UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q/A





x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period endedApril 30, 2010





or





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





Commission File Number:000-53313





STRATEGIC AMERICAN OIL CORPORATION


(Exact name of registrant as specified in its charter)





NEVADA
98-0454144(State or other jurisdiction of incorporation of organization)
(I.R.S. Employer Identification No.)600 Leopard Street, Suite 2015, Corpus Christi, Texas
78401(Address of principal executive offices)
(Zip Code)  (361) 884-7474
  (Registrant's telephone number, including area code)





Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yesx     Noo





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


Yeso     Noo





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





o
Large accelerated filer

o
Accelerated filero
Non-accelerated filer (Do not check if smaller reporting company)

x
Smaller reporting company





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


Yeso     Nox





Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:52,167,533 shares of common stock outstanding as ofJune 10, 2010.










EXPLANATORY NOTE TO FORM 10-Q/A:





This 10-Q/A is being filed to correct our financial statements for the three and nine months ended April 30, 2010 and 2009.  Subsequent to issuing the report for the three and nine months ended April 30, 2010 and 2009, we discovered the following errors that impacted the balance sheets, statements of operations and comprehensive loss, and statements of cash flows.





1)
In October and November 2009, our private placements included warrants which had a “price protection” feature (i.e., an anti-dilution feature; a ratchet down feature).  As a result, the warrants are not considered indexed to our own stock, and as such, they are to be classified as liabilities and all future changes in the fair value of these warrants will be recognized currently in earnings in our consolidated statement of operations under the caption “Other Items – Gain (loss) on warrant derivative liability” until such time as the warrants are exercised or expire.  The previously filed financial statements reflected the warrants as indexed to our own stock and classified them as a component of equity. See Note 7: Warrant derivative liability for a detailed disclosure relating to these warrants.





2)
In August 2009 and February 2010, we extended the term of warrants originally issued with an equity raise.  Because the warrants that were extended were originally issued with common stock, the fair values associated with this modification should have been recorded as a deemed dividend. The previously filed financial statements reflected the extensions as interest and finance charges. See Note 10: Stockholders’ equity (deficit) – warrant modifications for more information.





3)
In April 2010, we repriced certain warrants issued in October and November 2009 and classified as derivative warrants. These warrants are measured at each reporting date with the changes recognized in earnings and this repricing has no accounting impact. The previously filed financial statements reflected the change as interest and finance charges. See Note 7: Warrant derivative liability for a detailed disclosure relating to these warrants.





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





STRATEGICAMERICAN OIL CORPORATION





TABLE OF CONTENTS





PART I - FINANCIAL INFORMATIONItem 1.
Financial Statements
4Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
20Item 3.
Quantitative and Qualitative Disclosures About Market Risk
29Item 4.
Controls and Procedures
29PART II - OTHER INFORMATIONItem 1.
Legal Proceedings
30Item 1A.
Risk Factors
30Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
30Item 3.
Defaults Upon Senior Securities
30Item 4.
(Removed and Reserved)
30Item 5.
Other Information
30Item 6.
Exhibits
30SIGNATURES
31


Table of Contents


PARTI- FINANCIAL INFORMATION





Item 1.     Financial Statements


4
 Table of Contents


STRATEGIC AMERICAN OIL CORPORATION


(An Exploration Stage Company)





CONSOLIDATED FINANCIAL STATEMENTS





APRIL 30, 2010


(Unaudited)


5
 Table of Contents


STRATEGIC AMERICAN OIL CORPORATION


(An Exploration Stage Company)


CONSOLIDATED BALANCE SHEETS


(Unaudited)April 30, 2010

(Restated)


July 31,

2009CURRENT ASSETSCash

$
754,233


$
18,793Accounts receivable


107,714



35,073Prepaid expenses and deposits


282,016



44,4781,143,963



98,344RECLAMATION BONDS (Note 3)


59,317



59,317EQUIPMENT (Note 4)


67,027



29,830OIL AND GAS PROPERTIES (Note 5)Proved properties


1,005,807



986,926Unproved properties


493,299



295,454TOTAL ASSETS

$
2,769,413


$
1,469,871CURRENT LIABILITIESAccounts payable and accrued liabilities

$
180,819


$
403,804Convertible notes (Note 6)


111,685



42,718Derivative warrant liability (Note 7)


3,953,763



-Due to related parties (Note 8)


45,826



459,2574,292,093



905,779ASSET RETIREMENT OBLIGATIONS (Note 9)


23,240



22,662TOTAL LIABILITIES


4,315,333



928,441STOCKHOLDERS' EQUITY (DEFICIT)Capital stock (Note 10)Common stock $0.001 par value: 500,000,000 shares authorized52,167,533 shares issued and outstanding (July 31, 2009 - 29,350,827)


52,168



29,351Additional paid-in capital


10,577,249



7,688,912Obligation to issue shares


20,987



37,382Share subscriptions


18,012



356,062Deficit accumulated during the exploration stage


(12,214,336
)


(7,570,277
)TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)


(1,545,920
)


541,430TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

$
2,769,413


$
1,469,871





COMMITMENTS AND CONTINGENCIES (Notes 1 and 11)





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


6
 Table of Contents


STRATEGIC AMERICAN OIL CORPORATION


(An Exploration Stage Company)


CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)


Three MonthsEndedApril 30,2010 (Restated)


Three MonthEndedApril 30,2009


Nine MonthsEndedApril 30,2010 (Restated)


Nine MonthsEndedApril 30,2009


For thePeriod fromApril 12, 2005(inception) toApril 30,2010 (Restated)OIL AND GAS REVENUES (Note 8)

$
123,891


$
66,949


$
344,587


$
330,145


$
2,609,698EXPENSESConsulting fees


545,835



276,437



957,665



520,881



2,953,097Consulting fees - stock based (Note 10)


151,706



130,000



650,210



141,111



2,221,615Depreciation and depletion


24,245



14,947



63,946



42,184



275,413Direct operating costs (Note 8)


107,682



86,133



321,853



276,925



2,031,841General and administrative


56,947



26,549



150,984



119,527



571,826Impairment of properties (Note 5)


-



-



-



3,700



233,306Interest and financing charges (Notes 6, 8 and 10)


28,476



18,090



130,642



27,847



195,628Management fees (Note 8)


111,664



88,401



380,507



260,145



1,427,832Management fees – stock based (Notes 8 and 10)


100,000



-



474,667



-



2,130,667Professional fees


78,122



26,695



333,072



134,714



948,721Travel and promotion


18,899



23,106



67,444



36,393



405,647TOTAL EXPENSES


1,223,576



690,358



3,530,990



1,563,427



13,395,593LOSS BEFORE OTHER ITEMS


(1,099,685
)


(623,409
)


(3,186,403
)


(1,233,282
)


(10,785,895
)OTHER ITEMSGain on debt settlement


-



-



12,559



-



12,559Interest and other income


378



-



1,003



-



9,291Loss on derivative warrant liability


(88,274
)


-



(1,445,761
)


-



(1,445,761
)Foreign exchange


12,636



17,473



(25,457
)


17,473



(4,530
)NET LOSS FOR THE PERIOD


(1,174,945
)


(605,936
)


(4,644,059
)


(1,215,809
)


(12,214,336
)DEFICIT ACCUMULATED DURING THE EXPLORATION STAGE, BEGINNING OF PERIOD


(11,039,391
)


(5,397,647
)


(7,570,277
)


(4,787,774
)


-DEFICIT ACCUMULATED DURING THE EXPLORATION STAGE, END OF PERIOD

$
(12,214,336
)

$
(6,003,583
)

$
(12,214,336
)

$
(6,003,583
)

$
(12,214,336
)NET LOSS PER SHARE, BASIC AND DILUTED

$
(0.02
)

$
(0.02
)

$
(0.11
)

$
(0.04
)WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED


49,520,841



28,610,350



43,018,256



28,484,080





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


7
 Table of Contents


STRATEGIC AMERICAN OIL CORPORATION


(An Exploration Stage Company)


CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)


Nine MonthsEndedApril 30, 2010 (Restated)


Nine MonthsEndedApril 30, 2009


For the PeriodFromApril 12, 2005(inception) toApril 30, 2010 (Restated)CASH FLOWS FROM OPERATING ACTIVITIESNet loss for the period

$
(4,644,059
)

$
(1,215,809
)

$
(12,214,336
)Adjustments to reconcile net loss to net cash from operating activities:Depreciation and depletion


63,946



42,184



275,413Impairment of oil and gas properties


-



3,700



233,306Non-cash interest and financing charges


100,967



7,664



164,331Stock based compensation


1,124,877



141,111



4,352,282Loss on derivative warrant liability


1,445,761



-



1,445,761Gain on debt settlement


(12,559
)


-



(12,559
)Write-off of reclamation bond


-



-



21,875Changes in operating assets and liabilities:Accounts receivable


(72,641
)


176,860



(107,714
)Prepaid expenses and deposits


(280,816
)


(54,559
)


(282,016
)Accounts payable and accrued liabilities


(39,026
)


114,497



452,066Due to related parties


(84,531
)






(84,531
)NET CASH FLOWS USED IN OPERATING ACTIVITIES


(2,398,081
)


(784,352
)


(5,756,122
)CASH FLOWS FROM FINANCING ACTIVITIESIssuance of shares for cash, net of share issuance costs


3,497,312



451,150



8,066,509Proceeds from convertible notes


-



150,000



150,000Advances from and repayments to related parties


(46,500
)


224,059



426,650NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES


3,450,812



825,209



8,643,159CASH FLOWS FROM INVESTING ACTIVITIESAcquisition of oil and gas properties, net of cost recoveries


(266,273
)


(108,796
)


(1,935,398
)Purchase of equipment


(51,018
)


-



(116,214
)Reclamation bonds


-



3,062



(81,192
)NET CASH FLOWS USED IN INVESTING ACTIVITIES


(317,291
)


(105,734
)


(2,132,804
)INCREASE (DECREASE) IN CASH


735,440



(64,877
)


754,233CASH, BEGINNING


18,793



67,650



-CASH, ENDING

$
754,233


$
2,773


$
754,233





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





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


8
 Table of Contents


STRATEGIC AMERICAN OIL CORPORATION


(An Exploration Stage Company)


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


APRIL 30, 2010 (Unaudited)





NOTE 1:             NATURE OF OPERATIONS





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





The accompanying consolidated financial statements have been prepared on the basis of a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As at April 30, 2010, the Company had working deficit of $(3,148,130) and has incurred significant losses since inception and further losses are anticipated in the development of its oil and gas property interests. The ability of the Company to continue as a going concern is dependent on raising additional capital to fund ongoing exploration and development and ultimately on generating future profitable operations. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Since internally generated cash flow will not fund development and commercialization of the Company's oil and gas properties, the Company will require significant additional financial resources and will be dependent on future financings to fund its ongoing exploration and development as well as other working capital requirements. The Company's future capital requirements will depend on many factors including the rate and extent of progress in its exploration and development programs. There can be no assurance the Company will be successful in its efforts to raise additional financing or if financing is available, that it will be on terms that are acceptable to the Company.





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





Restatement


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





Unaudited Interim Consolidated Financial Statements





The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. They may not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material changes in the information disclosed in the notes to the consolidated financial statements for the year ended July 31, 2009, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. The interim unaudited consolidated financial statements should be read in conjunction with those consolidated financial statements included in the Form 10-K filed on November 12, 2009 with the U.S. Securities and Exchange Commission. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the nine months ended April 30, 2010, are not necessarily indicative of the results that may be expected for the year ending July 31, 2010.





Fair Value





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





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


The three-level hierarchy is as follows:


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


·
Level 2 inputs consist of quoted prices for similar instruments.


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





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





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


9
 Table of Contents


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





The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of April 30, 2010.





Carrying


Fair Value Measurement at April 30, 2010Value atApril 30, 2010


Level 1

Level 2


Level 3Derivative warrant liability

$
3,953,763



_



-


$
3,953,763





The following table sets forth the changes in the fair value measurement of our Level 3 derivative warrant liability during the year ended April 30, 2010:





Beginning balance – July 31, 2009

$
-Issuance of derivative warrants


3,382,019Reduced for warrants exercised


(874,017
)Change in fair value of derivative liability


1,445,761At April 30, 2010

$
3,953,763





Recent accounting pronouncements





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





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





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





NOTE 2:             RESTATEMENTS





Subsequent to issuing the report for the three months ended April 30, 2010 and 2009, we discovered the following errors that impacted the balance sheets, statements of operations and comprehensive loss, and statements of cash flows.





1.
In October and November 2009, our private placements included warrants which had a “price protection” feature (i.e., an anti-dilution feature; a ratchet down feature).  As a result, the warrants are not considered indexed to our own stock, and as such, they are to be classified as liabilities and all future changes in the fair value of these warrants will be recognized currently in earnings in our consolidated statement of operations under the caption “Other Items – Gain (loss) on warrant derivative liability” until such time as the warrants are exercised or expire.  The previously filed financial statements reflected the warrants as indexed to our own stock and classified them as a component of equity.  See Note 7: Derivative warrant liability for further details.





2.
In August 2009 and February 2010, we extended the term of warrants originally issued with an equity raise. Because the warrants that were extended were originally issued with common stock, the fair values associated with this modification should have been recorded as a deemed dividend. The previously filed financial statements reflected it as interest and finance charges. See Note 10: Stockholders’ equity (deficit) – warrant modifications for more information.





3.
In April 2010, we repriced certain warrants issued in October and November 2009 and classified as derivative warrants. The warrants are measured at each reporting date with changes recognized in earnings and hence this repricing has no accounting impact. The previously filed financial statements reflected the same as interest and finance charges. See Note 7: Warrant derivative liability for a detailed disclosure relating to these warrants.





The above changes result in an increase in the net loss and accumulated deficit by $862,919 for the nine months ended April 30, 2010. During the same period it also resulted in an increase in the derivative warrant liability by $3,953,763 and a decrease in the additional paid in capital $3,090,844.


10
 Table of Contents


The results of the restatements are summarized as follows:





Consolidated Balance Sheets as of April 30, 2010:As reported


Adjustment


As restatedWarrant derivative liability

$
-


$
3,953,763


$
3,953,763Total current liabilities

$
338,330


$
3,953,763


$
4,292,093TOTAL LIABILITIES

$
361,570


$
3,953,763


$
4,315,333Additional paid-in capital

$
13,668,093


$
(3,090,844
)

$
10,577,249Accumulated deficit


(11,351,417
)


(862,919
)


(12,214,336
)Total Stockholders’ equity (deficit)

$
2,407,843


$
(3,953,763
)

$
(1,545,920
)Consolidated Statements of Operations for the three months ended April 30, 2010:As reported


Adjustment


As restatedInterest and finance charges

$
263,398


$
( 234,922
)

$
28,476Total expenses


1,458,498



(234,922
)


1,223,576Loss before other items

$
(1,334,607
)

$
234,922


$
(1,099,685
)Loss on warrant derivative liability

$
-


$
(88,274
)

$
(88,274
)NET LOSS FOR THE PERIOD


(1,321,593
)


146,648



(1,174,945
)DEFICIT ACCUMULATED DURING THE EXPLORATION STAGE, BEGINNING OF PERIOD


(10,029,824
)


(1,009,567
)


(11,039,391
)DEFICIT ACCUMULATED DURING THE EXPLORATION STAGE, END OF PERIOD


(11,351,417
)


(862,919
)


(12,214,336
)BASIC AND DILUTED LOSS PER SHARE

$
(0.03
)

$
0.01


$
(0.02
)Consolidated Statements of Operations for the nine months ended April 30, 2010:As reported


Adjustment


As restatedConsulting fees


637,053


$
13,157


$
650,210Interest and finance charges


726,641


$
(595,999
)

$
130,642Total expenses

$
4,113,832


$
(582,842
)

$
3,530,990Loss before other items

$
(3,769,245
)

$
582,842


$
(3,186,403
)Loss on derivative warrant liability


-


$
(1,445,761
)

$
(1,445,761
)NET LOSS FOR THE PERIOD

$
(3,781,140
)

$
(862,919
)

$
(4,644,059
)DEFICIT ACCUMULATED DURING THE EXPLORATION STAGE, END OF PERIOD

$
(11,351,417
)

$
(862,919
)

$
(12,214,336
)BASIC AND DILUTED LOSS PER SHARE

$
(0.09
)

$
(0.02
)

$
(0.11
)Consolidated Statements of Operations for the Period from April 12, 2005 (inception) to April 30, 2010:As reported


Adjustment


As restatedConsulting fees

$
2,208,458


$
13,157


$
2,221,615Interest and financing charges

$
791,627


$
(595,999
)

$
195,628Total expenses

$
13,978,435


$
(582,842
)

$
13,395,593Loss before other items

$
(11,368,737
)

$
582,842


$
(10,785,895
)Loss on warrant derivative liability

$
-


$
(1,445,761
)

$
(1,445,761
)NET LOSS FOR THE PERIOD

$
(11,351,417
)

$
(862,919
)

$
(12,214,336
)


11
 Table of Contents


Consolidated Statements of Cash Flows for the nine months ended April 30, 2010:


As reported


Adjustment


As restatedNet loss

$
(3,781,140
)

$
(862,919
)

$
(4,644,059
)Non cash interest and financing charges

$
696,966


$
(595,999
)

$
100,967Stock based compensation

$
1,111,720



13,157



1,124,877Loss on warrant liability

$
-


$
1,445,761


$
1,445,761Consolidated Statements of Cash Flows for the Period from April 12, 2005 (inception) to April 30, 2010:As reported


Adjustment


As restatedNet loss

$
(11,351,417
)

$
(862,919
)

$
(12,214,336
)Non cash interest and financing charges

$
760,330


$
(595,999
)

$
164,331Stock based compensation

$
4,339,125



13,157



4,352,282Loss on warrant liability

$
-


$
1,445,761


$
1,445,761





NOTE 3:             RECLAMATION BONDS





Reclamation bonds include interest and non-interest bearing deposits issued in the States of Louisiana $19,317 (July 31, 2009 - $19,317) and Texas $40,000 (July 31, 2009 - $40,000) to cover each State's reclamation requirement for producing operations. There were no changes during the nine months ended April 30, 2010.





NOTE 4:             EQUIPMENT





Equipment acquisitions consist of the following:


April 30,2010


July 31,2009EQUIPMENTComputer equipment

$
8,641


$
4,632Furniture and fixtures


8,320



8,320Leasehold improvements


11,294



11,294Production equipment


87,959



40,950116,214



65,196Accumulated depreciation


(49,187
)


(35,366
)$
67,027


$
29,830





NOTE 5:             OIL AND GAS PROPERTIES





Proved Properties





Barge Canal, Texas





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





South Delhi / Big Creek Field, Louisiana





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





The Holt Lease





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


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The Strahan Lease





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





The McKay Lease





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





Assignment of Interests to Tradestar Resources Corporation





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





Unproven Reserves





Janssen Lease, Texas





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





Koliba Prospect, Texas





Through April 30, 2010 the Company has entered into several lease agreements with certain mineral owners of a 79 acre tract (the "Koliba Lease") in Victoria County, Texas. The Company has leased over 95% of the minerals rights on this tract with additional leases pending. Additionally, the Company paid $70,000 for an assignment of oil and gas leases on 84% of 64 adjacent and contiguous acres. This Assignment includes several leases with numerous mineral owners. During the current fiscal year, the Company entered into participation agreements whereby a total of a 75% working interest has been assigned to other parties. The Company will retain a carried 16.33% working interest to casing point, and have a 25% working interest (not carried) after casing point in the completed well.





Kenedy Prospect, Texas





Through April 30, 2010 the Company has entered into a lease agreement with certain mineral owners of a 1,203 acre tract (the "Kenedy Lease") in Kenedy County, Texas. The Company paid $187,824 for a 100% working interest and a 75% net revenue interest.





Capitalized Costs of Oil and Natural Gas Producing Properties





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


April 30,2010


July 31,2009PROVED PROPERTIESBarge Canal

$
663,998


$
593,767South Delhi / Big Creek Field


347,134



346,787Impaired properties


220,901



222,4731,232,033



1,163,027Accumulated depletion


(226,226
)


(176,101
)1,005,807



986,926UNPROVED OR UNEVALUATED PROPERTIESJanssen Lease


20,000



20,000Illinois prospects


168,518



164,272Louisiana prospects


85,883



22,944Texas prospects


218,898



88,238493,299



295,454$
1,499,106


$
1,282,380


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Capitalized Costs Incurred for Oil and Natural Gas Producing Activities





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


April 30,2010


July 31,2009ACQUISITION COSTSBarge Canal

$
642,456


$
572,456Janssen Lease


20,000



20,000South Delhi / Big Creek Field


290,290



290,290Illinois prospects


168,518



164,272Louisiana prospects


23,795



22,944Texas prospects


218,715



88,238Impaired acquisition costs


100,036



101,7861,463,810



1,259,986DEVELOPMENT COSTSBarge Canal


12,246



12,246South Delhi / Big Creek Field


42,900



42,900Louisiana prospects


58,121



-113,267



55,146EXPLORATION COSTSLouisiana prospects


3,967



-Texas prospects


183



-Impaired exploration costs


120,865



120,687125,015



120,687RETIREMENT OBLIGATIONSBarge Canal


9,296



9,065South Delhi / Big Creek Field


13,944



13,59723,240



22,662$
1,725,332


$
1,458,481





NOTE 6:             NOTES PAYABLE





2009 Convertible Debenture





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





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





The Company has charged the beneficial conversion feature to additional paid-in capital. In addition, the Company allocated the proceeds of issuance between the convertible debt and the detachable warrants based on their relative fair values. Accordingly, the Company recognized the relative fair value of the warrants of $61,935 as a component of stockholders' equity. Additionally, for the nine months ended April 30, 2010 interest expense of $68,967 has been accreted increasing the carrying value of the convertible debentures to $111,685 as at April 30, 2010.


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2010 Promissory Note





On September 2, 2009, the Company issued a $100,000 promissory note that bear interest at 3% per term, due 90 days from the date of issuance. Additionally, the Company issued, as fully paid and non-assessable, 100,000 non-transferable and registerable share purchase warrants to acquire an equivalent number of common shares of the Company at an exercise price of $0.25 per share, and for an exercise period of three years. Accordingly, the Company recognized the relative fair value of the warrants of $16,000 as a component of stockholders' equity. For the nine months ended April 30, 2010 interest expense of $16,000 has been accreted increasing the carrying value of the promissory note to $100,000 prior to repayment. The fair value of the warrants was estimated using the Black-Scholes option pricing model with an expected life of three years, a risk free interest rate of 0.89%, a dividend yield of 0%, and an expected volatility of 109%.





NOTE 7: DERIVATIVE WARRANT LIABILITY(Restated)





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





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





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





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





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





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





In April 2010, the exercise price of the 19,007,500 derivative warrants issued during October and November 2009 was reduced from $0.35 to $023 per share. Because these warrants are measured at fair value, with changes in fair value recognized currently in earnings in our consolidated statement of operations under the caption “Other Income (expense) – Gain (loss) on warrant derivative liability” this repricing had no accounting impact.





2,775,870 of the warrants classified as derivatives and issued during October 2009, were exercised during April 2010 for $638,450. This reduced the derivative liability by $874,017 and increased the additional paid-in capital by the same amount.





The following table sets forth the changes in the fair value measurement of our Level 3 derivative warrant liability during the year ended April 30, 2010:





Beginning balance – July 31, 2009

$
-Issuance of derivative warrants


3,382,019Reduced for warrants exercised


(874,017
)Change in fair value of derivative liability


1,445,761At April 30, 2010

$
3,953,763





The $571,744 change in fair value measurement was recorded as an increase of the derivative liability and as a $1,445,761 unrealized loss on the change in fair value of the liability in our statement of operations and an $874,017 adjustment to paid in capital related to the exercise during the period of warrants classified as derivative liabilities.





NOTE 8:             RELATED PARTY TRANSACTIONS





During the nine months ended April 30, 2010 the Company had transactions with certain officers and directors of the Company as follows:


a.
recorded production revenues of $199,878 (2009 - $246,179) and incurred production costs of $113,045 (2009 - $112,532) for the Barge Canal property which is operated by a company controlled by an officer of the Company;


b.
incurred $380,507 (2009 - $260,145) in management fees paid to directors and officers during the period, and incurred $474,667 (2009 - $Nil) in stock based compensation for the incremental fair value of options granted to directors and officers that were earned during the period;


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


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


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


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


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


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





At April 30, 2010, a balance of $45,826 (July 31, 2009 - $459,257) consisting of outstanding management fees and expense reimbursements is reported as due to related parties. All related party transactions involving provision of services or tangible assets were recorded at the exchange amount, which is the value established and agreed to by the related parties reflecting arms length consideration payable for similar services or transfers.





NOTE 9:             ASSET RETIREMENT OBLIGATIONS





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


April 30,2010


July 31,2009BARGE CANALOpening balance

$
9,065


$
10,722Revisions


-



(1,956
)Accretion expense


231



2999,296



9,065SOUTH DELHI / BIG CREEK FIELDOpening balance


13,597



4,643Revisions


-



8,505Accretion expense


347



44913,944



13,597$
23,240


$
22,662





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





NOTE 10:            STOCKHOLDERS' EQUITY (DEFICIT)





Share Capital





The Company's capitalization at April 30, 2010 was 500,000,000 authorized common shares with a par value of $0.001 per share.





2010 Share Transactions





On September 1, 2009, the Company issued 57,144 shares of its restricted common stock pursuant under a business development services agreement. As of July 31, 2009, the Company had recorded the $23,715 fair value as a share issuance obligation which was expensed as stock-based consulting fees in the prior year (refer to Note 10).





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





On October 7, 2009, the Company issued 66,666 shares of its restricted common stock pursuant to a corporate development consulting agreement. The Company recorded the $24,666 fair value of the shares issued as stock-based consulting. On December 9, 2009, the Company issued 10,811 shares of its restricted common stock pursuant to the same agreement. The Company recorded the $4,595 fair value of the shares issued as stock-based consulting. On February 16, 2010, the Company issued 21,622 shares of its restricted common stock pursuant to the same agreement. The Company recorded the $7,243 fair value of the shares issued as stock-based consulting. On April 6, 2010, the Company issued 10,811 shares of its restricted common stock pursuant to the same agreement. The Company recorded the $2,919 fair value of the shares issued as stock-based consulting.





On October 15, 2009, the Company issued 100,000 shares of its restricted common stock pursuant to an amended business development services agreement. The Company recorded the $27,000 fair value of the shares issued as stock-based consulting. On January 12, 2010, the Company issued 150,000 shares of its restricted common stock pursuant to the same agreement. The Company recorded the $59,000 fair value of the shares issued as stock-based consulting. On April 6, 2010, the Company issued 150,000 shares of its restricted common stock pursuant to the same agreement. The Company recorded the $42,500 fair value of the shares issued as stock-based consulting.


16
 Table of Contents




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





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





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





On December 9, 2009, the Company issued 300,000 shares of its restricted common stock pursuant to a Corporate Development Services Agreement. The Company recorded the $127,500 fair value of the shares issued as stock-based consulting. On February 16, 2010, the Company issued 50,000 shares of its restricted common stock pursuant to the same agreement. The Company recorded the $15,000 fair value of the shares issued as stock-based consulting.





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





On February 11, 2010, the Company issued 284,284 shares of its restricted common stock to consultants, directors and officers for performance bonuses, pursuant to a 2009 year-end bonus plan. The Company recorded the $113,714 aggregate fair value as stock-based consulting and management fees.





On April 29, 2010, the Company issued 100,000 shares of its restricted common stock pursuant to a Consulting Services Agreement. The Company recorded the $32,000 fair value of the shares issued as stock-based consulting.





During the nine months ended April 30, 2010, an aggregate of 2,775,870 share purchase warrants were exercised for net proceeds of $638,450.





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





Share Purchase Warrants





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





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





2,775,870 of the warrants classified as derivatives and issued during October 2009, were exercised during April 2010 (See note 7).





Warrant modification (Restated)





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





Before


AfterRisk-free interest rate


0.47
%


0.47
%Dividend yield


0
%


0
%Volatility factor


154.60
%


154.60
%Remaining term (years)


0



1





During February 2010, we extended the term of 419,701 warrants from February 12, 2010 to February 12, 2011. These warrants were originally issued for finder’s fees. The modification resulted in additional finder’s fees of $63,990 which was calculated as the difference in the fair value of the warrants immediately before and after the modification using the Black-Scholes option pricing model. We recorded these as interest and finance charges in our previously filed financial statements. The following table details the significant assumptions used to compute the fair market value of the warrant modification:


17
 Table of Contents




Before


AfterRisk-free interest rate


0.35
%


0.35
%Dividend yield


0
%


0
%Volatility factor


162.97
%


162.97
%Remaining term (years)


0



1




A summary of the Company's common share purchase warrants as at April 30, 2010 and changes during the period is presented below:


Number ofWarrants


Weighted AverageExercise Price


Weighted AverageRemainingLife (years)BALANCE, JULY 31, 2008


7,117,425


$
0.83



0.79Issued


1,544,999



1.00



1.33Cancelled or expired


(2,302,145
)


0.60



-BALANCE, JULY 31, 2009


6,360,279



0.91



0.20Issued


20,146,998



0.35



5.00Exercised


(2,775,870
)


(0.23
)


(5.00
)Cancelled or expired


(132,340
)


(0.52
)


-BALANCE, APRIL 30, 2010


23,599,067


$
0.42



3.27





Stock Compensation Plan





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





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





On May 21, 2009, the Company granted a total of 2,230,000 stock options with an exercise price of $0.35 per share to consultants, officers and directors. The term of the options is ten years. The $1,070,400 fair value of the options at the date of grant was estimated using the Black-Scholes option pricing model with an expected life of 5 years, a risk free interest rate of 1.7%, a dividend yield of 0%, and an expected volatility of 105%. During the nine months ended April 30, 2010 an amount of $202,400 was recorded as stock based consulting fees.





On November 27, 2009, the Company granted a total of 2,600,000 stock options with an exercise price of $0.20 per share to a consultant and an officer. The term of the options is ten years. The $832,000 fair value of the options at the date of grant was estimated using the Black-Scholes option pricing model with an expected life of 5 years, a risk free interest rate of 2.03%, a dividend yield of 0%, and an expected volatility of 105%. During the nine months ended April 30, 2010 an amount of $14,667 was recorded as stock based consulting fees and an amount of $366,667 was recorded as stock based management fees.





A summary of the Company's stock options as at April 30, 2010 and changes during the period is presented below:


Number ofOptions


Weighted AverageExercise Price


Weighted AverageRemainingLife (years)BALANCE, JULY 31, 2008


3,800,000


$
0.33



8.83Issued


2,730,000



0.35



10.00BALANCE, JULY 31, 2009


6,530,000



0.34



8.16Issued


2,600,000



0.20



10.00Cancelled or expired


(450,000
)


0.35



-BALANCE, APRIL 30, 2010


8,680,000


$
0.30



8.03


18
 Table of Contents





A summary of the status of the Company's unvested options as of April 30, 2010 and changes during the nine months ended April 30, 2010 is presented below:


Number ofShares


Weighted-AverageGrant DateFair ValueUNVESTED, JULY 31, 2008


33,333


$
0.50Issued


1,280,000



0.48Vested


(353,333
)


(0.48
)UNVESTED, JULY 31, 2009


960,000



0.48Issued


2,600,000



0.20Vested


(970,000
)


(0.25
)UNVESTED, APRIL 30, 2010


2,590,000


$
0.24





NOTE 11:           COMMITMENTS





On June 1, 2009, the Company entered into a business development services agreement which was amended on August 1, 2009. Under the terms of the amended agreement, the Company will (i) pay a monthly fee of $10,000, or (ii) issue 50,000 common shares per month through July 31, 2010. The agreement will automatically renew on a monthly basis subject to written termination, and can be terminated subsequent to February 1, 2010. As of April 30, 2010, the Company was obligated to issue 50,000 common shares pursuant to the amended agreement. The $14,500 fair value of the 50,000 shares was recorded as a share issuance obligation and expensed as stock-based consulting fees.





On November 13, 2009, the Company entered into a restated corporate development consulting agreement. Under the terms of the agreement, the Company will issue 10,811 common shares per month through May 13, 2010. The agreement will automatically renew on a monthly basis subject to written termination. As of April 30, 2010, the Company was obligated to issue 21,622 common shares pursuant to the agreement. The $6,487 fair value of the 21,622 shares was recorded as a share issuance obligation and expensed as stock-based consulting fees.





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





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





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





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





Effective March 18, 2010, the Company entered into a six month consulting services agreement. Under the terms of the agreement, the Company will: (i) pay a monthly fee of $7,000 and (ii) issue 100,000 shares, as fully paid and non-assessable, of its restricted common stock, within 30 days of the effective date (issued, refer to Note 9).





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





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


Nine Months Ended April 30,2010


2009Interest paid

$
-


$
-Income taxes paid

$
-


$
-





Refer to Note 10.


19
 Table of Contents


Item2.     Management's Discussion and Analysis of Financial Condition and Results of Operations





FORWARD-LOOKING STATEMENTS





This Form 10-Q/A for the quarterly period ended April 30, 2010 contains forward-looking statements that involve risks and uncertainties. Forward-looking statements in this document include, among others, statements regarding our capital needs, business plans and expectations. Such forward-looking statements involve assumptions, risks and uncertainties regarding, among others, the success of our business plan, availability of funds, government regulations, operating costs, our ability to achieve significant revenues, our business model and products and other factors. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential" or "continue", the negative of such terms or other comparable terminology. In evaluating these statements, you should consider various factors, including the assumptions, risks and uncertainties set forth in reports and other documents we have filed with or furnished to the SEC, including, without limitation, our Form 10-K for the period ended July 31, 2009. These factors or any of them may cause our actual results to differ materially from any forward-looking statement made in this document. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding future events, our actual results will likely vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. The forward-looking statements in this document are made as of the date of this document and we do not intend or undertake to update any of the forward-looking statements to conform these statements to actual results, except as required by applicable law, including the securities laws of the United States.





OVERVIEW





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





The following discussion of our plan of operations, results of operations and financial condition as at and for the nine months ended April 30, 2010 should be read in conjunction with our unaudited consolidated interim financial statements and related notes for the nine months ended April 30, 2010 included in this Quarterly Report, as well as our Annual Report on Form 10-K for the year ended July 31, 2009.





General





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





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





Our Business Operations





We are a natural resource exploration and production company engaged in the exploration, acquisition and development of oil and gas properties in the United States. We maintain an aggregate of approximately 395 gross (217 net) developed acres and approximately 6,287 gross (4,825 net) undeveloped acres pursuant to leases or acquisitions as described below. Of that acreage, we maintain approximately 176 gross (132 net) developed acres in Louisiana, 219 gross (85 net) developed acres in Texas, 4,781 gross (3,493 net) undeveloped acres in Illinois, 160 gross (150 net) undeveloped acres in Louisiana, and 1,346 gross (1,183 net) undeveloped acres in Texas. Total developed and undeveloped acreage is approximately 6,682 gross acres (5,042 net).





Acreage





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


Gross Acres


Net Acres(*)DEVELOPED ACREAGELouisiana


175.89



131.92Texas


219.00



85.14UNDEVELOPED ACREAGEIllinois


4,781.04



3,492.52Louisiana


160.00



150.08Texas


1,345.72



1,182.566,681.65



5,042.22





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


20
 Table of Contents




Productive Wells





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


Oil


Natural GasGross


Net


Gross


NetLOUISIANA


4



3.00



-



-TEXAS


2



2.00



1



0.036



5.00



1



0.03





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





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





Production and Price History





We began production of oil in August 2006 with the acquisition of the Holt, Strahan and McKay leases in Franklin and Richland Parish, Louisiana. In November 2006, we completed the acquisition of the Welder lease in Calhoun County, Texas, which produces both oil and gas. The effective date of the Welder acquisition was August 1, 2006 and accordingly, production results from the effective date through the closing date have been included in operating results. The table below sets forth the net quantities of oil and gas production, net of royalties, attributable to us from initial production in August 2006 through April 30, 2010. For the purposes of this table, the following terms have the following meanings: (i) "Bbl" means one stock tank barrel or 42 U.S. gallons liquid volume; (ii) "MBbls" means one thousand barrels of oil; (iii) "Mcf" means one thousand cubic feet; (iv) "Mcfe" means one thousand cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of oil; (v) "MMcfe/d" means one million cubic feet equivalent per day, determined by using the ratio of six Mcf of natural gas to one Bbl of oil; and (vi) "MMcf" means one million cubic feet.


Nine MonthsEndedApril 30, 2010


Nine MonthsEndedApril 30, 2009


Period fromInception toApril 30, 2010PRODUCTION DATAOil (MBbls)


4.2



3.9



30.2Natural gas (MMcf)


11.0



10.5



58.3Total (MMcfe)


36.1



34.4



239.2AVERAGE PRICESOil (per Bbl)

$
72.14


$
66.23


$
75.59Natural gas (per Mcf)


3.90



5.54



5.59Total (per Mcfe)

$
9.54


$
9.36


$
10.89AVERAGE COSTSs (per Mcfe)Lease operating expenses(*)

$
8.48


$
7.48


$
5.27Production tax expense

$
0.43


$
0.58


$
0.29





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





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


21
 Table of Contents


Drilling Activity





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





Our Properties





Barge Canal, Texas





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





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





Janssen Lease, Texas





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





Koliba Lease, Texas





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





Kenedy Lease, Texas





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





South Delhi/Big Creek Field, Louisiana





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





The Holt Lease





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





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


22
 Table of Contents


The Strahan Lease





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





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





The McKay Lease





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





Assignment of Interests to Tradestar Resources Corporation





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





Dixon Prospect, Louisiana





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





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





Through the date of this quarterly report, we have entered into many oil and gas leases in Jefferson County, Illinois. Currently these leases total approximately 4,781 gross acres pursuant to which we have a working interest of 100% and a net revenue interest of 87.5%. We plan to initiate a pilot water-flood program in 2010 to test the reservoir characteristics of the Markham City North field as well to gather more data necessary to fully exploit the remaining oil in place. The target depths do not exceed 4000 feet.





Recent Activities





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





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





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





RESULTS OF OPERATIONS





Three Months Ended April 30, 2010 Compared to Three Months Ended April 30, 2009


Three Months EndedApril 30, 2010(As reported)


Three Months EndedApril 30, 2010(As Restated)


Three Months EndedApril 30, 2009OIL AND GAS REVENUES

$
123,891


$
123,891


$
66,949EXPENSESConsulting fees


545,835



545,835



276,437Consulting fees - stock based


151,706



151,706



130,000Depreciation and depletion


24,245



24,245



14,947Direct operating costs


107,682



107,682



86,133General and administrative


56,947



56,947



26,549Interest and financing charges


263,398



28,476



18,090Management fees


111,664



111,664



88,401Management fees - stock based


100,000



100,000



-Professional fees


78,122



78,122



26,695Travel and promotion


18,899



18,899



23,106TOTAL EXPENSES


1,458,498



1,223,576



690,358LOSS BEFORE OTHER ITEMS


(1,334,607
)


(1,099,685
)


(623,409
)OTHER ITEMSInterest and other income


378



378



-Loss on warrant derivative liability


-



(88,274
)


-Foreign exchange


12,636



12,636



17,473NET LOSS FOR THE PERIOD

$
(1,321,593
)

$
(1,174,945
)

$
(605,936
)


23
 Table of Contents





Revenue





Revenue from oil and gas properties was $123,891 for the three months ended April 30, 2010 compared to $66,949 in the prior period. Significant developments or changes between these periods are outlined below:





.
Barge Canal: Revenue from the Barge Canal project was $66,089 for the three months ended April 30, 2010 as compared to $60,174 in the prior period. Average sale prices for oil were 103% higher in the current period while average sale prices for natural gas (per Mcf) were 37% higher in the current period. Production decreased by 45% for oil and decreased by 22% for natural gas from the prior period. The decrease in oil and gas production resulted from unscheduled maintenance in the current period, which was offset by significant increases in the market price of oil and gas over prior period. The market price of oil and gas fluctuated within the current period, but increased slightly within the prior period.


.
South Delhi/Big Creek Field: Revenue from the South Delhi / Big Creek Field project was $55,875 for the three months ended April 30, 2010 as compared to $3,859 in the prior period. As with Barge Canal, average sale prices for oil were 92% higher in the current period. Production increased by 803% from the prior period, when the project incurred significant downtime due to maintenance. The market price of oil and gas fluctuated within the current period, but increased slightly within the prior period.


.
Janssen Lease: Revenue from the Janssen Lease project was $1,561 for the three months ended April 30, 2010 as compared to $1,454 in the prior period. As with Barge Canal and South Delhi/Big Creek Field, average sale prices for oil were 110% higher while average sale prices for natural gas (per Mcf) were 20% higher in the current period. Oil production was nominal in both the current and prior periods, and production for natural gas decreased by 34% from the prior period. The market price of oil and gas fluctuated within the current period, but increased slightly within the prior period.





Operating Expenses





Operating expenses incurred during the three months ended April 30, 2010 were $1,223,576, as restated, compared to $690,358 in the prior period. Significant changes and expenditures are outlined as follows:


.
Consulting fees increased to $545,835 during the three months ended April 30, 2010 from $276,437 during the prior period, due primarily to additional technical consulting and corporate development in the current period. Market conditions in the prior period limited the scope and effectiveness of corporate development work.


.
Consulting fees - stock based increased to $151,706 during the three months ended April 30, 2010 from $130,000 during the prior period. The current and prior period expense consists of the fair value of shares and option grants issued to consultants that were earned during the period.


.
Direct operating costs were $107,682 during the three months ended April 30, 2010 compared to $86,133 during the prior period. Significant developments or changes in direct operating costs per project are outlined as follows:


i.
Barge Canal: Direct operating costs of $42,851 during the three months ended April 30, 2010 represented approximately 65% of gross production sales during the current period. Direct operating costs of $38,412 during the prior period represented approximately 64% of gross production sales. The current and prior period operating costs were relatively consistent throughout the quarter.


ii.
South Delhi/Big Creek Field: Direct operating costs of $63,848 for the three months ended April 30, 2010 represented approximately 114% of gross production sales during the current period. Direct operating costs of $47,184 during the prior period were significantly higher than gross production. Operating costs in the current period included maintenance to accommodate a gas injection project in the area. Operating costs in the prior period included planned and weather related maintenance charges.


iii.
Janssen Lease: Direct operating costs of $725 for the three months ended April 30, 2010 represented approximately 46% of gross production sales during the current period. Direct operating costs of $537 during the prior period represented approximately 37% of gross production sales during the prior period.


.
General and administrative costs increased to $56,947 during the three months ended April 30, 2010 from $26,549 during the prior period, due to significantly limited activity in the prior period due to market conditions.


.
Interest and financing charges increased to $28,476, as restated, during the three months ended April 30, 2010 from $18,090 during the prior period. Interest and financing charges in the current period includes the accretion of the fair value of warrants issued with convertible debentures. Interest and financing charges in the prior period consisted of accrued interest on outstanding promissory notes.


Management fees increased to $111,664 during the three months ended April 30, 2010 from $88,401 during the prior period. Some executive services vary from month to month based on activities and requirements of our company. Additionally, during the current year we added a new member to the executive team.


.
Management fees - stock based increased to $100,000 during the three months ended April 30, 2010 from $Nil during the prior period. The current and prior period expense consists of the fair value of option grants issued to our officers and directors that were earned during the period.


.
Professional fees increased to $78,122 during the three months ended April 30, 2010 from $26,695 during the prior period, due primarily to increases in legal services relating to corporate and business development during the current period. Market conditions in the prior period resulted in significantly limited activity.


24
 Table of Contents





Interest and other income increased to $378 during the three months ended April 30, 2010 from $Nil during the prior period. We also realized a foreign exchange gain of $12,636 during the three months ended January 31, 2010 compared to a loss of $17,473 during the prior period.





Loss on warrant derivative liability was $88,274 during the three months ended April 30, 2010, compared to $Nil during the prior period. This represents an increase of 100%. This is due to the warrants issued during the current period which qualify as derivative financial instruments under the provisions of FASB ASC Topic No. 815-40, “Derivatives and Hedging – Contracts in an Entity’s Own Stock.” The fair value of these warrants was determined using the Black-Scholes option pricing method with any change in fair value during the period recorded in earnings as “Other income (expense) – Gain (loss) on warrant derivative liability.





Our net loss during the three months ended April 30, 2010 was $1,174,945, as restated, or ($0.02) per share restated compared to a net loss of $605,936 or ($0.02) per share during the prior period. The weighted average number of shares outstanding was 49,520,841 for the three months ended April 30, 2010 compared to 28,610,350 in the prior period.





Transactions with Officers and Directors





Of the $1,223,576  as restated, incurred as operating expenses during the three months ended April 30, 2010 an aggregate of $111,664 was incurred payable to certain officers and directors and recorded as management fees and an aggregate of $100,000 in stock based compensation was incurred for the incremental fair value of options granted to directors and officers that were earned during the period. As at April 30, 2010, management fees and expense reimbursements of $45,826 are outstanding with no specified terms of repayment.





Of the $123,891 reported revenues and $107,682 direct operating costs for the three months ended April 30, 2010 we recorded production revenues of $66,089 and incurred production costs of $42,851 for the Barge Canal property which is operated by a company controlled by one of our officers.





Nine Months Ended April 30, 2010 Compared to Nine Months Ended April 30, 2009


Nine Months Ended

April 30, 2010


Nine Months Ended

April 30, 2010(As restated)


Nine Months Ended

April 30, 2009OIL AND GAS REVENUES

$
344,587


$
344,587


$
330,145EXPENSESConsulting fees


957,665



957,665



520,881Consulting fees - stock based


637,053



650,210



141,111Depreciation and depletion


63,946



63,946



42,184Direct operating costs


321,853



321,853



276,925General and administrative


150,984



150,984



119,527Impairment of properties


-



-



3,700Interest and financing charges


726,641



130,642



27,847Management fees


380,507



380,507



260,145Management fees - stock based


474,667



474,667



-Professional fees


333,072



333,072



134,714Travel and promotion


67,444



67,444



36,393TOTAL EXPENSES


4,113,832



3,530,990



1,563,427LOSS BEFORE OTHER ITEMS


(3,769,245
)


(3,186,403
)


(1,233,282
)OTHER ITEMSGain on debt settlement


12,559



12,559



-Interest and other income


1,003



1,003



-Loss on derivative warrant liability


-



(1,445,761
)


-Foreign exchange


(25,457
)


(25,457
)


17,473NET LOSS FOR THE PERIOD

$
(3,781,140
)

$
(4,644,059
)

$
(1,215,809
)





Revenue





Revenue from oil and gas properties was $344,587 for the nine months ended April 30, 2010 compared to $330,145 in the prior period. Significant developments or changes between these periods are outlined below:





.
Barge Canal: Revenue from the Barge Canal project was $199,878 for the nine months ended April 30, 2010 as compared to $246,179 in the prior period. Average sale prices for oil were 14% higher in the current period while average sale prices for natural gas (per Mcf) were 27% lower in the current period. Production decreased by 28% for oil and increased by 10% for natural gas from the prior period. The decrease in oil production resulted from unscheduled maintenance in the current period, while the increase in natural gas production resulted from flooding in the prior period. The market price of oil and gas increased slightly within the current period, and decreased significantly within prior period.


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.
South Delhi/Big Creek Field: Revenue from the South Delhi / Big Creek Field project was $140,548 for the nine months ended April 30, 2010 as compared to $68,984 in the prior period. In contrast to Barge Canal, average sale prices for oil were 3% lower in the current period. Production increased by 110% from the prior period resulting from significant maintenance downtime in the prior period. The market price of oil and gas increased slightly within the current period, and decreased significantly within prior period.


.
Janssen Lease: Revenue from the Janssen Lease project was $3,795 for the nine months ended April 30, 2010 as compared to $9,766 in the prior period. Average sale prices for oil were 10% lower while average sale prices for natural gas (per Mcf) were 42% lower in the current period. Oil production was nominal in both the current and prior periods, and production for natural gas decreased by 41% from the prior period. The market price of oil and gas increased slightly within the current period, and decreased significantly within prior period.





Operating Expenses





Operating expenses incurred during the nine months ended April 30, 2010 were $3,530,990 , as restated, compared to $1,563,427 in the prior period. Significant changes and expenditures are outlined as follows:


.
Consulting fees increased to $957,665 during the nine months ended April 30, 2010 from $520,881 during the prior period, due primarily to additional technical consulting and corporate development in the current period. Market conditions in the prior period limited the scope and effectiveness of corporate development work.


.
Consulting fees - stock based increased to $650,210 as restated during the nine months ended April 30, 2010 from $141,111 during the prior period. The current and prior period expense consists of the fair value of shares and option grants issued to consultants that were earned during the period.


.
Direct operating costs were $321,853 during the nine months ended April 30, 2010 compared to $276,925 during the prior period. Significant developments or changes in direct operating costs per project are outlined as follows:


iv.
Barge Canal: Direct operating costs of $113,045 during the nine months ended April 30, 2010 represented approximately 57% of gross production sales during the current period. Direct operating costs of $112,532 during the prior period represented approximately 46% of gross production sales. The current period operating costs were a higher percentage of gross production sales than in the prior period due to unscheduled maintenance costs.


v.
South Delhi/Big Creek Field: Direct operating costs of $205,697 for the nine months ended April 30, 2010 represented approximately 146% of gross production sales during the current period. Direct operating costs of $161,113 during the prior period represented approximately 234% of gross production. Operating costs in the current period included maintenance to accommodate a gas injection project in the area. Operating costs in the prior period included planned and weather related maintenance charges.


vi.
Janssen Lease: Direct operating costs of $2,853 for the nine months ended April 30, 2010 represented approximately 75% of gross production sales during the current period. Direct operating costs of $3,280 during the prior period represented approximately 34% of gross production sales during the prior period.


.
General and administrative costs increased to $150,984 during the nine months ended April 30, 2010 from $119,527 during the prior period, due to limited activity in the prior period due to market conditions.


.
Interest and financing charges increased to $130,642 , as restated, during the nine months ended April 30, 2010 from $27,847 during the prior period. Interest and financing charges in the current period includes accrued interest and the fair value of warrants issued in conjunction with promissory notes as well as the accretion of the fair value of warrants issued with convertible debentures. Interest and financing charges in the prior period consisted of accrued interest on outstanding promissory notes.


.
Management fees increased to $380,507 during the nine months ended April 30, 2010 from $260,145 during the prior period. Some executive services vary from month to month based on activities and requirements of our company. Additionally, during the current period we added a new member to the executive team.


Management fees - stock based increased to $474,667 during the nine months ended April 30, 2010 from $Nil during the prior period. The current and prior period expense consists of the fair value of option grants issued to our officers and directors that were earned during the period.


.
Professional fees increased to $333,072 during the nine months ended April 30, 2010 from $134,714 during the prior period, due primarily to increases in legal services relating to corporate and business development during the current period. Market conditions in the prior period resulted in significantly limited activity.


.
Travel and promotion increased to $67,444 during the nine months ended April 30, 2010 from $36,393 during the prior period. As with other operating costs, market conditions during the prior period resulted in significantly limited activity which is reflected in comparatively lower expenditures.





A $12,559 gain on the settlement of debt was realized during the nine months ended April 30, 2010. Additionally, interest and other income increased to $1,003 during the nine months ended January 31, 2010 from $Nil during the prior period. We also realized a foreign exchange loss of $25,457 during the nine months ended January 31, 2010 compared to a gain of $17,473 in the prior period.





Loss on warrant derivative liability was $1,445,761 during the nine months ended April 30, 2010, compared to $Nil during the prior period. This represents an increase of 100%. This is due to the warrants issued during the current period which qualify as derivative financial instruments under the provisions of FASB ASC Topic No. 815-40, “Derivatives and Hedging – Contracts in an Entity’s Own Stock.” The fair value of these warrants was determined using the Black-Scholes option pricing method with any change in fair value during the period recorded in earnings as “Other income (expense) – Gain (loss) on warrant derivative liability.





Our net loss during the nine months ended April 30, 2010 was $4,644,059, as restated, or ($0.11) per share compared to a net loss of $1,215,809 or ($0.04) per share during the prior period. The weighted average number of shares outstanding was 43,018,256 for the nine months ended April 30, 2010 compared to 28,484,080 in the prior period.





Transactions with Officers and Directors





Of the $3,530,990 as restated incurred as operating expenses during the nine months ended April 30, 2010 an aggregate of $380,507 was incurred payable to certain officers and directors and recorded as management fees and an aggregate of $474,667 in stock based compensation was incurred for the incremental fair value of options granted to directors and officers that were earned during the period. As at April 30, 2010, management fees and expense reimbursements of $45,826 are outstanding with no specified terms of repayment.


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During the nine months ended April 30, 2010 we issued a $100,000 promissory note to a direct family member of an officer and a director, and which was fully repaid in the period. Additionally, we issued, as fully paid and non-assessable, 100,000 non-transferable and registerable share purchase warrants to acquire an equivalent number of common shares of the Company at an exercise price of $0.25 per share, and for an exercise period of three years.





Of the $344,587 reported revenues and $321,853 direct operating costs for the nine months ended April 30, 2010 we recorded production revenues of $199,878 and incurred production costs of $113,045 for the Barge Canal property which is operated by company controlled by one of our officers.





LIQUIDITY AND CAPITAL RESOURCES





April 30,2010(As Reported)


April 30,2010(As Restated)


April 30,2009Cash

$
754,233


$
754,233


$
2,773Working capital (deficit)


805,633



(3,148,130
)


(649,751
)Total assets


2,769,413



2,769,413



1,517,634Total liabilities


361,570



4,315,333



776,743Shareholders' equity (deficit)


2,407,843



(1,545,920
)


740,891





At April 30, 2010 we had $754,233 in cash and working deficit of $(3,148,130). We have financed our operations through proceeds from the private placement of equity securities and debt instruments. We increased net cash by $735,440 during the nine months ended April 30, 2010 compared to a decrease in cash of $64,877 during the prior period. See "Plan of Operation and Funding" below.





Operating Activities





Net cash used in operating activities during the nine months ended April 30, 2010 was $2,398,081 compared to $784,352 during the prior period. Significant operating expenditures during the current period included consulting fees, direct operating costs, in addition to management and professional fees.





Financing Activities





Net cash provided by financing activities during the nine months ended April 30, 2010 was $3,450,812 compared to $825,209 during the prior period. During the current period, we received net proceeds of $3,497,212 from the issuance of our common stock and derivative warrants and repaid $46,500 in advances from related parties.





Investing Activities





Net cash used in investing activities during the nine months ended April 30, 2010 was $317,291 compared to $105,734 in the prior period. Significant investing expenditures in the current period include production equipment and investment in oil and gas properties. There were no significant investing expenditures during the prior period.





Stock Options and Warrants





As at April 30, 2010 we had 8,680,000 stock options and 23,599,067 share purchase warrants outstanding. The outstanding stock options have a weighted average exercise price of $0.30 per share and the outstanding warrants have a weighted average exercise price of $0.42 per share. Accordingly, as at April 30, 2010 the outstanding options and warrants represented a total of 32,279,067 shares issuable for proceeds of approximately $12,516,000 if these options and warrants were exercised in full. The exercise of these options and warrants is at the discretion of the holders and, accordingly, there is no assurance that any of these options or warrants will be exercised.





Plan of Operation and Funding





At April 30, 2010 we had $754,233 of cash on hand and working deficit of $3,148,130 as restated. As such, our working capital at April 30, 2010 will not be sufficient to enable us to pursue our lease operating costs, to pay our general and administrative expenses, and to pursue our plan of operations over the next twelve months. Our management is currently making efforts to obtain the required financing, but we have not yet secured any commitments with respect to such financing. If we are not able to obtain financing in the amounts required or on terms that are acceptable to us, we may be forced to scale back, or abandon, our plan of operations.





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


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 Table of Contents




Going Concern





Our current sources of revenue are inadequate to provide incoming cash flows to sustain our future operations. As outlined above, our ability to pursue our planned business activities is dependent upon our successful efforts to raise additional equity financing. These factors raise substantial doubt regarding our ability to continue as a going concern. Our consolidated financial statements have been prepared on a going concern basis, which implies that we will continue to realize our assets and discharge our liabilities in the normal course of business. As at April 30, 2010, we had accumulated losses of $12,214,336 since inception. Our financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.





Current Economic Conditions





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





Off-Balance Sheet Arrangements





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





Critical Accounting Policies





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





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





Accounting Standards Codification





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





Oil and Gas Properties





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





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





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





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





Restoration and Remediation Costs (Asset Retirement Obligations)





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





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


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 Table of Contents




Impairment of Long-Lived Assets





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





Stock-Based Compensation





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





Item3.     Quantitative and Qualitative Disclosures About Market Risk





We are currently not subject to any material market risks.





Item4.     Controls and Procedures





Evaluation of Disclosure Controls and Procedures





Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective, due to certain deficiencies in our internal control over financial reporting as of July 31, 2009, as described in our management's report on internal control over financial reporting included in our annual report on Form 10-K for our fiscal year ended July 31, 2009, which deficiencies have not been remedied as of April 30, 2010.





Changes in Internal Control over Financial Reporting





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


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 Table of Contents


PARTII- OTHER INFORMATION





Item 1.     Legal Proceedings





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





Item1A.  Risk Factors





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





Item2.     Unregistered Sales of Equity Securities and Use of Proceeds





Consulting Services Agreements





Effective February 16, 2010, we issued 21,622 shares of restricted common stock at a deemed price of $0.35 per share to one shareholder pursuant to the terms of a services agreement. Effective April 6, 2010, we issued 10,811 shares of restricted common stock at a deemed price of $0.35 per share to the same shareholder pursuant to the terms of the same services agreement. Effective on May 29, 2010, we issued 21,622 shares of restricted common stock at a deemed price of $0.35 per share to the same shareholder pursuant to the terms of the same services agreement. In each case, we relied on an exemption from registration under Regulation S and/or Section 4(2) of the Securities Act.





Effective February 16, 2010, we issued 50,000 shares of our restricted common stock at a deemed price of $0.35 per share to one shareholder pursuant to the terms of a services agreement. We relied on an exemption from registration under Rule 506 of Regulation D and/or Section 4(2) of the Securities Act.





Effective April 6, 2010, we issued 150,000 shares of restricted common stock at a deemed price of $0.20 per share to one shareholder pursuant to the terms of a services agreement. We relied on an exemption from registration under the Securities Act provided by Regulation S.





Effective April 29, 2010, we issued 100,000 shares of restricted common stock at a deemed price of $0.35 per share to one shareholder pursuant to the terms of a services agreement. We relied on an exemption from registration under Rule 506 of Regulation D and/or Section 4(2) of the Securities Act.





Stock Bonuses





Effective December 15, 2009, we approved a year-end bonus plan. In accordance with the bonus plan, on February 11, 2010 we issued an aggregate of 284,284 shares of our restricted common stock at a deemed price of $0.35 per share to six individuals who are directors, officers, employees or consultants for our Company. We relied on an exemption from registration provided by (i) Rule 506 of Regulation D and or Section 4(2) of the Securities Act with respect to the issuance of shares to three of such individuals and (ii) Regulation S and or Section 4(2) of the Securities Act with respect to the issuance of shares to the remaining three individuals.





Item3.     Defaults Upon Senior Securities





None.





Item4.     (Removed and Reserved)





Item5.     Other Information





None.


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Item6.     Exhibits





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


Exhibit
Description of Exhibit31.1
Certification of Chief Executive Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).31.2
Certification of Chief Financial Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).32.1
Certifications pursuant to Securities Exchange Act of 1934 Rule 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


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SIGNATURES





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





STRATEGIC AMERICAN OIL CORPORATION





/s/ "Jeremy Glenn Driver"


Jeremy Glenn Driver


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


Date: January 7, 2011







/s/ "Johnathan Lindsay"


Johnathan Lindsay


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


Date: January 7, 2011







32