                                                                                          July
      1, 2005 (the date of entering into exploration
    stage) to2008
                                                                                                          
                                                                                                          
                                                                                                          2007
                                                                                                          
                                                                                                          
                                                                                                          2006
                                                                                                          
                                                                                                          
                                                                                                          DECEMBER
      31, 2008Cash
      flows from operating activitiesNet
      loss
                                                                                                          
                                                                                                          $
                                                                                                          (641,743
                                                                                                          )
                                                                                                          
                                                                                                          $
                                                                                                          (454,725
                                                                                                          )
                                                                                                          
                                                                                                          $
                                                                                                          (6,747,405
                                                                                                          )
                                                                                                          
                                                                                                          $
                                                                                                          (9,710,391
                                                                                                          )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation and
      amortization
                                                                                                          
                                                                                                          
                                                                                                          2,020
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          1,391
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          9,018Stock option compensation
      expense (recovery)
                                                                                                          
                                                                                                          
                                                                                                          94,730
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (120,151
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          6,746,118
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          8,412,368Accretion
      expense
                                                                                                          
                                                                                                          
                                                                                                          5,738
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          5,738Loss
      on disposal of shares
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          37,736
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          37,736Gain
      on settlement of loan
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (115,343
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (115,343
                                                                                                          )Gain
      on sale of software
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (130,000
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (130,000
                                                                                                          )Change
      in assets and liabilities:Receivables
                                                                                                          
                                                                                                          
                                                                                                          (24,055
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          3,156
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (19,251
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (43,127
                                                                                                          )Prepaid
expenses
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (716
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          1,630Accounts
payable
                                                                                                          
                                                                                                          
                                                                                                          (28,663
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (36,169
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          100,895
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          35,102Accrued
    liabilities
                                                                                                          
                                                                                                          
                                                                                                          (10,290
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          14,504
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          6,089
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          44,697Net cash used in operating
      activities
                                                                                                          
                                                                                                          
                                                                                                          (602,263
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (554,258
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (159,613
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (1,452,572
                                                                                                          )Cash
      flows from investing activitiesDeposits
                                                                                                          
                                                                                                          
                                                                                                          (77,937
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (16,596
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (94,533
                                                                                                          )Acquisition
      of oil and gas interests
                                                                                                          
                                                                                                          
                                                                                                          (937,325
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (3,708,370
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (2,752,576
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (7,527,004
                                                                                                          )Acquisition
      of office equipment
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (10,103
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (10,103
                                                                                                          )Proceeds
      on the sale of investments
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          77,607
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          77,607Proceeds
      on the sale of software
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          130,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          130,000Net
      cash used in investing activities
                                                                                                          
                                                                                                          
                                                                                                          (1,015,262
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (3,657,462
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (2,622,576
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (7,424,033
                                                                                                          )Cash
      flows from financing activitiesProceeds
      from the issuance of common stock
                                                                                                          
                                                                                                          
                                                                                                          1,700,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          1,000,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          2,910,000Proceeds
      from the exercise of stock options
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          164,260
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          5,151,990
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          5,316,250Proceeds
      from the exercise of warrants
                                                                                                          
                                                                                                          
                                                                                                          60,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          337,500
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          508,860
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          906,360Proceeds
      from loan financing
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          1,020,000Repayment
      of loan financing
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (1,020,000
                                                                                                          )Net
      cash provided by financing activities
                                                                                                          
                                                                                                          
                                                                                                          1,760,000
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          501,760
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          6,660,850
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          9,132,610Foreign
      exchange effect on cash
                                                                                                          
                                                                                                          
                                                                                                          (48,662
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (41,604
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (173,570
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (264,226
                                                                                                          )Net
      (decrease) increase in cash
                                                                                                          
                                                                                                          
                                                                                                          93,813
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (3,751,564
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          3,705,091
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (8,221
                                                                                                          )Cash,beginning of
      period
                                                                                                          
                                                                                                          
                                                                                                          27,963
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          3,779,527
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          74,436
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          129,997Cash, end of
      period
                                                                                                          
                                                                                                          $
                                                                                                          121,776
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          27,963
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          3,779,527
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          121,776Supplemental
      disclosure of cash flow informationCash
      paid during the period for:Interest
                                                                                                          
                                                                                                          $
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          26,444Income taxes
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          -Non-cash
      investing and financing activitiesReceipt
      of marketable securities for settlement of loan, net
                                                                                                          
                                                                                                          $
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          115,343
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          115,343Accounts
      payable related to oil and gas properties interests
                                                                                                          
                                                                                                          $
                                                                                                          205,225
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          221,980
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          16,755Asset
      retirement obligation
                                                                                                          
                                                                                                          $
                                                                                                          14,305
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          68,563
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          -
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          82,868
 
 
 The
accompanying notes are an integral part of these financial
statements
  62
 STRATA
OIL & GAS INC.
 (An
Exploration Stage Company)
 
 NOTES
TO THE FINANCIAL STATEMENTS
 (Expressed
in US Dollars)
  
  1.      NATURE
OF BUSINESS AND OPERATIONS
 
 Strata Oil
& Gas Inc. (the ‘Company’) is engaged in the exploration for oil and natural
gas in oil sands in the Canadian province of Alberta.  The Company was
formerly engaged in the development of Knowledge Worker Automation (KWA)
software.
 
 On June
29, 2005 at an annual general and special meeting of shareholders, a majority of
the stockholders of the Company approved the sale of all of the rights to the
Company’s software assets to a company controlled by the Company’s former chief
executive officer.  At the same meeting, a majority of the Company’s
stockholders also approved the change in business of the Company from software
development to oil and gas exploration (Note 6).  Upon disposal of the
Company’s software assets and change in focus to oil and gas exploration, the
Company has entered the exploration stage of its new business activity and
follows Statement of Financial Accounting Standard (“SFAS”) No. 7, Development
Stage Enterprises.  Since re-entering the exploration stage in July
2005, the Company has incurred a loss of $9,710,391.
 
 2.      ABILITY
TO CONTINUE AS A GOING CONCERN
  The
accompanying financial statements have been prepared in US dollars and in
accordance with accounting principles generally accepted in the United States on
a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of
business.  The Company only commenced its oil and gas exploration
activities in the last quarter of 2005.  Previously, the Company had
been actively developing its proprietary software product line. On June 29,
2005, the Company disposed of all of its rights to its proprietary software to a
company controlled by the Company’s former chief executive
officer.  The Company has not realized any revenue from its present
operations.  During the year ended December 31, 2008, the Company
incurred a net loss of $641,743.  Since the Company had re-entered to
the exploration stage, it has an accumulated deficit of $9,710,391 at December
31, 2008.  These conditions raise substantial doubt about the
Company's ability to continue as a going concern.
  The
Company's ability to continue as a going concern is dependent on its ability to
develop its oil and gas properties and ultimately achieve profitable operations
and to generate sufficient cash flow from financing and operations to meet its
obligations as they become payable. The Company expects that it will need
approximately $500,000 to fund its operations during the next twelve months
which will include minimum annual property lease payments as well as the costs
associated with maintaining an office.  Management has plans to seek
additional capital through a private placement and public offering of its common
stock.  Although there are no assurances that management’s plans will
be realized, management believes that the Company will be able to continue
operations in the future.  Accordingly, no adjustment relating to the
recoverability and classification of recorded asset amounts and the
classification of liabilities has been made to the accompanying financial
statements in anticipation of the Company not being able to continue as a going
concern.
  63
 STRATA
OIL & GAS INC.
 (An
Exploration Stage Company)
 
 NOTES
TO THE FINANCIAL STATEMENTS
 (Expressed
in US Dollars)
  
 
 3.      SIGNIFICANT
ACCOUNTING POLICIES
 
 Management’s
Estimates and Assumptions
 
 The
preparation of financial statements in conformity with United States generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
balance sheet date, and revenues and expenses for the period then
ended.  Actual results could differ significantly from those
estimates
 
 Oil
and Gas Property Payments and Exploration Costs
 
 The
Company follows the full cost method of accounting for natural gas and oil
operations.  Under the full cost method all costs incurred in the
acquisition, exploration and development of natural gas and oil reserves are
initially capitalized into cost centers on a country-by-country basis. The
Company’s current cost center is located in Canada. Such costs include land
acquisition costs, geological and geophysical expenditures, carrying charges on
non-producing properties, costs of drilling and overhead charges directly
related to acquisition, exploration and development activities.
 
 Costs
capitalized, together with the costs of production equipment, are depleted and
amortized on the unit-of-production method based on the estimated net proved
reserves, as determined by independent petroleum engineers.  The
percentage of total reserve volumes produced during the year is multiplied by
the net capitalized investment plus future estimated development costs in those
reserves.  Costs of acquiring and evaluating unproved properties are
initially excluded from depletion calculations. These unevaluated properties are
assessed periodically to ascertain whether an impairment has occurred. When
proved reserves are assigned or the property is considered to be impaired, the
cost of the property or the amount of the impairment is added to costs subject
to depletion calculations.
 
 The
Company has not recognized any revenue from its oil and gas exploration
activities which commenced in the last quarter of 2005.
 
 Cash
and Cash Equivalents
 
 The
Company considers all highly liquid investments purchased with a maturity of 90
days or less to be cash equivalents.
 
 Investments
 
 Available for
Sale
 
 Investments
designated as available-for-sale include marketable equity securities.
Investments designated as available-for-sale are reported at fair value, with
unrealized gains and losses, net of tax, recorded in accumulated other
comprehensive income. The cost of securities sold is based on the specific
identification method. Realized gains or losses on the sale or exchange of
equity securities and declines in value judged to be other-than-temporary are
recorded in gains (losses) on equity securities.
 
 The
Company applies SFAS No. 115, Accounting for Certain Investments in Debt
and Equity Securities when determining when an investment is
other-than-temporarily impaired. Investments are reviewed quarterly for
indicators of other-than-temporary impairment. This determination requires
significant judgment. In making this judgment, we employ a systematic
methodology quarterly that considers available quantitative and qualitative
evidence in evaluating potential impairment of our investments. If the cost of
an investment exceeds its fair value, we evaluate, among other factors, general
market conditions, the duration and extent to which the fair value is less than
cost, and our intent and ability to hold the investment. The Company also
considers specific adverse conditions
  64
 STRATA
OIL & GAS INC.
 (An
Exploration Stage Company)
 
 NOTES
TO THE FINANCIAL STATEMENTS
 (Expressed
in US Dollars)
 
 3.      SIGNIFICANT
ACCOUNTING POLICIES - continued
  Investments
- continued
  Available for Sale -
continued
 
 related to
the financial health of and business outlook for the investee, including
industry and sector performance, changes in technology, operational and
financing cash flow factors, and rating agency actions. Once a decline in fair
value is determined to be other-than-temporary, an impairment charge is recorded
and a new cost basis in the investment is established. If market, industry,
and/or investee conditions deteriorate, we may incur future
impairments.
 
 Receivables
 
 Accounts
receivable are presented net of an allowance for doubtful
accounts.  The allowance was $Nil at December 31, 2008, 2007, and 2006
respectively.
 
 Management
evaluates the collectibility of accounts receivable balances based on a
combination of factors on a periodic basis. In cases where we are aware of
circumstances that may impair a specific customer's ability to meet its
financial obligations, we record a specific allowance against amounts due, and
thereby reduce the net recognized receivable to the amount management reasonably
believes will be collected.  For all other customers, the Company
recognizes allowances for doubtful accounts based on the length of time the
receivables are outstanding, industry and geographic concentrations, the current
business environment and historical experience.
 
 Office
Equipment
 
 Office
equipment is recorded at cost less accumulated depreciation using the
straight-line method over the estimated useful lives of the assets which is
estimated to be five years.
 
 December
      31, 2008
                  
                  
                  December
      31, 2007Cost
                  
                  $
                  10,103
                  
                  
                  $
                  10,103Accumulated
      depreciation
                  
                  
                  3,411
                  
                  
                  
                  1,391Net
      book value
                  
                  $
                  6,692
                  
                  
                  $
                  8,712
 
 Impairment
of Long-lived Assets
 
 In
accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, long lived assets such as equipment are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be
recoverable.  Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to estimated undiscounted
future cash flows expected to be generated by the asset.  If the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of
the asset exceeds the fair value of the asset.  Assets to be disposed
of would be separately presented in the balance sheet and reported at the lower
of the carrying amount of the fair value less costs to sell, and are no longer
depreciated.  The assets and liabilities of a disposed group
classified as held for sale would be presented separately in the appropriate
asset and liability sections of the balance sheet.
 
 Impairment
of unproved oil and gas properties is determined by SFAS No. 19, “Financial
Accounting and Reporting by Oil and Gas Producing
Companies”.  Unproved properties shall be assessed periodically to
determine whether they have been impaired.  If the results of the
assessment indicate impairment, a loss shall be recognized by providing a
valuation allowance.   During the years ended December 31, 2008,
2007 and 2006, no impairment of long-lived assets were recognized.
 
  65
 STRATA
OIL & GAS INC.
 (An
Exploration Stage Company)
 
 NOTES
TO THE FINANCIAL STATEMENTS
 (Expressed
in US Dollars)
  
  3.      SIGNIFICANT
ACCOUNTING POLICIES - continued
  Asset
Retirement Obligations
  In
accordance with Statement of Financial Accounting Standards No. 143, Accounting
for Asset Retirement Obligations (''SFAS 143''), the fair value of an asset
retirement cost, and corresponding liability, should be recorded as part of the
cost of the related long-lived asset and subsequently allocated to expense using
a systematic and rational method. The Company has recorded an asset retirement
obligation at December 31, 2008 and 2007 (Note 8) to reflect its legal
obligations related to future abandonment of its oil and gas interests using
estimated expected cash flow associated with the obligation and discounting the
amount using a credit-adjusted, risk-free interest rate. At least annually, the
Company will reassess the obligation to determine whether a change in any
estimated obligation is necessary. The Company will evaluate whether there are
indicators that suggest the estimated cash flows underlying the obligation have
materially changed. Should those indicators suggest the estimated obligation has
materially changed the Company will accordingly update its
assessment.
 
 Income
Taxes
  The
Company follows the asset and liability method of accounting for income taxes
whereby deferred tax assets and liabilities are recognized for the future tax
consequences of differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.  If it
is determined that the realization of the future tax benefit is not more likely
than not, the enterprise establishes a valuation allowance.
 
 Foreign
Exchange Translation
 
 The
Company's functional currency is the Canadian dollar, but reports its financial
statements in US dollars. The Company translates its Canadian dollar balances to
US dollars in the following manner:  Assets and liabilities have been
translated using the rate of exchange at the balance sheet date.  The
Company’s results of operations have been translated using average
rates.  Translation gains or losses resulting from the changes in the
exchange rates are accumulated as other comprehensive income or loss in a
separate component of stockholders' equity.
 
 All
amounts included in the accompanying financial statements and footnotes are
stated in U.S. dollars.
 
 
 Stock
Option Plans
 
 Beginning
January 1, 2006, the Company adopted the recommendations of the Statement of
Financial Accounting Standards (“SFAS”) No. 123R, “Accounting for Stock-based
Compensation”, and has applied the recommendations of this standard using the
modified prospective method.  Under this application, the Company is
required to record compensation expense, based on the fair value of the awards,
for all awards granted after the date of adoption and for the unvested portion
of previously granted awards that remain outstanding as at the date of
adoption.
 
 Prior to the adoption of SFAS 123R, the Company
elected to apply the intrinsic value method of Accounting Principles Board
(“APB”) No. 25, “Accounting for Stock Issued to Employees ”and related interpretations
in accounting for stock options granted to employees and directors.  Under
APB No. 25, compensation expense is only recorded to the extent that the
exercise price is less than the market value of the underlying stock on the
measurement date, which is usually the date of grant.  Any stock-based
compensation for employees was recognized on a straight-line basis over the
vesting period of the individual options.
 
 Stock
options granted to non-employees are accounted for under EITF 96-18 and were
measured at the fair value of the options as determined by an option pricing
model on the measurement date and recognized as the related services are
provided and the options earned.
  66
 STRATA
OIL & GAS INC.
 (An
Exploration Stage Company)
 
 NOTES
TO THE FINANCIAL STATEMENTS
 (Expressed
in US Dollars)
 
 3.      SIGNIFICANT
ACCOUNTING POLICIES - continued
  Stock
Option Plans – continued
 
 Compensation
expense for unvested options to non-employees is revalued at each period end and
is being amortized over the vesting period of the options.  As options
granted in prior years were primarily to non-employees, the impact on the
December 31, 2006 financial statements of adopting SFAS No. 123R was
immaterial.
 
 Compensation expense is recognized immediately for
past services and pro-rata for future services over the option vesting
period.  During 2008 the Company recognized a stock option expense of
$94,730 (2007 - $(120,151) recovery; 2006 - $6,746,118 expense) in stock-based
compensation in the Statement of Operations and Comprehensive Loss in respect of
options granted to non-employees.  All stock options granted in 2008,
2007 and 2006 were to non-employees of the Company.
 
 The fair
value of each option granted in 2008, 2007 and 2006 was estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions:
 
 
 2008
              
              
              2007
              
              2006Dividend
      yield
              0%
              
              
              0%
              
              0%Expected
      volatility
              108.82%
              
              
              110.7%
              
              85.6%Risk-free
      rate
              2.69%
              
              
              4.06%
              
              4.36%Expected
      life
              10
      years
              
              
              10
      years
              
              10
      years
 
 The
weighted average grant date fair value per option granted in 2008 was $0.09
(2007 - $0.57; 2006 – $1.87)
 
  Expected
volatilities are based on industry comparables using available data and other
factors due to the fact the Company’s business changed substantially from the
previous technology business to oil and gas in 2005. When applicable, the
Company will use historical data to estimate option exercise, forfeiture and
employees termination within the valuation model. For non-employees, the
expected term of the options approximates the full term of the
options.
 
 Earnings
(Loss) Per Share of Common Stock
 
 Basic
earnings (loss) per share of common stock is computed by dividing  net
income (loss) available to common shareholders by the weighted-average number of
common shares outstanding for the period.  Diluted earnings per share
of common stock reflect the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the Company.
 
 At
December 31, 2008, 2007 and 2006, potential common shares of 21,299,600,
20,919,600 and 23,805,600 respectively, related to stock options and warrants
were excluded from the computation of diluted earnings per share since their
effect was anti-dilutive.
 
 Fair
Value of Financial Instruments
 
 The
carrying amounts reported in the balance sheets for cash, receivables, accounts
payable and accrued liabilities approximate fair value because of the immediate
or short-term maturity of these financial instruments.
  67
 STRATA
OIL & GAS INC.
 (An
Exploration Stage Company)
 
 NOTES
TO THE FINANCIAL STATEMENTS
 (Expressed
in US Dollars)
  
 3.      SIGNIFICANT
ACCOUNTING POLICIES - continued
 
 Comprehensive
Income (Loss)
 
 Comprehensive
income (loss) is defined to include all changes in equity except those resulting
from investments by owners and distributions to owners. The Company's items of
other comprehensive income (loss) are foreign currency translation adjustments
and unrealized gains and losses on available-for-sale securities.
 
 New
Accounting Pronouncements
 
 SFAS No.
157
 
 In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value
Measurements” (“FAS 157”). FAS 157 defines fair value, establishes a framework
for measuring fair value in accordance with generally accepted accounting
principles, and expands disclosures about fair value measurements. The
provisions of FAS 157 are effective fiscal years beginning after November 15,
2007. The adoption of SFAS 157 did not have a material impact on the Company’s
financial statements.
 
 SFAS 159
 In
February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial
Assets and Financial Liabilities - including an amendment of FASB Statement No.
115” (“SFAS No. 159”) which permits entities to choose to measure many financial
instruments and certain other items at fair value. This statement is effective
for fiscal periods beginning after November 15, 2007.  The adoption of
SFAS 159 did not have a material impact on the Company’s financial
statements.
 
 SFAS
141R
 
 In
December 2007, the FASB issued SFAS 141R “Business Combinations” and SFAS 160
“Non-controlling Interests in Consolidated Financial Statements”, which are both
effective for fiscal years beginning after December 15, 2008. SFAS 141R, which
will replace FAS 141, is applicable to business combinations consummated on or
after the effective date of December 15, 2008. The implementation of SFAS 141R
is not expected to have a material impact on the Company’s financial
statements.
 
 SFAS 160
 
 In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements – An amendment of ARB No. 51".  SFAS
160 requires companies with noncontrolling interests to disclose such interests
clearly as a portion of equity but separate from the parent's
equity.  The noncontrolling interest's portion of net income must also
be clearly presented on the Income Statement.  SFAS 160 is effective
for financial statements issued for fiscal years beginning after on or after
December 15, 2008.  The implementation of SFAS 160 is not expected to
have a material impact on the Company’s financial statements.
 
 SFAS 161
 
 In March
2008, the FASB issued SFAS 161 “Disclosures about Derivative Instruments and
Hedging Activities – an amendment of SFAS 133.  This Statement
requires enhanced disclosures about an entity’s derivative and hedging
activities and thereby improves the transparency of financial reporting. This
Statement is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. This Statement encourages, but does not require, comparative
disclosures for earlier periods at initial
 adoption.  The
implementation of SFAS 161 is not expected to have a material impact on the
Company’s financial statements.
  68
 STRATA
OIL & GAS INC.
 (An
Exploration Stage Company)
 
 NOTES
TO THE FINANCIAL STATEMENTS
 (Expressed
in US Dollars)
  
 3.      SIGNIFICANT
ACCOUNTING POLICIES - continued
 
 New
Accounting Pronouncements - continued
 
 SFAS 162
 
 In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles".  SFAS 162 identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of non-governmental entities that are
presented in conformity with generally accepted accounting principles in the
United States.  It is effective 60 days following the SEC's approval
of the Public Company Accounting Oversight Board amendments to AU Section 411,
"The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles".  The implementation of SFAS 162
is not expected to have a material impact on the Company’s financial
statements.
 
 FSP
142-3
 
 In April
2008, the FASB issued FSP No. 142-3, "Determination of the Useful Life of
Intangible Assets" ("FSP 142-3").  FSP 142-3 amends the factors an
entity should consider in developing renewal or extension assumptions used in
determining the useful life of recognized intangible assets under FASB Statement
No. 142, "Goodwill and Other Intangible Assets".  This new guidance
applies prospectively to intangible assets that are acquired individually or
with a group of other assets in business combinations and asset
acquisitions.  FSP 142-3 is effective for financial statements issued
for fiscal years and interim periods beginning after December 15,
2008.  Early adoption is prohibited.  The implementation of
FSP 142-3 is not expected to have a material impact on the Company’s financial
statements.
 
 APB 14-1
 
 In May
2008, FASB issued FASB Staff Position ("FSP") APB 14-1, "Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)" ("FSP APB 14-1").  FSP APB 14-1
clarifies that convertible debt instruments that may be settled in cash upon
either mandatory or optional conversion (including partial cash settlement) are
not addressed by paragraph 12 of APB Opinion No. 14, "Accounting for Convertible
Debt and Debt issued with Stock Purchase Warrants."  Additionally, FSP
APB 14-1 specifies that issuers of such instruments should separately account
for the liability and equity components in a manner that will reflect the
entity's nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods.  FSP APB 14-1 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years.  The implementation of APB
14-1 is not expected to have a material impact on the Company’s financial
statements.
 
 Modernization of Oil and Gas
Reporting
 
 In January
2009, the Securities and Exchange Commission issued revisions to the oil and gas
reporting disclosures, “Modernization of Oil and Gas Reporting; Final Rule”
(“the Final Rule”). In addition to changing the definition and disclosure
requirements for oil and gas reserves, the Final Rule changes the requirements
for determining quantities of oil and gas reserves. The Final Rule also changes
certain accounting requirements under the full cost method of accounting for oil
and gas activities. The amendments are designed to modernize the requirements
for the determination of oil and gas reserves, aligning them with current
practices and updating them for changes in technology. The Final Rule is
effective for annual reports on Form 10-K or Form 20F for fiscal years ending on
or after December 31, 2009. The Company has not yet determined the impact,
if any, on the financial statements.
 
 
  69
 STRATA
OIL & GAS INC.
 (An
Exploration Stage Company)
 
 NOTES
TO THE FINANCIAL STATEMENTS
 (Expressed
in US Dollars)
   4.       INVESTMENTS
  In May
2002, the Company loaned $150,000 to Advanced Cell Technology ("ACT"), a private
biotechnology company, in exchange for a convertible promissory note receivable.
The note was unsecured, bore interest at 20% per annum, matured on April 30,
2003, and was to be converted into stock of ACT should ACT have proceeded with a
preferred stock financing prior to the note's maturity date. The Company accrued
a receivable for interest income, due under the terms of the promissory note, in
the amount of $21,206 at December 31, 2002. At April 30, 2003, the note
receivable was in default. The Company received notice from ACT of their
intention to settle the note receivable in full out of future
financing.  With the uncertainty regarding the recoverability of the
note receivable, in 2003 the Company reserved the principal amount of the note
receivable and accrued interest outstanding at December 31, 2002 and fully
reserved all additional accruals of interest.
  On May 8,
2006 the Company completed an agreement with the current parent company of ACT,
Advanced Cell Technology, Inc. (“ACTC”) for settlement of the
loan.  The Company received 109,557 common shares of ACTC, a public
company, for settlement of the principal and interest of the loan.  As
part of the settlement, the Company had agreed to pay its legal counsel a
contingent fee based on the loan settlement amount.  As a result, of
the total 109,557 common shares of ACTC received by the Company, 14,232 were
assigned to the Company’s counsel for payment of legal
fees.  Therefore, upon settlement the Company owned 95,325 shares of
ACTC at a cost of $115,343 and a market value of $55,288 at December 31,
2006.  The gross unrealized holding loss for the twelve month period
ended December 31, 2006 was $60,055.  The cost and market values of
the ACTC shares were determined by reference to their closing prices on May 8
and December 31, 2006 respectively as quoted on the OTC:BB.  During
2007, the Company disposed of all of its ACTC shares for gross proceeds of
$77,607 resulting in a realized loss of $37,736 during the year ended December
31, 2007.
 
 5.       OIL
AND GAS PROPERTY INTERESTS
 2008
      (Cumulative)Peace
      River
                  
                  
                  Drowned
                  
                  
                  TotalProperty
      acquisition and lease payments
                  
                  $
                  2,677,006
                  
                  
                  $
                  32,361
                  
                  
                  $
                  2,709,367Geological
      and geophysical
                  
                  
                  247,526
                  
                  
                  
                  11,969
                  
                  
                  
                  259,495Project
      management
                  
                  
                  773,615
                  
                  
                  
                  -
                  
                  
                  
                  773,615Drilling
                  
                  
                  3,013,522
                  
                  
                  
                  -
                  
                  
                  
                  3,013,522Assaying
      and analysis
                  
                  
                  56,273
                  
                  
                  
                  -
                  
                  
                  
                  56,273Asset
      retirement obligations
                  
                  
                  82,868
                  
                  
                  
                  -
                  
                  
                  
                  82,868Camp
      and field supplies
                  
                  
                  35,958
                  
                  
                  
                  -
                  
                  
                  
                  35,958Travel
      and accommodation
                  
                  
                  108,110
                  
                  
                  
                  -
                  
                  
                  
                  108,110Total
      expenditures
                  
                  $
                  6,994,878
                  
                  
                  $
                  44,330
                  
                  
                  $
                  7,039,208
 
 2007
      (Cumulative)Peace
      River
                  
                  
                  Drowned
                  
                  
                  TotalProperty
      acquisition and lease payments
                  
                  $
                  3,051,583
                  
                  
                  $
                  37,293
                  
                  
                  $
                  3,088,876Geological
      and geophysical
                  
                  
                  291,719
                  
                  
                  
                  14,423
                  
                  
                  
                  306,142Project
      management
                  
                  
                  735,874
                  
                  
                  
                  -
                  
                  
                  
                  735,874Drilling
                  
                  
                  3,303,339
                  
                  
                  
                  -
                  
                  
                  
                  3,303,339Assaying
      and analysis
                  
                  
                  51,790
                  
                  
                  
                  -
                  
                  
                  
                  51,790Asset
      retirement obligations
                  
                  
                  68,563
                  
                  
                  
                  -
                  
                  
                  
                  68,563Camp
      and field supplies
                  
                  
                  42,085
                  
                  
                  
                  -
                  
                  
                  
                  42,085Travel
      and accommodation
                  
                  
                  121,014
                  
                  
                  
                  -
                  
                  
                  
                  121,014Total
      expenditures
                  
                  $
                  7,665,967
                  
                  
                  $
                  51,716
                  
                  
                  $
                  7,717,683
  70
 STRATA
OIL & GAS INC.
 (An
Exploration Stage Company)
 
 NOTES
TO THE FINANCIAL STATEMENTS
 (Expressed
in US Dollars)
  
 5.       OIL
AND GAS PROPERTY INTERESTS - continued
 
 Peace
River Property
 
 The
Company has entered into a series of leases in multiple transactions with the
province of Alberta in the Peace River area of Alberta, Canada (the “Peace River
Property”).  All of the leases were acquired through a public auction
process that requires the Company to submit sealed bids for land packages being
auctioned by the provincial government.  Upon being notified that it
has submitted the highest bid for a specific land parcel the Company immediately
pays the government the bid price and enters into a formal lease with the
government.  All of the leases are for a 15 year term, require minimum
annual lease payments, and grant the Company the right to explore for potential
oil sands opportunities on the respective lease.  The specific
transactions entered into by the Company are as noted below.
 
 Date
              Number
      of Leases
              Land
      Area
                (Hectares)
              Annual
      Lease PaymentsDecember
      15, 2005
              7
              10,752
              CDN
      $37,632 / USD $30,897June
      15, 2006
              3
              4,864
              CDN
      $17,024 / USD $13,977August
      10, 2006
              9
              7,424
              CDN
      $25,984 / USD $21,333August
      24, 2006
              2
              2,048
              CDN
      $7,168 / USD $5,886October
      19, 2006
              4
              3,584
              CDN
      $12,544 / USD $10,299November
      2, 2006
              9
              14,336
              CDN
      $50,176 / USD $41,195January
      11, 2007
              4
              4,608
              CDN
      $16,128 / USD $13,241January
      24, 2007
              2
              2,304
              CDN
      $8,064 / USD $6,621April
      3, 2008
              2
              512
              CDN
      $1,792 / USD $1,47142
              50,432
              CDN
      $176,512 / USD $144,920
 
 Drowned
Property
 
 On
September 7, 2005 the Company acquired a 100% interest in an Alberta oil sands
lease (the “Drowned Property”).  The rights to the Drowned Property
were acquired for $20,635 plus fees and closing costs of $8,150 which were
paid.  The Property covers 512 hectares of land in the Drowned Area of
the Wabasca oil sands in the West Athabasca area of Northern
Alberta.  The lease, which expires in October 2015, gives the Company
the right to explore
the Property covered by the lease.  The Company’s acquisition of the
lease includes an overriding 4% royalty agreement with the
vendor.  The royalty is to be paid on a well-to-well basis and is
payable on all petroleum substances produced by any well on the
Property.  The Property is subject to an annual lease payment payable
to the government of Alberta in the amount of CDN $1,792 (USD $1,471) until
expiry on October 4, 2015.
 
 All of the
Company’s leases for the Peace River and Drowned Properties are subject to
royalties payable to the government of Alberta.  The royalty is
calculated using a revenue-less-cost formula.  In years prior to the
recovery of the project’s capital investment, the royalty is 1% of gross
revenue.  Once the project costs have been recovered, the royalty is
the greater of 1% of gross revenue or 25% of net revenue.
 
 
  71
 STRATA
OIL & GAS INC.
 (An
Exploration Stage Company)
 
 NOTES
TO THE FINANCIAL STATEMENTS
 (Expressed
in US Dollars)
  
 6.       DISCONTINUED
OPERATIONS
 
 On June
29, 2005 pursuant to approval by a majority of the shareholders of the Company,
the Company entered into a letter of intent to dispose of all of its interest in
its proprietary software to a private company controlled by its former president
(the “Purchaser”) for $130,000.  The value of the assets disposed of
was based on an independent valuation.  The net book value of these
assets at 2005 was Nil.
 
 The
results of operations and cash flows of the software operations have been
segregated in the financial statements as discontinued operations for the
current and prior periods.  On July 11, 2005 a definitive agreement
was completed
 and in
exchange for the rights to all of its software, the Company received a
non-interest bearing promissory note which was due on July 11, 2006. The
Purchaser had at his sole discretion, the right to convert the promissory note
into its common shares at a conversion price to be determined.  Had
the Purchaser chosen to convert the promissory note to equity, it would have
converted it into shares at market value.  The promissory note was
collateralized by all of the assets acquired by the Purchaser. The Purchaser
could have located an alternate buyer for the assets or assigned its rights
under the purchase agreement, provided that the terms of sale of the software
assets to such alternate buyer or assignee would have remained substantially the
same as described above.
 
 The loan
was fully paid on June 30, 2006 and as a result, the Company has recognized a
$130,000 gain in the Statement of Operations and Comprehensive Loss at December
31, 2006.
 
 2008
                  
                  
                  2007
                  
                  
                  2006Gain
      (loss) on disposal
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  130,000Loss
      from discontinued operations
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  130,000
  
 No revenue
was recognized during 2008, 2007 or 2006 from discontinued
operations.
   7.       LOANS
PAYABLE
 On October
12, 2005 the Company entered into a $20,000 bridge loan agreement with a
shareholder. The loan bore interest at the Bank of Canada Prime Rate plus 1% per
annum.  The loan was due on October 12, 2006 and was
unsecured.  The Company repaid the loan and accrued interest of $143
on December 9, 2005.
 
 On August
24, 2005 the Company borrowed $1,000,000 from a single lender (the
“Lender”).  In consideration for such loan, the Company issued to the
Lender a Secured Promissory Note, in the original principal amount of
$1,000,000, with interest accruing at the rate of 8% per annum.  The
principal and all accrued but unpaid interest under such Secured Promissory Note
was due and payable in full one year from the date of the loan, but could be
prepaid at anytime without penalty.  As collateral security for the
payment of the amounts owed under such Secured Promissory Note, the Company
issued 240,000,000 shares of its common stock pursuant to a Stock Pledge
Agreement, dated August 24, 2005.  The Company repaid the loan and
accrued interest of $26,301 on December 22, 2005.  Upon repayment, the
240,000,000 common shares granted to the Lender as security were returned to the
Company and the shares were extinguished.
   8.       ASSET
RETIRMENT OBLIGATIONS
 
 During
2007, the Company drilled four wells on its Peace River
Property.  Total future asset retirement obligations were estimated by
management based on the Company’s working interest in its wells and facilities,
estimated costs to remediate, reclaim and abandon the wells and facilities and
the estimated timing of the costs to be incurred in future periods. The Company
has estimated the net present value of its total asset retirement obligations to
be approximately $88,606 at December 31, 2008 (2007 - $68,563), based on an
undiscounted total future liability of $240,558 (CDN$293,000). These payments
are expected to be incurred between 2015 and 2030. The Company used a credit
adjusted risk-free rate of 10% per annum to calculate the present value of the
asset retirement obligation.  Accretion expense of $5,738 has been
recorded in the Statements of Operations and Comprehensive Loss at December 31,
2008.
  72
 STRATA
OIL & GAS INC.
 (An
Exploration Stage Company)
 
 NOTES
TO THE FINANCIAL STATEMENTS
 (Expressed
in US Dollars)
 9.       RELATED
PARTY TRANSACTIONS
 
 Related
party transactions not disclosed elsewhere in these financial statements
include:
 
 Sale of Software
Assets
 
 As part of
the sale of the Company’s software assets (Note 6) the Company had a promissory
note with a face value of $130,000 owing from a company controlled by the
Company’s former president at December 31, 2005.  In June 2006, the
loan was fully repaid.
 
 Management
Fees
 
 The
Company pays each of its President and Chief Financial Officer CDN $10,000 (USD
$8,210) per month.  Payments to the President began in May 2006 and to
the Chief Financial Officer in June 2007.  In addition, one of the
Directors of the Company undertakes consulting work on behalf of the Company
from time-to-time.  The Company amended the compensation arrangement
with its President of the Company and has agreed to pay for his services based
on a needed basis and on a hourly rate.  Total compensation expense of
$172,165 (2007 - $178,770, 2006 - $61,842) has been recognized as consulting
fees for the year ended December 31, 2008.
 
 Directors’
fees
 
 The
Company pays its independent Directors $500 per month for serving on the
Company’s Board of Directors.  All of the Directors currently receive
their payments in $CDN.  Directors’ fees of $20,719 (2007 - $22,395,
2006 - $13,510) have been recorded as consulting fees at December 31,
2008.
 
 The
above-noted transactions were in the normal course of operations and were
measured at the exchange amount, which is the amount of consideration
established and agreed to by the related parties.
 
  73
 STRATA
OIL & GAS INC.
 (An
Exploration Stage Company)
 
 NOTES
TO THE FINANCIAL STATEMENTS
 (Expressed
in US Dollars)
  10.             SHARE
CAPITAL
 
 On
November 15, 2005 the Company closed a private placement of 560,000 units at
$0.375 per unit for a total offering price of $210,000. Each unit consists of
one share of the common stock of the Company, one Class A Warrant exercisable
for one share of Common Stock at an exercise price of $0.44 for a period of four
years commencing on November 15, 2006, and one Class B Warrant exercisable for
one share of Common Stock at an exercise price of $0.50 for a period of three
years commencing on November 15, 2007. The Company has the right to accelerate
the exercise date or reduce the exercise price of the Class A and Class B
Warrants.
 
 On May 9,
2006, at a Special Meeting of the Company’s stockholders, a majority of the
Company’s stockholders approved a 2:1 forward stock split.  The record
and payment dates of the forward split were May 10 and May 11, 2006
respectively.   All of the common shares issued and outstanding
on May 10, 2006 were split.   All references to share and per
share amounts have been restated in these financial statements to reflect the
split.
  On June
13, 2006 the Company closed a private placement of 500,000 units at $2.00 per
unit for a total offering price of $1,000,000.  Each unit consists of
one share of the common stock of the Company, one Class A Warrant exercisable
for one share of Common Stock at an exercise price of $2.125 for a period of
four years commencing on June 13, 2007 and one Class B Warrant exercisable for
one share of Common Stock at an exercise price of $2.25 for a period of three
and one half years commencing on December 13, 2007.  The Company has
the right to accelerate the exercise date or reduce the exercise price of the
Class A and Class B Warrants.
 
 On July
13, 2007, at a Special Meeting of the Company’s stockholders, a majority of the
Company’s stockholders approved a 2:1 forward stock split.  The record
and payment dates of the forward split were October 8 and October 9, 2007
respectively.   All of the common shares issued and outstanding
on October 8, 2007 were split.   All references to share and per
share amounts have been restated in these financial statements to reflect the
split.
 
 On January
28, 2008, the Company closed a private placement of 1,700,000 common shares at
$1.00 per share for total proceeds of $1,700,000.
  74
 STRATA
OIL & GAS INC.
 (An
Exploration Stage Company)
 
 NOTES
TO THE FINANCIAL STATEMENTS
 (Expressed
in US Dollars)
  
 11.             STOCK
OPTION PLANS
 
 In
February 2000, the Company adopted its 2000 Stock Option Plan (“the 2000
Plan”).  The 2000 Plan provides for the granting of up to 7,000,000
stock options to key employees, directors and consultants, of common shares of
the Company.  Under the 2000 Plan, the granting of incentive and
non-qualified stock options, exercise prices and terms are determined by the
Company's Option Committee, a committee designated to administer the 2000 Plan
by the Board of Directors.  For incentive options, the exercise price
shall not be less than the fair market value of the Company's common stock on
the grant date. (In the case of options granted to an employee who owns stock
possessing more than 10% of the voting power of all classes of the Company's
stock on the date of grant, the option price must not be less than 110% of the
fair market value of common stock on the grant date.).  Options
granted are not to exceed terms beyond ten years (five years in the case of an
incentive stock option granted to a holder of 10 percent of the Company's common
stock).
  Activity
under the 2000 Plan is summarized as follows:
  Available
      for Grant
                                  
                                  
                                  Options
      Outstanding
                                  
                                  
                                  Weighted
      Average Exercise PriceBalance
      outstanding,December
      31, 2005
                                  
                                  
                                  440,000
                                  
                                  
                                  
                                  1,440,000
                                  
                                  
                                  $
                                  0.22Options
      granted
                                  
                                  
                                  (440,000
                                  )
                                  
                                  
                                  440,000
                                  
                                  
                                  
                                  1.75Options
      exercised
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (980,000
                                  )
                                  
                                  
                                  0.97Balance
      outstanding,December
      31, 2006
                                  
                                  
                                  -
                                  
                                  
                                  
                                  900,000
                                  
                                  
                                  
                                  0.15Options
      exercised
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (900,000
                                  )
                                  
                                  
                                  0.15Balance
      outstanding,December
      31, 2008 and 2007
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  $
                                  -Balance
      exercisable,December
      31, 2008
                                  
                                  
                                  
                                  
                                  
                                  
                                  -
                                  
                                  
                                  $
                                  -December
      31, 2007
                                  
                                  
                                  
                                  
                                  
                                  
                                  -
                                  
                                  
                                  $
                                  -December
      31, 2006
                                  
                                  
                                  
                                  
                                  
                                  
                                  900,000
                                  
                                  
                                  $
                                  0.15


During
2001, the Company adopted its 2002 Stock Option Plan (“the 2002
Plan”).  The 2002 Plan provides for the granting of up to an
additional 7,000,000 stock options to key employees, directors and consultants,
of common shares of the Company.  Under the 2002 Plan, the granting of
incentive and non-qualified stock options, exercise prices and terms are
determined by the Company's Option Committee, a committee designated to
administer the 2002 Plan by the Board of Directors.  For incentive
options, the exercise price shall not be less than the fair market value of the
Company's common stock on the grant date. (In the case of options granted to an
employee who owns stock possessing more than 10% of the voting power of all
classes of the Company's stock on the date of grant, the option price must not
be less than 110% of the fair market value of common stock on the grant
date.)  Options granted are not to exceed terms beyond ten years (five
years in the case of an incentive stock option granted to a holder of 10 percent
of the Company's common stock).


75
 STRATA
OIL & GAS INC.
 (An
Exploration Stage Company)
 
 NOTES
TO THE FINANCIAL STATEMENTS
 (Expressed
in US Dollars)











11.             STOCK
OPTION PLANS - continued







Activity
under the 2002 Plan is summarized as follows:







Available
      for Grant
                  
                  
                  Options
      Outstanding
                  
                  
                  Weighted
      Average
                    Exercise
      PriceBalance
      outstanding,December
      31, 2005
                  
                  
                  260,000
                  
                  
                  
                  6,400,000
                  
                  
                  $
                  0.11Options
      cancelled
                  
                  
                  200,000
                  
                  
                  
                  (200,000
                  )
                  
                  
                  0.11Options
      granted
                  
                  
                  (260,000
                  )
                  
                  
                  260,000
                  
                  
                  
                  1.75Options
      exercised
                  
                  
                  -
                  
                  
                  
                  (5,044,000
                  )
                  
                  
                  0.19Balance
      outstanding,December
      31, 2006
                  
                  
                  200,000
                  
                  
                  
                  1,416,000
                  
                  
                  
                  0.11Options
      exercised
                  
                  
                  -
                  
                  
                  
                  (266,000
                  )
                  
                  
                  0.11Balance
      outstanding,December
      31, 2008 and 2007
                  
                  
                  200,000
                  
                  
                  
                  1,150,000
                  
                  
                  $
                  0.11Balance
      exercisable,December
      31, 2008
                  
                  
                  
                  
                  
                  
                  1,150,000
                  
                  
                  $
                  0.11December
      31, 2007
                  
                  
                  
                  
                  
                  
                  616,667
                  
                  
                  $
                  0.11December
      31, 2006
                  
                  
                  
                  
                  
                  
                  349,328
                  
                  
                  $
                  0.11





At the
Annual General and Special Meeting of Shareholders held in June 2006 the
stockholders approved and the Company adopted its 2006 Stock Option Plan (“the
2006 Plan”).  The 2006 Plan provides for the granting of up to an
additional 8,000,000 stock options to key employees, directors and consultants,
of common shares of the Company.  Under the 2006 Plan, the granting of
incentive and non-qualified stock options, exercise prices and terms are
determined by the Company's Option Committee, a committee designated to
administer the 2006 Plan by the Board of Directors.  For incentive
options, the exercise price shall not be less than the fair market value of the
Company's common stock on the grant date. (In the case of options granted to an
employee who owns stock possessing more than 10% of the voting power of all
classes of the Company's stock on the date of grant, the option price must not
be less than 110% of the fair market value of common stock on the grant
date.)  Options granted are not to exceed terms beyond ten years (five
years in the case of an incentive stock option granted to a holder of 10 percent
of the Company's common stock).


76
 STRATA
OIL & GAS INC.
 (An
Exploration Stage Company)
 
 NOTES
TO THE FINANCIAL STATEMENTS
 (Expressed
in US Dollars)





11.             STOCK
OPTION PLANS - continued


Activity
under the 2006 Plan is summarized as follows:
 
 Available
      for Grant
                    
                    
                    Options
      Outstanding
                    
                    
                    Weighted
      Average Price Per ShareBalance
      outstanding,January
      1, 2006
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    -Adoption
      of 2006 Plan
                    
                    
                    8,000,000
                    
                    
                    
                    -
                    
                    
                    
                    -Options
      granted
                    
                    
                    (1,500,000
                    )
                    
                    
                    1,500,000
                    
                    
                    
                    2.47Options
      exercised
                    
                    
                    -
                    
                    
                    
                    (1,300,000
                    )
                    
                    
                    2.50Balance
      outstanding,December
      31, 2006
                    
                    
                    6,500,000
                    
                    
                    
                    200,000
                    
                    
                    
                    2.29Options
      granted
                    
                    
                    (400,000
                    )
                    
                    
                    400,000
                    
                    
                    
                    0.61Balance
      outstanding,December
      31, 2007
                    
                    
                    6,100,000
                    
                    
                    
                    600,000
                    
                    
                    
                    1.17Options
      granted
                    
                    
                    (700,000
                    )
                    
                    
                    700,000
                    
                    
                    
                    0.81Balance
      outstanding,December
      31, 2008
                    
                    
                    5,400,000
                    
                    
                    
                    1,300,000
                    
                    
                    $
                    0.98Balance
      exercisable,December
      31, 2008
                    
                    
                    
                    
                    
                    
                    200,000
                    
                    
                    $
                    2.29December
      31, 2007
                    
                    
                    
                    
                    
                    
                    200,000
                    
                    
                    $
                    2.29December
      31, 2006
                    
                    
                    
                    
                    
                    
                    66,666
                    
                    
                    $
                    2.29


The
following table summarizes information concerning outstanding and exercisable
common stock options under the 2006, 2002 and 2000 Plans at December 31,
2008:


Range
      of Exercise Prices
                Number
      of
                  Options
                  Outstanding
                Remaining
                  Contractual
      Life (in Years)
                Weighted
                  Average
      Exercise Price
                Number
      of Options Currently Exercisable
                Weighted
      Average Exercise Price$0.11
                1,150,000
                6.67
                $
                0.11
                1,150,000
                $
                0.11$0.61
                400,000
                8.25
                $
                0.61
                -
                $
                -$0.74
                100,000
                9.58
                $
                0.74
                -
                $
                -$0.82
                600,000*
                9.50
                $
                0.82
                -
                $
                -$2.29
                200,000
                7.58
                $
                2.29
                200,000
                $
                2.292,450,000
                
                
                
                1,350,000






*
Subsequent to December 31, 2008, the 600,000 options were
forfeited.




The
aggregate intrinsic value of stock options outstanding at December 31, 2008 was
$11,500 (2007 - $652,500, 2006 - $2,314,740) while the aggregate intrinsic value
of stock options exercisable at December 31, 2008 was also $11,500 (2007 -
$339,167, 2006 -1,232,068).  No stock options were exercised in 2008
while the aggregate intrinsic value of stock options exercised in 2007 was
$1,070,510 (2006 - $5,440,160).


77
 STRATA
OIL & GAS INC.
 (An
Exploration Stage Company)
 
 NOTES
TO THE FINANCIAL STATEMENTS
 (Expressed
in US Dollars)








11.             STOCK
OPTION PLANS - continued





As of
December 31, 2008, there was $57,493 (2007 - $201,103) of total unrecognized
compensation cost related to all options granted and outstanding. This
unrecognized compensation cost is expected to be recognized over a
weighted-average period of approximately 3.0 years.   A summary
of status of the Company’s unvested stock options as of December 31, 2008 under
all plans is presented below:


Number
                of
      Options
              
              
              Weighted
                Average
                Exercise
                Price
              
              
              Weighted
      Average
                Grant
      Date Fair ValueUnvested
      at January 1, 2006
              
              
              6,000,000
              
              
              $
              0.11
              
              
              $
              0.09Granted
              
              
              2,200,000
              
              
              
              2.24
              
              
              
              1.87Vested
              
              
              (6,799,994
              )
              
              
              0.76
              
              
              
              0.63Cancelled
              
              
              (200,000
              )
              
              
              0.11
              
              
              
              0.10Unvested
      at December 31, 2006
              
              
              1,200,006
              
              
              $
              0.35
              
              
              $
              0.30Granted
              
              
              400,000
              
              
              
              0.61
              
              
              
              0.57Vested
              
              
              (666,673
              )
              
              
              0.54
              
              
              
              0.47Unvested
      at December 31, 2007
              
              
              933,333
              
              
              
              0.32
              
              
              
              0.28Granted
              
              
              700,000
              
              
              
              0.81
              
              
              
              0.74Vested
              
              
              (533,333
              )
              
              
              0.11
              
              
              
              0.10Unvested
      at December 31, 2008
              
              
              1,100,000
              
              
              $
              0.74
              
              
              $
              0.68





12.             WARRANTS




(a)
      Issued
                  
                  Warrants
                  
                  
                  Weighted
      Average Exercise PriceBalance, December 31,
      2005
                  
                  
                  24,812,800
                  
                  
                  $
                  0.17Warrants
      issued
                  
                  
                  1,000,000
                  
                  
                  
                  2.19Warrants
      exercised
                  
                  
                  (4,523,200
                  )
                  
                  
                  0.12Balance, December 31,
      2006
                  
                  
                  21,289,600
                  
                  
                  
                  0.28Warrants
      exercised
                  
                  
                  (2,120,000
                  )
                  
                  
                  0.16Balance, December 31,
      2007
                  
                  
                  19,169,600
                  
                  
                  
                  0.29Warrants
      exercised
                  
                  
                  (320,000
                  )
                  
                  
                  0.19Balance, December 31,
      2008
                  
                  
                  18,849,600
                  
                  
                  $
                  0.29








78
 STRATA
OIL & GAS INC.
 (An
Exploration Stage Company)
 
 NOTES
TO THE FINANCIAL STATEMENTS
 (Expressed
in US Dollars)






12.             WARRANTS
- continued


The
following table lists the common share warrants outstanding at December 31,
2008.  Each warrant is exchangeable for one common share.


Number
      Outstanding
              Number
      Vested
              Exercise
      Price
              Expiry2,523,200
              2,523,200
              $0.11
              December
      23, 20106,206,400
              6,206,400
              $0.19
              December
      23, 20104,000,000
              4,000,000
              $0.125
              February
      14, 20124,000,000
              4,000,000
              $0.20
              February
      14, 2012560,000
              560,000
              $0.44
              November
      15, 2010560,000
              560,000
              $0.50
              November
      15, 2010500,000
              500,000
              $2.125
              June
      13, 2011500,000
              500,000
              $2.25
              June
      13, 201118,849,600
              18,849,600




(b)  Subsequent
to December 31, 2008, 1,650,000 warrants were exercised for proceeds of
$213,750.










13.             INCOME
TAXES




The tax
effects of temporary differences that give rise to the Company’s deferred tax
assets are as follows:


2008
                
                
                2007Deferred
      tax assets (liabilities)Net
      operating loss carryforwards
                
                $
                667,000
                
                
                $
                671,000Office
      equipment
                
                
                8,000
                
                
                
                10,000Share
      issue costs
                
                
                1,000
                
                
                
                1,000676,000
                
                
                
                682,000Valuation
      allowance
                
                
                (676,000
                )
                
                
                (682,000
                )Net deferred tax
      asset
                
                $
                -
                
                
                $
                -








Upon
continuation to Canada in 2004, all losses carried forward at that time
expired.  As of December 31, 2008, the Company had available to offset
future taxable income, net Canadian operating loss carryforwards of
approximately $2,651,000.  The carryforwards will begin expiring in
2014 unless utilized in earlier years.  The Company also has
approximately $7,000,000 in Canadian oil and gas dedication pools that can be
used to offset income of future periods.





The
Company’s deferred tax assets include the tax effect relating to approximately
$1,000 (2007 – $3,000) of future tax deductions for share issue
costs.  If and when the valuation allowance related to the tax effect
of these amounts is reversed the Company will recognize this benefit as an
adjustment to share capital as opposed to income tax expense in the Statement of
Operations and Comprehensive Loss.




The
Company evaluates its valuation allowance requirements based on projected future
operations.  When circumstances change and this causes a change in
management's judgment about the recoverability of deferred tax assets, the
impact of the change on the valuation allowance is reflected in current
income.




79
 STRATA
OIL & GAS INC.
 (An
Exploration Stage Company)
 
 NOTES
TO THE FINANCIAL STATEMENTS
 (Expressed
in US Dollars)





13.             INCOME
TAXES - continued




The
provision for income taxes differs from the amount of income tax determined by
applying the applicable Canadian statutory federal income tax rate to pre-tax
income as a result of the following differences:





2008
                
                
                2007
                
                
                2006Statutory
      federal income tax rate
                
                
                (31
                %)
                
                
                (32
                %)
                
                
                (34
                %)Change
      in valuation allowance
                
                
                0
                %
                
                
                25
                %
                
                
                1
                %Non-deductible
      stock-based compensation
                
                
                5
                %
                
                
                (8
                )%
                
                
                34
                %Effect
      of foreign exchange
                
                
                18
                %
                
                
                (24
                )%
                
                
                -
                %Effect
      of reduction in income tax rate
                
                
                6
                %
                
                
                35
                %
                
                
                -
                %Other
                
                
                2
                %
                
                
                (4
                %)
                
                
                (1
                %)-
                %
                
                
                -
                %
                
                
                -
                %





In June
2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes,(“FIN 48”). FIN 48 clarifies the accounting for uncertainty in
income taxes recognized in an enterprise’s financial statements in accordance
with SFAS No. 109, Accounting for Income Taxes,
(“SFAS 109”), and prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken
or expected to be taken in a tax return. The Company adopted FIN 48 effective
January 1, 2007. The Company has evaluated its tax positions for the years
ended December 31, 2008 and 2007 and determined that it has no uncertain
tax positions requiring financial statement recognition.




Under FIN
48, the impact of an uncertain income tax position on income tax expense must be
recognized at the largest amount that is more-likely-than-not to be sustained.
An uncertain income tax position will not be recognized if it has less than a
50% likelihood of being sustained. Because of the Company’s recent history of
operating losses, management believes that recognition of the deferred tax
assets arising from the above-mentioned future tax benefits is currently not
likely to be realized and, accordingly, has provided a 100% valuation allowance
against its net deferred tax assets due to the uncertainty surrounding the
realization of such assets.





14       COMMITMENTS





Rent





The
Company currently pays to rent an office in Calgary, Alberta under a lease
agreement and rents a shared office space in Edmonton, Alberta on a
month-to-month basis.  The lease for the Calgary office commenced
October 15, 2007 and has a term to October 30, 2009.  The basic rent
for the office is CDN $5,250 (USD $4,310) per month.  The Company has
the option to renew the lease for a one year term.  Total rent expense
recorded by the Company was $96,153, $31,128, and $2,081 for the years ended
December 31, 2008, 2007, and 2006, respectively.





Environmental
Matters





The
Company is engaged in oil and gas exploration and may become subject to certain
liabilities as they relate to environmental cleanup of sites or other
environmental restoration procedures as they relate to the exploration of oil
and gas. Should it be determined that a liability exists with respect to any
environmental clean up or restoration, the liability to cure such a violation
could fall upon the Company. No claim has been made, nor is the Company aware of
any liability, which it may have, as it relates to any environmental clean up,
restoration or the violation of any rules or regulations relating thereto.
Liabilities for expenditures are recorded when environmental assessment and/or
remediation is probable and the costs can be reasonably estimated.







80





Item
19. Exhibits





Exhibit No.
              Description1.1
              Articles
      of Continuance(1)1.2
              Bylaws(1)2.1
              Description
      of Capital Stock (contained in the Articles of Continuance filed as
      Exhibit 1.1)2.2
              Form
      of Class A warrant issued in February 2005 (2)2.3
              Form
      of Class B warrant issued in February 2005 (2)2.4
              Form
      of Class A warrant issued in November 2005 (2)2.5
              Form
      of Class B warrant issued in November 2005 (2)2.6
              Form
      of Class A warrant issued in June 2006 (6)2.7
              Form
      of Class B warrant issued in June 2006 (6)2.8
              Form
      of Subscription Agreement for shares issued in January 2008
      (7)4.1
              Agreement,
      dated October 12, 2005 between the Company and Pratt Barndollar
      (2)4.2
              Agreement,
      dated January 1, 2006 between the Company and Charlie Perity
      (2)4.3
              Asset
      Sale Agreement, dated June 29, 2005, between the Company and Trevor Newton
      (2)4.4
              Consulting
      agreement dated May 15, 2006 between Manny Dhinsa and the Company
      (2)12.1*
              Rule
      13a-14(a)/15d-14(a) Certifications13.1*
              Section
      1350 Certifications14.1*
              Consent
      of Independent Registered Public Accounting Firm15.3
              2000
      Stock Option Plan (3)15.4
              2002
      Stock Option Plan (4)15.4
              2006
      Stock Option Plan (5)


* Filed
herewith.





(1)
Previously filed with the Company’s Registration Statement on Form S-4 on April
22, 2003


(2)
Previously filed with the Company’s 2005 Form 20-F filed on June 1,
2006.


(3) Filed
on Form S-8 on January 29, 2001


(4) Filed
on Form S-8 on February 12, 2002


(5) Filed
on Form S-8 on June 1, 2006.


(6)
Previously filed with the Company’s Form 6-K filed on June 23,
2006.


(7)
Previously filed with the Company’s Form 6-K filed on February 1,
2008.


81





SIGNATURES





Pursuant
to the requirements of Section 12g of the Securities Exchange Act of 1934, the
Registrant certifies that it meets all of the requirements for filing on Form
20-F and has duly caused this Annual Report to be signed on its behalf by the
undersigned, thereunto duly authorized.





STRATA
      OIL & GAS INC.By/s/ Manny DhinsaManny
      DhinsaDated:
      July 10, 2009
                      President,
      Chief Executive Officer, Secretary and Treasurer





/s/ Pol Brisset
            Director
            Dated:
      July 10, 2009Pol
      Brisset/s/ Pratt Barndollar
            Director
            Dated:  July
      10, 2009Pratt
      Barndollar/s/ Charlie Perity
            Director
            Dated:  July
      10, 2009Charlie
      Perity