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

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

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act.
Yes [  ]  No [X]

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

Indicate by checkmark 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [  ]  No [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

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

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant computed by reference to the price at which the registrant's common equity was last sold, as of January 31, 2009 (the last day of the registrant's most recently completed second fiscal quarter) was approximately $15,133,000.

The registrant had 43,014,135 shares of common stock outstanding as of November 9, 2009.

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This annual report contains forward-looking statements that involve risks and uncertainties. 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 outlined in this annual report under "Risk Factors". These factors or any of them may cause our actual results to differ materially from any forward-looking statement made in this annual report. Forward-looking statements in this annual report include, among others, statements regarding:

• our capital needs;
• business plans; and
• expectations.

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. Some of the risks and assumptions include:

• our need for additional financing;
• our exploration activities may not result in commercially exploitable quantities of oil and gas on our properties;
• the risks inherent in the exploration for oil and gas such as weather, accidents, equipment failures and governmental restrictions;
• our limited operating history;
• our history of operating losses;
• the potential for environmental damage;
• our lack of insurance coverage;
• the competitive environment in which we operate;
• the level of government regulation, including environmental regulation;
• changes in governmental regulation and administrative practices;
• our dependence on key personnel;
• conflicts of interest of our directors and officers;
• our ability to fully implement our business plan;
• our ability to effectively manage our growth; and
• other regulatory, legislative and judicial developments.

We advise the reader that these cautionary remarks expressly qualify in their entirety all forward-looking statements attributable to us or persons acting on our behalf. Important factors that you should also consider, include, but are not limited to, the factors discussed under "Risk Factors" in this annual report.

The forward-looking statements in this annual report are made as of the date of this annual report 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.

ii

Strategic American Oil Corporation files annual, quarterly and current reports, proxy statements, and other information with the Securities and Exchange Commission (the "SEC"). You may read and copy documents referred to in this Annual Report on Form 10-K that have been filed with the SEC at the SEC's Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can also obtain copies of our SEC filings by going to the SEC's website at http://www.sec.gov.

As used in this annual report: (i) the terms "we", "us", "our", "Strategic American" and the "Company" mean Strategic American Oil Corporation; (ii) "SEC" refers to the Securities and Exchange Commission; (iii) "Securities Act" refers to the United States Securities Act of 1933, as amended; (iv) "Exchange Act" refers to the United States Securities Exchange Act of 1934, as amended; and (v) all dollar amounts refer to United States dollars unless otherwise indicated.

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iii

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iv

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 Suite 2015, 600 Leopard Street, Corpus Christi, Texas, 78473. Our telephone number is (361) 884-7474 and our fax number is (512) 233-2531.

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 (209 net) developed acres and approximately 14,297 gross (3,520 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 (77 net) developed acres in Texas, 2,994 gross (2,790 net) undeveloped acres in Illinois, 160 gross (150 net) undeveloped acres in Louisiana, 11,000 gross (440 net) undeveloped acres in Oklahoma, and 143 gross (140 net) undeveloped acres in Texas. Total developed and undeveloped acreage is approximately 14,691 gross acres (3,729 net).

Our oil and gas interests are as follows:

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.

As of the date of this annual 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.

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.

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").

1

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

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 annual report, we are producing oil from the Strahan No. 1 well.

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.

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.

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.

Through the date of this annual 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. To date, we have leased over 95% of the minerals 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. We will drill one well as an offset to the former Koliba No. 1 well, and will retain a carried 25% interest to casing point.

2

In October 2007, we entered into an agreement with Marmik Oil Company ("Marmik") of Eldorado, Arkansas to purchase a 4.0% working interest in the Little Mule Creek Project located in Alfalfa and Woods Counties, Oklahoma. Our interest is subject to a 25% back in after payout, which would reduce our interest to 3.0%. The prospect consists of nearly 11,550 acres. An initial horizontal well (RRC#1-19) was spudded in around January 9, 2008 and was drilled vertically to 4,950 feet and then drilled horizontally approximately 1,867 feet to a total vertical depth of approximately 5350 feet. The main target zone is the Maquoketa dolomitic shale. The Maquoketa zone produces from a number of vertical wells in the lease area, but this will be the first horizontal drilling in the field. There are approximately 160 drilling locations within the current leased area. In addition to the Maquoketa zone, three other potentially productive zones are present in the prospect area: Tonkawa Sands at 4,500 feet, Mississippian Chat at 4,900 feet and Misner Sand at 5,000 feet. The initial well was drilled and tested and deemed to be uneconomic for commercial oil and gas production. We signed a consent to plug and abandon the well on February 18, 2009. Accordingly, acquisition and development costs of $163,773 were impaired during the year and added to the full cost pool, which is amortized on a unit-of-production basis.

Through the date of this annual report, we have entered into numerous oil and gas leases in Jefferson County, Illinois. Currently these leases total approximately 2,994 gross acres pursuant to which we have a working interest of 100% and a net revenue interest of 87.5%. We plan to drill one or more wells during 2010 offsetting past producing wells (Oakdale North Field) to a depth of approximately 4,000 feet.

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 Resources can earn a 50% interest in the Dixon lease by paying 100% of the cost of re-establishing production. 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.

Additionally, the potential for "reef" type structures is considered high in several of our leasehold areas. Negotiations are underway with possible joint venture partners for the funding of 3-D seismic surveys in order to identify possible reef drilling targets. 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.

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.

3

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.

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 July 31, 2009. 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.

(1)   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.

4

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 annual report:

(1)   The gross acreage cited includes leasehold acreage to be earned under the farm-out agreements.

A developed acre is an acre spaced or assignable to productive wells, a gross acre is an acre in which a working interest is owned, and a net acre is the result that is obtained when the sum of fractional ownership working interests in gross acres equals one. The number of net acres is the sum of the fractional working interests owned in gross acres expressed as whole numbers and fractions thereof.

Undeveloped acreage is considered to be those lease acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil or natural gas, regardless of whether or not such acreage contains proved reserves, but does not include undrilled acreage held by production under the terms of a lease. As is customary in the oil and gas industry, we can retain our interest in undeveloped acreage by drilling activity that establishes commercial production sufficient to maintain the lease or by payment of delay rentals during the remaining primary term of the lease. The oil and natural gas leases in which we have an interest are for varying primary terms; however, most of our developed lease acreage is beyond the primary term and is held so long as oil or natural gas is produced.

As of the date of this annual 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), 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, Arizona. 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.

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 Lease (Richland Parish, Louisiana). Additionally, we have leased 93.82% (81.25% NRI) of the mineral interest in the 160 acre Dixon lease adjacent to our Holt lease in Franklin Parish, Louisiana.

5

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.

Additionally, the potential for "reef" type structures is considered high in several of our leasehold areas. Negotiations are underway with possible joint venture partners for the funding of 3-D seismic surveys in order to identify possible reef drilling targets.

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.

Our plan of operations for the next twelve months in Louisiana is to continue leasing in the Delhi South Field area and to continue producing oil from our Holt and Strahan leases. Additionally, we expect Tradestar Resources to put two wells on the Dixon lease back into commercial production following which we will have a 50% non-operated working interest in the lease and wells. The majority of the proposed lease acquisitions (Delhi area) have temporarily abandoned, previously producing wells within the proposed lease areas as well as salt water disposal wells. Leasing provisions apply only to gas wells, and exclude shut-in oil wells. We plan to re-work the wells on the acquired leases in order to restore and/or increase production.

Leasing will continue in Jefferson County, Illinois with emphasis moving from current targets in the Oakdale and Donoho prospect areas, to potential secondary recovery (waterflood) projects. We currently have approximately 500 acres partially or completely leased within a previously produced, currently abandoned, oil field. Once leasing in the historic field area is completed, we plan to commence a "pilot" flood operation using 4 to 5 injection wells and one recovery well. If the pilot operation is successful, we will move to put in a full scale waterflood recovery system. We have also identified ten (10) possible "pinnacle reef" targets using subsurface mapping of coal highs and thins. We are currently running title in Macon and Fayette Counties following which we will begin leasing operations. We are also reviewing the use of 3-D seismic in Illinois to located pinnacle reef structures. We may purchase 2-D and or 3-D seismic or take seismic options and bring in joint venture partners to participate in proprietary seismic shoots.

In Texas, we plan to continue producing oil and gas from our Welder (Barge Canal) lease. We have completed leasing on our Koliba Prospect (143 acres) in Victoria County and plan to drill the Koliba No. 2 offset well in late 2009 or early 2010. We will continue to maintain our 3.0% non-operated working interest in the Janssen No. A-1 well (gas and minor condensate) in Karnes County, Texas. The Company has acquired 5 non-proprietary 3D seismic surveys in Kenedy, Kleburg, Bee, Refugio and Matagorda Counties. To date, we have identified a significant seismic target in the Kenedy survey and will be submitting a lease to the mineral owners in fourth quarter 2009. Preliminary results in Bee and Refugio Counties are also encouraging.

In connection with the Little Mule Creek Project, we maintain a fractional (4%) leasehold interest in approximately 11,000 acres in Woods and Alfalfa Counties, Oklahoma. The operator, Savoy Energy, L.P. may sell or assign all or portions of the leasehold to third parties. In that event, we will participate in any sales proceeds, retained ORRI or other consideration proportionate to our 4% interest.

Any time it is decided that drilling operations for a new well will be commenced, we will be provided with the following:

• A description of the project and the location and target depth of the well;
• The lands that will be subject to the well;
• The royalties, net profit interest or other charges applicable to the subject lands;
• The estimated cost of any geophysical work contemplated; and
• The estimated acquisition costs, drilling costs, completion costs and equipping costs of the well.

6

It is estimated that the average drilling and completion costs in Illinois will be approximately $260,000 for wells drilled to 4,000 feet. Offset development drilling in Louisiana to depths of 3,500 to 5,000 feet will be approximately $350,000 to $500,000. Seismic (3-D) may average $50,000 per square mile for shooting and processing. Seismic Options (option to lease) in Texas is expected to be in the $40/acre range. Surface damage payments for the actual shoot are expected to run $10 per acre. Seismic and land costs vary depending on the geographic area. For example, Illinois is much lower cost in all aspects than Texas. We anticipate drilling one well in Louisiana (Delhi-Big Creek field areas) over the next twelve (12) months. Additionally, one (1) to three (3) re-entries, or drilling of new wells, are planned over the same time period in Illinois. These proposed projects would necessitate an estimated expenditure of $2,600,000 in addition to our normal lease operating costs and general administrative overhead.

If oil and gas prices remain in today's range, we feel we can maintain present day operations from proceeds of oil and gas sales from our producing leases in Louisiana and Texas.

To participate in the projects outline above, we estimate that we will need to spend approximately $2,600,000 during the next 12 months. At July 31, 2009, we had $18,793 of cash on hand and a working capital deficit of $807,435. On October 15, 2009, we completed a private placement for gross proceeds of $2,500,000 (and net proceeds of approximately $2,000,000). As such, we estimate that we will need to receive additional funds of approximately $600,000 during the next twelve months, either through the sale of capital stock or from borrowing. We may not be able to obtain such financing, in which case we will not be able to pursue our plan of operations and our business may fail.

The availability of a ready market for oil and gas production depends upon numerous factors beyond our control. These factors include local, state, federal and international regulation of oil and gas production and transportation, as well as regulations governing environmental quality and pollution control, state limits on allowable rates of production by a well or proration unit, the amount of oil and gas available for sale, the availability of adequate pipeline and other transportation and processing facilities, and the marketing of competitive fuels. State and federal regulations are generally intended to prevent waste of oil and gas, protect rights to produce oil and gas between owners in a common reservoir, and control contamination of the environment.

Applicable legislation is under constant review for amendment or expansion. These efforts frequently result in an increase in the regulatory burden on companies in our industry and a consequent increase in the cost of doing business and decrease in profitability. Numerous federal and state departments and agencies issue rules and regulations imposing additional burdens on the oil and gas industry that are often costly to comply with and carry substantial penalties for non-compliance. Our production operations may be affected by changing tax and other laws relating to the petroleum industry, constantly changing administrative regulations and possible interruptions or termination by government authorities.

The transportation and certain sales of natural gas in interstate commerce are heavily regulated by agencies of the federal government and are affected by the availability, terms and cost of transportation. The price and terms of access to pipeline transportation are subject to extensive federal and state regulation. The Federal Energy Regulatory Commission (FERC) is continually proposing and implementing new rules and regulations affecting the natural gas industry, most notably interstate natural gas transmission companies that remain subject to the FERC's jurisdiction. The stated purpose of many of these regulatory changes is to promote competition among the various sectors of the natural gas industry. Some recent FERC proposals may, however, adversely affect the availability and reliability of interruptible transportation service on interstate pipelines.

State regulatory authorities have established rules and regulations requiring permits for drilling operations, drilling bonds and reports concerning operations. Many states have statutes and regulations governing various environmental and conservation matters, including the establishment of maximum rates of production from oil and gas wells, and restricting production to the market demand for oil and gas. Such statutes and regulations may limit the rate at which oil and gas could otherwise be produced. Most states impose a production or severance tax with respect to the production and sale of crude oil, natural gas and natural gas liquids within their respective jurisdictions. State production taxes are generally applied as a percentage of production or sales.

7

Oil and gas rights may be held by individuals and corporations, and, in certain circumstances, by governments having jurisdiction over the area in which such rights are located. As a general rule, parties holding such rights grant licenses or leases to third parties, such as us, to facilitate the exploration and development of these rights. The terms of the licenses and leases are generally established to require timely development. Notwithstanding the ownership of oil and gas rights, the government of the jurisdiction in which the rights are located generally retains authority over the manner of development of those rights.

General. Our activities are subject to local, state and federal laws and regulations governing environmental quality and pollution control in the United States. The exploration, drilling and production from wells, natural gas facilities, including the operation and construction of pipelines, plants and other facilities for transporting, processing, treating or storing natural gas and other products, are subject to stringent environmental laws and regulations by state and federal authorities, including the Environmental Protection Agency ("EPA"). These laws and regulations may require the acquisition of a permit by operators before drilling commences, prohibit drilling activities on certain lands lying within wilderness areas, wetlands and other ecologically sensitive and protected areas, and impose substantial remedial liabilities for pollution resulting from drilling operations. Such regulation can increase our cost of planning, designing, installing and operating such facilities.

Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of significant investigatory or remedial obligations, and the imposition of injunctive relief that limits or prohibits our operations. Moreover, some environmental laws provide for joint and several strict liability for remediation of releases of hazardous substances, rendering a person liable for environmental damage without regard to negligence or fault on the part of such person. In addition, we may be subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances, such as oil and gas related products.

Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent and costly waste handling, storage, transport, disposal or cleanup requirements could materially adversely affect our operations and financial position, as well as those of the oil and gas industry in general. While we believe that we are in substantial compliance with current environmental laws and regulations and have not experienced any material adverse effect from such compliance, there is no assurance that this trend will continue in the future.

Waste Disposal. We currently lease, and intend in the future to own or lease, additional properties that have been used for production of oil and gas for many years. Although we and our operators utilize operating and disposal practices that are standard in the industry, previous owners or lessees may have disposed of or released hydrocarbons or other wastes on or under the properties that we currently own or lease or properties that we may in the future own or lease. In addition, many of these properties have been operated in the past by third parties over whom we had no control as to such entities' treatment of hydrocarbons or other wastes or the manner in which such substances may have been disposed of or released. State and federal laws applicable to oil and gas wastes and properties may require us to remediate property, including ground water, containing or impacted by previously disposed wastes (including wastes disposed of or released by prior owners or operators) or to perform remedial plugging operations to prevent future or mitigate existing contamination.

We may generate wastes, including hazardous wastes, that are subject to the federal Resource Conservation and Recovery Act ("RCRA") and comparable state statutes. The EPA has limited the disposal options for certain wastes that are designated as hazardous under RCRA. Furthermore, it is possible that certain wastes generated by our oil and gas projects that are currently exempt from treatment as hazardous wastes may in the future be designated as hazardous wastes, and therefore be subject to more rigorous and costly operating and disposal requirements.

CERCLA. The federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), also known as the "Superfund" law, generally imposes joint and several liability for costs of investigation and remediation and for natural resource damages, without regard to fault or the legality of the original conduct, on certain classes of persons with respect to the release into the environment of substances designated under CERCLA as hazardous substances. These classes of persons or so-called potentially responsible parties include the current and certain past owners and operators of a facility where there is or has been a release or threat of release of a hazardous substance and persons who disposed of or arranged for the disposal of the hazardous substances found at such a facility. CERCLA also authorizes the EPA and, in some cases, third parties to take action in response to threats to the public health or the environment and to seek to recover from the potentially responsible parties the costs of such action. Although CERCLA generally exempts petroleum from the definition of hazardous substances, we may have generated and may generate wastes that fall within CERCLA's definition of hazardous substances. We may in the future be an owner of facilities on which hazardous substances have been released by previous owners or operators of our properties that are named as potentially responsible parties related to their ownership or operation of such property.

8

Air Emissions. Our projects are subject to local, state and federal regulations for the control of emissions of air pollution. Major sources of air pollutants are subject to more stringent, federally imposed permitting requirements, including additional permits. Producing wells, gas plants and electric generating facilities generate volatile organic compounds and nitrogen oxides. Some of our producing wells may be in counties that are designated as non-attainment for ozone and may be subject to restrictive emission limitations and permitting requirements. If the ozone problems in the applicable states are not resolved by the deadlines imposed by the federal Clean Air Act, or on schedule to meet the standards, even more restrictive requirements may be imposed, including financial penalties based upon the quantity of ozone producing emissions. If we fail to comply strictly with air pollution regulations or permits, we may be subject to monetary fines and be required to correct any identified deficiencies. Alternatively, regulatory agencies could require us to forego construction, modification or operation of certain air emission sources.

Clean Water Act. The Clean Water Act imposes restrictions and strict controls regarding the discharge of wastes, including produced waters and other oil and natural gas wastes, into waters of the United States, a term broadly defined. Permits must be obtained to discharge pollutants into federal waters. The Clean Water Act provides for civil, criminal and administrative penalties for unauthorized discharges of oil, hazardous substances and other pollutants. It imposes substantial potential liability for the costs of removal or remediation associated with discharges of oil or hazardous substances. State laws governing discharges to water also provide varying civil, criminal and administrative penalties and impose liabilities in the case of a discharge of petroleum or its derivatives, or other hazardous substances, into state waters. In addition, the EPA has promulgated regulations that may require us to obtain permits to discharge storm water runoff, including discharges associated with construction activities. In the event of an unauthorized discharge of wastes, we may be liable for penalties and costs.

Oil Pollution Act. The Oil Pollution Act of 1990 ("OPA"), which amends and augments oil spill provisions of the Clean Water Act, and similar legislation enacted in Texas, Louisiana and other coastal states, impose certain duties and liabilities on certain "responsible parties" related to the prevention of oil spills and damages resulting from such spills in United States waters and adjoining shorelines. A liable "responsible party" includes the owner or operator of a facility or vessel that is a source of an oil discharge or poses the substantial threat of discharge, or the lessee or permittee of the area in which a facility covered by OPA is located. OPA assigns joint and several liability, without regard to fault, to each liable party for oil removal costs, remediation of environmental damage and a variety of public and private damages. OPA also imposes ongoing requirements on a responsible party, including proof of financial responsibility to cover at least some costs of a potential spill. Few defenses exist to the liability imposed by OPA. In the event of an oil discharge, or substantial threat of discharge from our properties, vessels and pipelines, we may be liable for costs and damages.

We believe that we are in substantial compliance with current environmental laws and regulations in each of the jurisdictions in which we operate. Although we have not experienced any material adverse effect from such compliance, there is no assurance that this trend will continue in the future.

The oil and natural gas industry is intensely competitive in all phases, including the exploration for new production and the acquisition of equipment and labor necessary to conduct drilling activities. The competition comes from numerous major oil companies as well as numerous other independent operators. There is also competition between the oil and natural gas industry and other industries in supplying the energy and fuel requirements of industrial, commercial and individual consumers. We are a minor participant in the industry and compete in the oil and natural gas industry with many other companies having far greater financial, technical and other resources.

Competitive conditions may be substantially affected by various forms of energy legislation and/or regulation considered from time to time by the government of the United States and other countries, as well as factors that we cannot control, including international political conditions, overall levels of supply and demand for oil and gas, and the markets for synthetic fuels and alternative energy sources. Intense competition occurs with respect to marketing, particularly of natural gas.

9

We currently have no full-time or part-time employees with the exception of our officers.

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.

We were incorporated on April 12, 2005 and originally planned to explore for gold and other minerals, but we soon shifted our focus to oil and gas exploration. We began production of oil in August 2006 with the acquisition of the Holt, Strahan and McKay leases in Franklin and Richland Parish, Louisiana, but to date, we have earned limited revenues and have not achieved profitability. Potential investors should be aware of the difficulties normally encountered by exploration stage companies and the high rate of failure of such enterprises. These potential problems include, but are not limited to, unanticipated problems relating to costs and expenses that may exceed current estimates. We have no history upon which to base any assumption as to the likelihood that our business will prove successful, and we may never achieve profitable operations.

We have earned limited revenues and we have never been profitable. Going forward, we anticipate that we will incur increased operating expenses without realizing any significant revenues. We therefore expect to incur significant losses into the foreseeable future. If we are unable to generate significant revenues from our properties, our business will likely fail.

We have earned limited revenues to date and we have never been profitable. We may not be able to effectively execute our business plan or manage any growth, if any, of our business. Future development and operating results will depend on many factors, including access to adequate capital, the demand for oil and gas, price competition, our success in setting up and expanding distribution channels and whether we can control costs. Many of these factors are beyond our control. In addition, our future prospects must be considered in light of the risks, expenses and difficulties frequently encountered in establishing a new business in the oil and gas industry, which is characterized by intense competition, rapid technological change, highly litigious competitors and significant regulation. If we are unable to address these matters, or any of them, then we may not be able to successfully implement our business plan or achieve revenues or profitability.

10

We will need to obtain additional financing in order to pursue our business plan. As of July 31, 2009, we had cash on hand of $18,793 and a working capital deficit of $807,435. Our business plan calls for expenses of approximately $2,600,000 over the next twelve months in connection with the exploration and development of our properties. On October 15, 2009, we completed a private placement for gross proceeds of $2,500,000 (and net proceeds of approximately $2,000,000). As such, we estimate that we will need to receive additional funds of approximately $600,000 to fund our planned operations over the next twelve months. We may not be able to obtain such financing at all or in amounts that would be sufficient for us to meet our current and expected working capital needs. It is not anticipated that any of our officers, directors or current stockholders will provide any significant portion of our financing requirements. Furthermore, in the event that our plans change, our assumptions change or prove inaccurate, we could be required to seek additional financing in greater amounts than is currently anticipated. Any inability to obtain additional financing when needed would have a material adverse effect on us, including possibly requiring us to significantly curtail or possibly cease our operations. In addition, any future equity financing may involve substantial dilution to our existing stockholders.

Our audited financial statements for the years ended July 31, 2008 and 2009, and for the period from inception to July 31, 2009 have been prepared assuming that we will continue as a going concern. Since inception to July 31, 2009, we have incurred an accumulated net loss of $7,570,277, and our auditors have expressed substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Since inception we have suffered recurring losses. We have funded our operations through the issuance of common stock in order to meet our strategic objectives. Our current level of oil production is not sufficient to completely fund our exploration and development budget, such that we will require additional financing in order to pursue our plan of operations. We anticipate that our losses will continue until such time, if ever, as we are able to generate sufficient revenues to support our operations. Our ability to generate revenue primarily depends on our success in developing our properties. We may not be able to adequately develop our properties, attain revenues or achieve profitable operations, in which case our business would fail.

Even if oil and gas resources are discovered on our properties, we may not be able to achieve commercial production at all or at a level that would be sufficient to pay drilling and completion costs. Our properties may not contain commercial quantities of oil and gas. In addition, the cost of drilling, completing and operating wells is often uncertain. Drilling operations on our properties or on properties we may acquire in the future may be curtailed, delayed or cancelled as a result of numerous factors, including title problems, weather conditions, compliance with governmental requirements and shortages or delays in the delivery of equipment. Furthermore, completion of a well does not assure a profit or a recovery of drilling, completion and operating costs. As a result, our business, results of operations and financial condition may be materially adversely affected.

There are numerous uncertainties inherent in estimating oil and natural gas reserves and their estimated values, including many factors beyond the control of the producer. Reservoir engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner. Estimates of economically recoverable oil and natural gas reserves and of future net cash flows necessarily depend upon a number of variable factors and assumptions, such as historical production from the area compared with production from other producing areas, the assumed effects of regulations by governmental agencies and assumptions concerning future oil and natural gas prices, future operating costs, severance and excise taxes, development costs and work-over and remedial costs, all of which may in fact vary considerably from actual results. For these reasons, estimates of the economically recoverable quantities of oil and natural gas attributable to any particular group of properties, classifications of such reserves based on risk of recovery, and estimates of the future net cash flows expected therefrom prepared by different engineers or by the same engineers but at different times may vary substantially, and such reserve estimates may be subject to downward or upward adjustment based upon such factors. Actual production, revenues and expenditures with respect to reserves will likely vary from estimates, when and if made, and such variances may be material, which could have a material adverse effect on our business, results of operations and financial condition.

11

In general, the volume of production from oil and natural gas properties declines as reserves are depleted, with the rate of decline depending on reservoir characteristics. Except to the extent we conduct successful exploration and development activities or acquire properties containing proved reserves, or both, our proved reserves, if any, will decline as reserves are produced. Our future oil and natural gas production is, therefore, highly dependent upon our level of success in finding or acquiring reserves in the future. The business of exploring for, developing or acquiring reserves is capital intensive. To the extent cash flow from operations is reduced and external sources of capital become limited or unavailable, our ability to make the necessary capital investment to maintain or expand our asset base of oil and natural gas reserves would be impaired. The failure of an operator of our wells to adequately perform operations, or such operator's breach of the applicable agreements, could adversely impact us. In addition, we may not obtain additional proved reserves or be able to drill productive wells at acceptable costs, in which case our business would fail.

Our properties may contain hazards such as unusual or unexpected formations and other conditions. Our projects may become subject to liability for pollution, fire, explosion, blowouts, cratering and oil spills, against which we cannot insure or against which we may decide to not insure. Such events could result in substantial damage to oil and gas wells, producing facilities and other property and/or result in personal injury. Costs or liabilities related to those events would have a material adverse effect on our business, results of operations, financial condition and cash flows.

Oil and gas prices and markets are highly volatile. Prices for oil and gas are subject to significant fluctuation in response to relatively minor changes in supply of and demand for oil and gas, market uncertainty and a variety of additional factors. Our profitability will be substantially dependent on prevailing prices for natural gas and oil. The amounts of and prices obtainable for our oil and gas production may be affected by market factors beyond our control, such as:

• the extent of domestic production;
• the amount of imports of foreign oil and gas;
• the market demand on a regional, national and worldwide basis;
• domestic and foreign economic conditions that determine levels of industrial production;
• political events in foreign oil-producing regions; and
• variations in governmental regulations and tax laws or the imposition of new governmental requirements upon the oil and gas industry.

These factors or any one of them could result in the decline in oil and gas prices, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.

We compete in the sale of oil and natural gas on the basis of price and on the ability to deliver products. The oil and natural gas industry is intensely competitive in all phases, including the exploration for new production and the acquisition of equipment and labor necessary to conduct drilling activities. The competition comes from numerous major oil companies as well as numerous other independent operators in the United States and elsewhere. Because we are pursuing potentially large markets, our competitors include major, multinational oil and gas companies. There is also competition between the oil and natural gas industry and other industries in supplying the energy and fuel requirements of industrial, commercial and individual consumers. We are a minor participant in the industry and compete in the oil and natural gas industry with many other companies having far greater financial, technical and other resources. If we are unable to compete successfully, we may never be able to sell enough product at a price sufficient to permit us to generate profits.

12

We are subject to various federal, state and local laws and regulations. These laws and regulations govern safety, exploration, development, taxation and environmental matters that are related to the oil and natural gas industry. To conserve oil and natural gas supplies, regulatory agencies may impose price controls and may limit our production. Certain laws and regulations require drilling permits, govern the spacing of wells and the prevention of waste and limit the total number of wells drilled or the total allowable production from successful wells. Other laws and regulations govern the handling, storage, transportation and disposal of oil and natural gas and any by-products produced in oil and natural gas operations. These laws and regulations could materially adversely impact our operations and our revenues.

Laws and regulations that affect us may change from time to time in response to economic or political conditions. Thus, we must also consider the impact of future laws and regulations that may be passed in the jurisdictions where we operate. We anticipate that future laws and regulations related to the oil and natural gas industry will become increasingly stringent and cause us to incur substantial compliance costs.

Our operations create the risk of environmental liabilities. We may incur liability to governments or to third parties for any unlawful discharge of oil, gas or other pollutants into the air, soil or water. We could potentially discharge oil or natural gas into the environment in any of the following ways:

• from a well or drilling equipment at a drill site;
• from a leak in storage tanks, pipelines or other gathering and transportation facilities;
• from damage to oil or natural gas wells resulting from accidents during normal operations; or
• from blowouts, cratering or explosions.

Environmental discharges may move through the soil to water supplies or adjoining properties, giving rise to additional liabilities. Some laws and regulations could impose liability for failure to obtain the proper permits for, to control the use of, or to notify the proper authorities of a hazardous discharge. Such liability could have a material adverse effect on our financial condition and our results of operations and could possibly cause our operations to be suspended or terminated on such property.

We may also be liable for any environmental hazards created either by the previous owners of properties that we purchase or lease or by acquired companies prior to the date we acquire them. Such liability would affect the costs of our acquisition of those properties. In connection with any of these environmental violations, we may also be charged with remedial costs. Pollution and similar environmental risks generally are not fully insurable.

Our success depends, to a large extent, on our ability to attract and retain key management and operating personnel. As we develop additional capabilities and expand the scope of our operations, we will require more skilled personnel. Recruiting personnel for the oil and gas industry is highly competitive. We may not be able to attract and retain qualified executive, managerial and technical personnel needed for our business. Our failure to attract or retain qualified personnel could delay or result in our inability to complete our business plan.

Certain directors and officers may be engaged in, or may in the future be engaged in, other business activities on their own behalf and on behalf of other companies and, as a result of these and other activities, such directors and officers may become subject to conflicts of interest, which could have a material adverse effect on our business.

13

Some of our directors and officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons' assets are located outside the United States. As a result, it may be difficult for investors to effect service of process on our directors or officers, or enforce within the United States or Canada any judgments obtained against us or our officers or directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. Consequently, you may be effectively prevented from pursuing remedies under U.S. federal securities laws against them. In addition, investors may not be able to commence an action in a Canadian court predicated upon the civil liability provisions of the securities laws of the United States. The foregoing risks also apply to those experts identified in this annual report that are not residents of the United States.

The price of our common shares may increase or decrease in response to a number of events and factors, including: trends in the oil and gas markets in which we operate; changes in the market price of oil and gas; current events affecting the economic situation in North America; changes in financial estimates; our acquisitions and financings; quarterly variations in our operating results; the operating and share price performance of other companies that investors may deem comparable; and purchase or sale of blocks of our common shares. These factors, or any of them, may materially adversely affect the prices of our common shares regardless of our operating performance.

A decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise additional capital for our operations. Because our operations to date have been principally financed through the sale of equity securities, a decline in the price of our common stock could have an adverse effect upon our liquidity and our continued operations. A reduction in our ability to raise equity capital in the future would have a material adverse effect upon our business plan and operations, including our ability to continue our current operations. If our stock price declines, we may not be able to raise additional capital or generate funds from operations sufficient to meet our obligations.

Our common stock will be subject to the "Penny Stock" Rules of the SEC, which will make transactions in our common stock cumbersome and may reduce the value of an investment in our common stock.

Our common stock is quoted on the OTC Bulletin Board, which is generally considered to be a less efficient market than markets such as NASDAQ or the national exchanges, and which may cause difficulty in conducting trades and difficulty in obtaining future financing. Further, our securities will be subject to the "penny stock rules" adopted pursuant to Section 15(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The penny stock rules apply generally to companies whose common stock trades at less than $5.00 per share, subject to certain limited exemptions. Such rules require, among other things, that brokers who trade "penny stock" to persons other than "established customers" complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade "penny stock" because of the requirements of the "penny stock rules" and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. In the event that we remain subject to the "penny stock rules" for any significant period, there may develop an adverse impact on the market, if any, for our securities. Because our securities are subject to the "penny stock rules", investors will find it more difficult to dispose of our securities. Further, it is more difficult: (i) to obtain accurate quotations, (ii) to obtain coverage for significant news events because major wire services, such as the Dow Jones News Service, generally do not publish press releases about such companies, and (iii) to obtain needed capital.

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In addition to the "penny stock" rules promulgated by the SEC, FINRA has adopted rules that require a broker-dealer to have reasonable grounds for believing that an investment is suitable for a customer when recommending the investment to that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

None.

We hold certain oil and gas interests, as described in Item 1 hereto. In addition, we rent office space at Suite 2015, 600 Leopard Street, Corpus Christi, Texas, 78473 for $1,200 per month and office space in Mt. Vernon, Illinois for $250 per month.

We are not a party to any material legal proceedings nor are we aware of any legal proceedings pending or threatened against us or our properties, except as follows:

On June 6, 2008, Glasscell Morris and Margie L. Morris (the "Petitioners") filed a petition with the Fifth District Court, Parish of Franklin, Louisiana, naming the following as defendants: Penasco Petroleum, Inc. (which is a wholly owned subsidiary of Strategic American Oil Corporation), Tradestar Energy, Inc. and the Unopened Succession of Walter Leon Girod. The Petitioners allege: (i) that Mr. Girod was the owner of a 40-acre tract (the "Property") located in Franklin Parish, Louisiana; (ii) that an oil well (serial number 141591, which is referred to elsewhere in this annual report as Holt No. 22) was completed on the Property in 1973; (iii) that the Petitioners purchased the Property from Mr. Girod in 1988 but Mr. Girod reserved to himself all of the oil, gas and other minerals located in, under or on the Property; (iv) that the well produced no oil or gas from October 1992 through October 2002; (v) that no revenues were distributed to Mr. Girod or to the Petitioners since 1992; (vi) that Mr. Girod, who never married and had no children, died in 2000 but no succession has been opened; and (vii) that with Petitioners' permission, Penasco and Tradestar began production of the well on the Property on or about January 1, 2007. The Petitioners are seeking a declaration that they are the owners of the mineral rights of the Property, that they should be paid royalties (and interest thereon) with respect to any oil, gas or minerals generated by the well from January 1, 2007 until the date of judgment, and that they should be paid any such future royalties from the date of judgment forward. Penasco's participation in the Holt No. 22 well will not be affected regardless of whether the Petitioners are or are not named as successors to Mr. Girod's royalty interests.

No matters were submitted during the fourth quarter of our fiscal year to a vote of security holders, through the solicitation of proxies or otherwise.

15

The following tables set forth the high and low bid price per share of our common stock, as quoted on the OTC Bulletin Board, for the periods indicated. These over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, markdown or commission and may not represent actual transactions.

(1)    Shares of our common stock became quoted on the OTC Bulletin Board on August 14, 2008, but the first reported trade not occur until on or about May 12, 2009.

On November 9, 2009, the low bid price of our common stock was $0.34 per share, the high ask price of our common stock was $0.38 per share, and the closing price was $0.39 per share. We do not have any securities that are currently traded on any other exchange or quotation system.

As of November 9, 2009, we had 114 shareholders of record.

No dividends have been declared or paid on our common stock. We have incurred recurring losses and do not currently intend to pay any cash dividends in the foreseeable future.

The following table sets forth information as of July 31, 2009:

16

On May 21, 2009, our Board of Directors authorized and approved the adoption of the 2009 Restated Stock Incentive Plan (the "2009 Plan"), which absorbs and replaces the 2007 Stock Incentive Plan, under which an aggregate of 10,000,000 of our shares may be issued.

The purpose of the 2009 Plan is to enhance our long-term stockholder value by offering opportunities to our directors, officers, employees and eligible consultants to acquire and maintain stock ownership in order to give these persons the opportunity to participate in our growth and success, and to encourage them to remain in our service.

The 2009 Plan is to be administered by our Board of Directors or a committee appointed by and consisting of two or more members of the Board of Directors, which shall determine, among other things, (i) the persons to be granted awards under the 2009 Plan; (ii) the number of shares or amount of other awards to be granted; and (iii) the terms and conditions of the awards granted. The Company may issue restricted shares, options, stock appreciation rights, deferred stock rights, dividend equivalent rights, among others, under the 2009 Plan. An aggregate of 10,000,000 of our shares may be issued pursuant to the grant of awards under the 2009 Plan.

An award may not be exercised after the termination date of the award and may be exercised following the termination of an eligible participant's continuous service only to the extent provided by the administrator under the 2009 Plan. If the administrator under the 2009 Plan permits a participant to exercise an award following the termination of continuous service for a specified period, the award terminates to the extent not exercised on the last day of the specified period or the last day of the original term of the award, whichever occurs first. In the event an eligible participant's service has been terminated for "cause", he or she shall immediately forfeit all rights to any of the awards outstanding.

The foregoing summary of the 2009 Plan is not complete and is qualified in its entirety by reference to the 2009 Plan, a copy of which has been filed with the SEC.

We have previously reported in Quarterly Reports on Form 10-Q and Current Reports on Form 8-K all of our issuances of unregistered securities from August 1, 2008 (the beginning of its fiscal year ended July 31, 2009) to date. A summary of these issuances is provided below:

• On August 25, 2008, we issued 100,000 Units at a subscription price of $0.60 per Unit for gross proceeds of $60,000. Each Unit is comprised of one share of our common stock and one-half of one common stock share purchase warrant, with each such whole warrant being exercisable for one additional common share at an exercise price of $1.00 per warrant share, for a period of three years from the date that our common shares are first listed for trading on any stock exchange or over-the-counter bulletin board market, being August 14, 2008. We relied on an exemption from registration under the Securities Act provided by Regulation S with respect to the two subscribers in this private placement.
• On August 25, 2008, we issued 83,333 Units at a subscription price of $0.60 per Unit for gross proceeds of $50,000. Each Unit is comprised of one share of our common stock and one common stock share purchase warrant, which each warrant exercisable for one additional common share at an exercise price of $1.00 per warrant share, for a period of three years from the date that our common shares are first listed for trading on any stock exchange or over-the-counter bulletin board market, being August 14, 2008. We relied on an exemption from registration under the Securities Act provided by Regulation S with respect to the one subscriber in this private placement.
• On August 29, 2008, we completed a private placement for 570,000 Units at a subscription price of $0.60 per Unit for gross proceeds of $342,000. Each Unit is comprised of one common share and one non-transferable share purchase warrant. Each warrant entitles the holder to purchase an additional common share at an exercise price of $1.00 per warrant share, for a period of one year from the date our common stock is first listed for trading on any stock exchange or over-the-counter bulletin board market, being August 14, 2008. We relied on an exemption from registration under the Securities Act provided by Regulation S with respect to the three subscribers in this private placement.

17

• On September 16, 2008, we completed a private placement for 158,333 Units at a subscription price of $0.60 per Unit for gross proceeds of $95,000. Each Unit is comprised of one common share and one non-transferable share purchase warrant. Each warrant entitles the holder to purchase an additional common share at an exercise price of $1.00 per warrant share, for a period of one year from the date our common stock is first listed for trading on any stock exchange or over-the-counter bulletin board market, being August 14, 2008. We relied on an exemption from registration under the Securities Act provided by Rule 506 with respect to the two subscribers in this private placement.
• On October 10, 2008, we completed a private placement of 83,333 Units at a subscription price of $0.60 per Unit for gross proceeds of $50,000. Each Unit is comprised of one common share and one non-transferable share purchase warrant. Each warrant entitles the holder to purchase an additional common share at an exercise price of $1.00 per warrant share, for a period of one year from the date our common stock is first listed for trading on any stock exchange or over-the-counter bulletin board market, being August 14, 2008. We relied on an exemption from registration under the Securities Act provided by Rule 506 with respect to the one subscriber in this private placement.
• Effective May 18, 2009, we entered into a consulting services agreement. In accordance with the terms of the agreement on June 1, 2009, we issued 200,000 shares of our restricted common stock to one shareholder at a deemed issuance price of $0.35 per share. We relied on an exemption pursuant to Rule 506 of Regulation D and/or Section 4(2) of the Securities Act.
• Effective June 1, 2009, we entered into a business development services agreement. In accordance with the terms of the agreement, we issued 250,000 shares of our restricted common stock to one shareholder at a deemed issuance price of $0.35 per share. We relied on an exemption from registration under the Securities Act provided by Regulation S.
• Effective June 1, 2009, we completed a shares for debt subscription agreement. In accordance with the terms of the agreement, we issued 171,429 shares of our restricted common stock to one subscriber at a deemed subscription price of $0.35 per share. We relied on an exemption from registration under the Securities Act provided by Regulation S.
• Effective June 17, 2009, we issued 33,334 shares of restricted common stock to one shareholder pursuant to the terms of a consulting agreement at a deemed price of $0.35 per share. We relied on an exemption from registration under the Securities Act provided by Regulation S.
• Effective July 14, 2009, we issued 85,714 shares of restricted common stock to two shareholders pursuant to the terms of a consulting agreement at a deemed price of $0.35 per share. We relied on an exemption from registration under the Securities Act provided by Rule 506 of Regulation D and/or Section 4(2) of the Securities Act.
• Effective July 31, 2009, we issued 57,144 shares of restricted common stock to one shareholder pursuant to the terms of a services agreement at a deemed price of $0.35 per share. We relied on an exemption from registration under the Securities Act provided by Regulation S.
• Effective September 15, 2009 we completed (i) a private placement for 460,166 Units to seven subscribers at a subscription price of $0.30 per Unit for gross proceeds of $138,050 and (ii) a private placement for 479,332 Units to four subscribers 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. Each warrant entitles the holder to purchase an additional common share at an exercise price of $0.40 per warrant share, for a period of three years from the date of issuance. We relied on exemptions from registration under the Securities Act provided by Regulation S (with respect to eight of the subscribers) and Rule 506 of Regulation D (with respect to the remaining three subscribers).
• Effective October 6, 2009, we issued 66,666 shares of restricted common stock to one shareholder pursuant to the terms of a consulting agreement at a deemed price of $0.35 per share. We relied on an exemption from registration under the Securities Act provided by Regulation S.
• Effective October 12, 2009, we issued 100,000 shares of restricted common stock to one shareholder pursuant to the terms of a services agreement at a deemed price of $0.20 per share. We relied on an exemption from registration under the Securities Act provided by Regulation S.
• On October 15, 2009 we 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. Each warrant entitles the holder to purchase an additional common share at an exercise price of $0.35 per warrant share, for a period of five years from the date of issuance. We relied on exemptions from registration under the Securities Act provided by Rule 506 of Regulation D (with respect to 29 of the 30 purchasers) and Regulation S (with respect to the remaining purchaser).

18

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

The following discussion of our financial condition, changes in financial condition, plan of operations and results of operations should be read in conjunction with (i) our audited consolidated financial statements as at July 31, 2008 and 2009, and for the period from inception (April 12, 2005) to July 31, 2009 and (ii) the section entitled "Business", included in this annual report. The discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those set forth under "Risk Factors" and elsewhere in this annual report.

Our plan of operations for the next twelve months is to continue with the exploration and development of our oil and gas properties in the United States. Our planned acquisitions and development of existing properties is described in detail in this annual report under "Business--Plan of Operations".

The following sets table sets out our consolidated losses for the periods indicated:

19

We are an exploration stage company. We recorded a net loss of $2,782,503 during the year ended July 31, 2009, compared to $1,216,434 for the year ended July 31, 2008.

Revenue from oil and gas properties was $490,991 in the year ended July 31, 2009, compared to $1,072,380 in the prior year. Significant developments or changes between these periods are outlined below:

• Barge Canal: Revenue from the Barge Canal project was $355,880 for the year ended July 31, 2009, as compared to $645,813 for the year ended July 31, 2008. The wells produced oil and gas relatively evenly throughout the year ended July 31, 2009, with minor fluctuations due to ongoing maintenance. Oil production was 14% less than the prior fiscal year, while average oil selling prices were 39% lower than the prior year. Gas production was 35% more than the prior fiscal year, while average gas selling prices decreased by 40% from the prior fiscal year. Flooding and maintenance caused significant interruptions in gas production during the prior year.
• South Delhi/Big Creek Field: Revenue from the South Delhi and Big Creek Field projects was $122,653 for the year ended July 31, 2009, as compared to $408,410 for the year ended July 31, 2008. As with Barge Canal, average oil selling prices for oil were 39% lower than the prior year. Additionally, oil production for the year decreased by 55% from the prior period. The decrease in production resulted from flooding and delays related to an above average hurricane season, as well as a decrease in producing wells during the year and planned downtime for ongoing maintenance.
• Janssen Lease: Revenue from the Janssen Lease project was $12,458 for the year ended July 31, 2009, as compared to $16,356 for the year ended July 31, 2008. Gas production was consistent with the prior fiscal year, while average gas selling prices decreased by 40% from the prior fiscal year.

Operating expenses incurred during the fiscal year ended July 31, 2009 were $3,302,709, compared to $2,288,814 in the prior year. Significant changes and expenditures are outlined as follows:

• Consulting fees were $975,606 in the year ended July 31, 2009, compared to $541,249 in the prior year, with the significant increase relating primarily to the use of external consultants to assist with business development leading up to the commencement of trading in the fourth quarter of the current fiscal year.
• Stock-based consulting fees were $611,016 in the year ended July 31, 2009, compared to $104,222 in the prior year. The current and prior year charges result from the fair valuation of shares issued to consultants and options granted to or earned by consultants during such periods.
• Depreciation and depletion expense was $80,303 in the year ended July 31, 2009, compared to $57,676 in the prior year, with the increase resulting from a full year of amortization on the Louisiana properties which were reclassified as proved during the prior fiscal year and a decrease in total reserves upon economic evaluation as of July 31, 2009.
• Direct operating costs were $389,547 in the year ended July 31, 2009, compared to $657,050 in the prior year. Significant developments or changes in direct operating costs per project are outlined as follows:

20

1. Barge Canal: Direct operating costs of $157,969 during the year ended July 31, 2009 (representing approximately 44% of gross production sales for Barge Canal during the period) were relatively consistent throughout the year ended July 31, 2009. Direct operating costs of $361,252 during the year ended July 31, 2008 (representing approximately 56% of gross production sales for Barge Canal during the period) were relatively consistent throughout the year ended July 31, 2008. The decrease in operating costs from the prior period was primarily due to maintenance and workover costs incurred in December 2007.
2. South Delhi/Big Creek Field: Direct operating costs of $205,279 for the fiscal year ended July 31, 2009 (representing approximately 167% of gross production sales for this project during the period) were high due to significant maintenance charges that interrupted production for extended periods of time. Direct operating costs of $292,605 for the fiscal year ended July 31, 2008 (representing approximately 72% of gross production sales for this project during the period) were higher overall than the current year but a significantly lower percentage of gross sales. This is due primarily to the decrease in production and average sales pricing for oil during the current year. Additionally, during the fiscal year ended July 31, 2009 we wrote down a $21,875 reclamation deposit outstanding from a past operator of the South Delhi/Big Creek Field project.
3. Janssen Lease: Direct operating costs of $4,424 for the fiscal year ended July 31, 2009 (representing approximately 36% of gross production sales for this project during the period) were relatively consistent throughout the year ended July 31, 2009 but higher than the prior year. Direct operating costs of $3,193 for the fiscal year ended July 31, 2008 (representing approximately 20% of gross production sales for this project during the period).

• General and administrative expenses were $165,254 in the year ended July 31, 2009, compared to $116,546 in the prior year, with the increase resulting primarily from fees and service costs relating to the listing process, which decreased in the last half of the current fiscal year.
• Interest and financing charges increased to $64,986 during the year ended July 31, 2009 from $Nil during the same period ended July 31, 2008. Interest and financing charges includes accrued interest on promissory notes not outstanding in the prior year.
• Management fees were $343,768 in the year ended July 31, 2009, compared to $340,933 in the prior year, with the difference resulting primarily from fluctuations in services provided by management during the current and prior years.
• Stock-based management fees were $456,000 in the year ended July 31, 2009, compared to $Nil in the prior year. The current year charges result from the fair valuation of options granted to or earned by management during the period.
• Professional fees were $156,710 in the year ended July 31, 2009, compared to $359,106 in the prior year. The decrease from the prior year results from reductions in corporate activity in the current year under difficult market conditions, and additional work in the prior year relating to our financing activities, stock and option issuances and listing requirements.
• Travel and promotion charges were $59,519 in the year ended July 31, 2009, compared to $112,032 in the prior year, with the decrease resulting primarily from limited investment related activities due to market conditions during the current year.

Our net loss for the year ended July 31, 2009 was $2,782,503 or ($0.10) per share, compared to a net loss of $1,216,434 or ($0.04) per share in the prior period.

The following table sets forth our cash and working capital as of July 31, 2008 and July 31, 2007:

Subject to the availability of additional financing, we intend to spend approximately $2,600,000 over the next twelve months in carrying out our plan of operations. At July 31, 2009, we had $18,793 of cash on hand and a working capital deficit of $807,435. On October 15, 2009, we completed a private placement for gross proceeds of $2,500,000 (and net proceeds of approximately $2,000,000). As such, our working capital 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. We estimate that we will need to receive additional funds of approximately $600,000 during the next twelve months, either through the sale of capital stock or from borrowing. Our management is currently making significant efforts to secure the needed 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.

21

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 decreased from approximately $150 per barrel in 2008 to under $40 per barrel in February of 2009 but has increased to approximately $80 per barrel as of late October 2009. If the price of oil drops to levels seen earlier in the year, 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.

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 July 31, 2009, we had accumulated losses of $7,570,277 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.

Operating activities in the year ended July 31, 2009 used cash of $1,225,438 compared to $961,214 in the year ended July 31, 2008. Operating activities in the period from inception on April 12, 2005 to July 31, 2009 used cash of $3,379,916. Operating activities have primarily used cash as a result of the operating and organizational activities such as consulting and professional fees, direct operating costs, management fees and travel and promotion.

In the year ended July 31, 2009, investing activities used cash of $98,376 compared to $208,158 in the year ended July 31, 2008. The changes between such periods relates primarily to a decrease in acquisition costs over the prior year. In the period from inception to July 31, 2008, investing activities used cash of $1,793,638 relating to the acquisition and exploration of our properties.

As we have had limited revenues since inception, we have financed our operations primarily through private placements of our stock. Financing activities in the year ended July 31, 2009 provided cash of $1,274,957 compared to $569,300 in the year ended July 31, 2008. In the period from inception to July 31, 2009, financing activities provided net cash of $5,192,347 primarily from the sale of our equity securities.

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.

22

We believe that our critical accounting policies and estimates include the accounting for accounts receivable, marketable securities and long-lived assets reclamation costs, and accounting for legal contingencies.

See Note 2 of our consolidated financial statements for our year ended July 31, 2009 for a summary of significant accounting policies.

We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes of financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

23

STRATEGIC AMERICAN OIL CORPORATION
(An Exploration Stage Company)

24

25

STRATEGIC AMERICAN OIL CORPORATION
(An Exploration Stage Company)

CONSOLIDATED BALANCE SHEETS

COMMITMENTS AND CONTINGENCIES (Notes 1 and 11)

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

26

STRATEGIC AMERICAN OIL CORPORATION
(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

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

27

STRATEGIC AMERICAN OIL CORPORATION
(An Exploration Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FROM APRIL 12, 2005 (INCEPTION) TO JULY 31, 2009

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

28

STRATEGIC AMERICAN OIL CORPORATION
(An Exploration Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FROM APRIL 12, 2005 (INCEPTION) TO JULY 31, 2009

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

29

STRATEGIC AMERICAN OIL CORPORATION
(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

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

30

STRATEGIC AMERICAN OIL CORPORATION
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2009

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. At July 31, 2009, the Company had a working capital deficiency of $807,435 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 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.

These financial statements include the accounts of the Company and its wholly-owned subsidiary, Penasco. All intercompany balances and transactions are eliminated upon consolidation.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Significant areas requiring management's estimates and assumptions are determining the fair value of transactions involving common stock and financial instruments. Other areas requiring estimates include deferred tax balances, stock-based compensation, depletion, valuation allowances, allocations of expenditures to oil and gas property interests and asset impairment tests.

The financial statements are presented in United States dollars. Foreign denominated monetary assets and liabilities are translated into their United States dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Non-monetary assets and liabilities are translated at the transaction date. Revenue and expenses are translated at average rates of exchange during the year. Related translation adjustments are reported as a separate component of stockholders' equity, whereas gains or losses resulting from foreign currency transactions are included in results of operations.

31

STRATEGIC AMERICAN OIL CORPORATION
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2009

Trade accounts receivable are recorded at the invoiced amount and do not bear any interest. The Company regularly reviews collectability and establishes or adjusts an allowance for uncollectible amounts as necessary using the specific identification method. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. There were no reserves for uncollectible amounts in the periods presented.

Equipment is recorded at cost and amortized using the straight-line method over the estimated useful life at the following rates:

The Company follows the full cost method of accounting for its 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. The Company operates in one cost center, being the United States.

Oil and natural gas revenues are recorded using the sales method whereby the Company recognizes oil and natural gas revenue based on the amount of oil and gas sold to purchasers when title passes, the amount is determinable and collection is reasonably assured. Actual sales of gas are based on sales, net of the associated volume charges for processing fees and for costs associated with delivery, transportation, marketing, and royalties in accordance with industry standards. Operating costs and taxes are recognized in the same period in which revenue is earned.

The Company has adopted the provisions of SFAS No. 143 "Accounting for Asset Retirement Obligations," which establishes standards for the initial measurement and subsequent accounting for obligations associated with the sale, abandonment or other disposal of long-lived tangible assets arising from the acquisition, construction or development and for normal operations of such assets.

The Company reviews property and equipment for impairment. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of its carrying amount to future undiscounted cash flows the assets are expected to generate. If property and equipment are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds its fair market value.

32

STRATEGIC AMERICAN OIL CORPORATION
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2009

The fair values of cash, accounts receivable, accounts payable, convertible notes and amounts due to related parties were estimated to approximate their carrying values due to the immediate or short-term maturity of these financial instruments. The Company's operations and financing activities are conducted primarily in United States dollars, and as a result the Company is not subject to significant exposure to market risks from changes in foreign currency rates.

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and accounts receivable. The Company places its cash with high quality financial institutions and at times may exceed the federally insured limits. The Company has not experienced a loss in such accounts nor does it expect any related losses in the near term.

Basic loss per share includes no dilution and is computed by dividing loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution of securities that could share in the earnings (loss) of the Company. The common shares potentially issuable on conversion of outstanding warrants and stock options were not included in the calculation of weighted average number of shares outstanding because the effect would be anti-dilutive.

The Company follows the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the estimated tax consequences attributable to differences between the financial statement carrying values and their respective income tax basis (temporary differences). The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. At July 31, 2009 and 2008, a full deferred-tax asset valuation allowance has been provided and no deferred tax asset has been recorded.

In June 2006, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes by prescribing a two-step method of first evaluating whether a tax position has met a more likely than not recognition threshold and, second, measuring that tax position to determine the amount of benefit to be recognized in the financial statements. FIN 48 provides guidance on the presentation of such positions within a classified balance sheet as well as on de-recognition, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 was adopted by the Company on August 1, 2007.

The Company records stock-based compensation in accordance with SFAS No. 123R "Share Based Payments", 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.

In April 2009, The FASB issued FSP SFAS 157-4 which provides additional guidance for estimating fair value in accordance with SFAS 157, "Fair Value Measurements", when the volume and level of activity for the asset or liability have significantly decreased. FSP SFAS 157-4 also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP SFAS 157-4 requires the disclosure of the inputs and valuation technique(s) used to measure fair value and a discussion of changes in valuation techniques and related inputs, if any, during the period. The adoption of this statement did not have a material impact on the Company's results of operations and financial position.

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.

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").

34

STRATEGIC AMERICAN OIL CORPORATION
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2009

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").

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 Holt Lease in Franklin Parish, Louisiana. Additionally, all plugging liabilities were transferred to the purchaser and the Company retained no ORRI or working interest in the McKay No. 1 well.

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.

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% back in after payout 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.

Through July 31, 2009 the Company has entered into several lease agreements with certain mineral owners of a 142 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 64 adjacent and contiguous acres. This Assignment includes several leases with numerous mineral owners.

Through July 31, 2009 the Company has entered into numerous oil and gas leases in Jefferson County, Illinois. The leases total approximately 2,994 gross acres pursuant to which the Company has a 100% working interest and a 87.5% net revenue interest.

Through July 31, 2009, the Company has 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 and one currently permitted salt water disposal well.

In October 2007 the Company entered into an agreement with Marmik Oil Company ("Marmik") of Eldorado, Arkansas to purchase a 4.0% working interest in the Little Mule Creek Project located in Alfalfa and Woods Counties, Oklahoma. Under the terms of the agreement, the Company's interest is subject to a 25% back in after payout, which would reduce the Company's interest to 3.0%. The prospect consists of approximately 11,550 acres. To July 31, 2009 the Company has paid for a pro-rata share of land and geology-geophysical costs, charges to exercise additional lease options (prorata share), and a prorata share of drilling costs. The initial well was drilled and tested and deemed to be uneconomical for commercial oil and gas production, and was plugged in the second quarter of 2009. Accordingly, acquisition and development costs of $163,773 were deemed to be impaired during the period and added to the full cost pool, which is amortized on a unit-of-production basis.

35

STRATEGIC AMERICAN OIL CORPORATION
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2009

Through December 15, 2008 the Company had entered into several oil and gas leases in Hamilton County, Illinois. The leases total approximately 214 gross acres pursuant to which the Company has a 100% working interest and 87.5% net revenue interest. On December 15, 2008 the Company assigned all 214 gross acres of the Gobbler's Knob prospect. Pursuant to the Assignment Agreement, the Company retained a 7.5% ORRI and 10% back in after payout on any reworked drilled wells, and the purchaser must re-work or drill one well each 12 months to hold the acreage. Accordingly, acquisition costs of $3,700 were deemed to be impaired and added to the full cost pool, which is amortized on a unit-of-production basis.

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

36

STRATEGIC AMERICAN OIL CORPORATION
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2009

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 (each a "Warrant"), to acquire an equivalent number of common shares of the Company (each a "Warrant Share"), at an exercise price of $0.60 per Warrant 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 $75,998 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. For the year ended July 31, 2009 interest expense of $30,652 has been accreted increasing the carrying value of the convertible debentures to $42,718 as at July 31, 2009. The fair value of the warrants was estimated using the Black-Scholes option pricing model with an expected life of eighteen months, a risk free interest rate of 1.7%, a dividend yield of 0%, and an expected volatility of 131%.

The Company had transactions with certain officers and directors of the Company for the fiscal year ended July 31, 2009 as follows:

1. recorded production revenues of $355,880 (2008 - $645,813) and incurred production costs of $157,969 (2008 - $361,252) for the Barge Canal property which is operated by a company controlled by an officer of the Company;
2. incurred management fees of $343,768 (2008 - $340,933) and recorded stock-based compensation charges of $456,000 (2008 - $Nil) to officers and directors, of which $244,257 was payable at July 31, 2009 (2008 - $44,500). The balance is non-interest bearing and payable on demand;
3. repaid $10,000 on an outstanding promissory note issued to an officer of the Company leaving a remaining balance of $44,000 which was repaid in full subsequent to the fiscal year end, and incurred $8,428 (2008 - $1,732) in interest and finance charges;
4. incurred $4,500 (2008 - $1,865) in interest and finance charges on a $25,000 promissory note (outstanding at July 31, 2009 and 2008) issued to a director of the Company, which was repaid in full subsequent to the fiscal year end;
5. issued a $100,000 promissory note bearing interest at 18% per annum to a direct family member of an officer and a director of the Company which was repaid in full subsequent to the fiscal year end, and incurred $7,742 (2008 - $Nil) in interest and finance charges on the $100,000 promissory note; and
6. issued a $27,500 promissory note bearing interest at 18% per annum, which is due on demand, to an officer of the Company which was repaid in full subsequent to the fiscal year end, and incurred $1,338 (2008 - $Nil) in interest and finance charges; and
7. issued a $18,500 promissory note bearing interest at 18% per annum, which is due on demand, to a director of the Company which was repaid in full subsequent to the fiscal year end, and incurred $1,259 (2008 - $Nil) in interest and finance charges.

These transactions were recorded at the exchange amount which is the amount agreed to by the related parties. All amounts owed are unsecured.

37

STRATEGIC AMERICAN OIL CORPORATION
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2009

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:

In accordance with Statement of Financial Accounting Standards No. 143 "Accounting for Asset Retirement Obligations," the Company measured the ARO's at a fair value of $37,613 and capitalized this to proved oil and gas properties. The ARO's will accrete to $54,311 until the time at which it is expected to be settled. A discount rate of 6% 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.

On October 1, 2007, the Company issued 200,000 shares of its common stock pursuant to a Consulting Services Agreement. The Company recorded the fair value of the shares issued at $0.41 per share or $82,000 as a stock-based consulting expense.

On October 31, 2007, the Company completed a private placement for 724,666 Units at a subscription price of $0.60 per Unit for gross proceeds of $434,800. 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 until the earlier of 12 months from the date of issuance of the Units or six months from the effective date of the Company's registration statement and exercisable at $1.00 per share. The Company's registration statement became effective on July 11, 2008.

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 years.

On August 25, 2008 the Company completed a private placement in settlement of debt for an aggregate of 100,000 Units of the Company, at a subscription price of $0.60 per Unit, with each such Unit being comprised of one common share of common stock of the Company and one-half of one common stock share purchase warrant of the Company, with each such whole warrant being exercisable for one additional common share of the Company at an exercise price of $1.00 per warrant share for a period of three years from the date that the Company's common shares are first listed for trading on any stock exchange or over-the-counter bulletin board market, being August 14, 2008.

38

STRATEGIC AMERICAN OIL CORPORATION
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2009

On August 25, 2008 the Company completed a private placement for an aggregate of 83,333 Units of the Company, at a subscription price of $0.60 per Unit, with each such Unit being comprised of one common share and one common share purchase warrant, with each such warrant being exercisable for one additional common share of the Company at an exercise price of $1.00 per warrant share for a period of one year from the date that the Company's common shares are first listed for trading on any stock exchange or over-the-counter bulletin board market, being August 14, 2008.

On August 29, 2008 the Company completed a private placement for 570,000 Units at a subscription price of $0.60 per Unit, with each Unit being 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 $1.00 per warrant share, for a period of one year from the date the Company's common stock are first listed for trading on any stock exchange or over-the-counter bulletin board market, being August 14, 2008.

On September 16, 2008 the Company completed a private placement for 158,333 Units at a subscription price of $0.60 per Unit, with each Unit being 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 $1.00 per warrant share, for a period of one year from the date the Company's common stock are first listed for trading on any stock exchange or over-the-counter bulletin board market, being August 14, 2008.

On October 10, 2008 the Company completed a private placement of 83,333 Units at a subscription price of $0.60 per Unit, with each Unit being 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 $1.00 per warrant share, for a period of one year from the date the Company's common stock are first listed for trading on any stock exchange or over-the-counter bulletin board market, being August 14, 2008.

On June 1, 2009, the Company issued 200,000 shares of its common stock pursuant to a Consulting Services Agreement. The Company recorded the fair value of the shares issued at $0.50 per share or $100,000 as a stock-based consulting expense.

On June 9, 2009 the Company issued 171,429 shares of its common stock pursuant to a debt conversion and subscription agreement with a value of $60,000 or $0.35 per share.

On June 9, 2009, the Company issued 250,000 shares of its common stock pursuant to a Consulting Services Agreement. The Company recorded the fair value of the shares issued at $0.50 per share or $125,000 as a stock-based consulting expense.

On June 30, 2009, the Company issued 33,334 shares of its common stock pursuant to a Consulting Services Agreement. The Company recorded the fair value of the shares issued at $0.48 per share or $16,000 as a stock-based consulting expense.

On July 31, 2009, the Company issued 85,714 shares of its common stock pursuant to a Consulting Services Agreement. The Company recorded the fair value of the shares issued at $0.35 per share or $30,000 as a stock-based consulting expense.

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 years.

A summary of the Company's stock purchase warrants as of July 31, 2009 and changes during the year is presented below:

STRATEGIC AMERICAN OIL CORPORATION
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2009

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 Restated Stock Incentive Plan (the "2009 Plan"), which absorbs and replaces the 2007 Stock Incentive Plan, under which an aggregate of 10,000,000 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 July 5, 2007 the Company granted a total of 3,800,000 stock options to consultants, officers and directors, of which 3,700,000 vested immediately and the remaining 100,000 vest over 18 months. Of the 3,800,000 options granted, 250,000 were granted at an exercise price of $0.10 per share and 3,550,000 were granted at an exercise price of $0.35 per share. The term of the options is ten years. The $1,915,000 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 5.25%, a dividend yield of 0%, and an expected volatility of 100%. An amount of $11,111 was recorded as stock based consulting fees during the fiscal year ended July 31, 2009 (2008 - $22,222).

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 which vested immediately. 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 (2008 - $Nil).

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, of which 950,000 vested immediately and the remaining 1,280,000 vest over 18 months. 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%. An amount of $456,000 was recorded as stock based management fees during the fiscal year ended July 31, 2009 (2008 - $Nil). Of the $614,400 fair value of the options issued to consultants, $204,800 was recorded as stock based consulting fees during the fiscal year ended July 31, 2009 (2008 - $Nil), with the balance to be expensed over the vesting period.

A summary of the Company's stock options as of July 31, 2009 and changes during the year is presented below:

A summary of the status of the Company's unvested options as of July 31, 2009 and changes during the year ended July 31, 2009 is presented below:

40

STRATEGIC AMERICAN OIL CORPORATION
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2009

As of July 31, 2009, the Company had net operating loss carry forwards of approximately $4,591,000 (2008: $2,662,000) that may be available to reduce future years' taxable income. These carry forwards will begin to expire, if not utilized, commencing in 2026. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carry forwards.

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

The actual income tax provisions differ from the expected amounts calculated by applying the combined federal and state corporate income tax rates to the Company's loss before income taxes. The components of these differences are as follows:

The Company's deferred tax assets are as follows:

As the criteria for recognizing future income tax assets have not been met due to the uncertainty of realization, a valuation allowance of 100% has been recorded for the current and prior year.

The Company's net operating loss carry forwards expire as follows:

The Company has filed income tax returns since inception in the United States. Inherent uncertainties arise over tax positions taken with respect to transfer pricing, related party transactions, tax credits, tax based incentives and stock based transactions. Management has considered the likelihood and significance of possible penalties associated with its current and intended filing positions and has determined, based on their assessment, that such penalties, if any, would not be expected to be material.

41

STRATEGIC AMERICAN OIL CORPORATION
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2009

The Company recognize in its financial statements the impact of a tax position that is more likely than not to be sustained upon examination based on the technical merits of the position. The Company has incurred taxable losses for all tax years since inception and accordingly, no provision for taxes has been recorded for the current or any prior fiscal year.

The Company has entered into various employment and consulting agreements with both fixed compensation arrangements and established fees paid on a daily basis as needed. The only agreement outstanding at July 31, 2009 with fixed compensation calls for a monthly management fee of $10,000, which automatically renews every three months as of November 30, 2008.

On June 1, 2009, the Company entered into a business development services agreement. Under the terms of the agreement, the Company issued, as fully paid and non-assessable, 250,000 shares of common stock, and will issue an additional 28,572 common shares per month through December 1, 2009. The contract automatically renews on a monthly basis until subject to written termination 30 days prior to end of the agreement or the automatic renewal period. The agreement can be terminated subsequent to December 1, 2009. At July 31, 2009, the Company was obligated to issue 57,144 shares pursuant to the terms of the agreement, and accordingly, $23,715 was recorded as a stock issuance obligation.

On June 17, 2009, the Company entered into a corporate development consulting agreement. Under the terms of the agreement, the Company will issue, as fully paid and non-assessable, 33,333 common shares per month through August 17, 2009. At July 31, 2009, the Company was obligated to issue 33,333 shares pursuant to the terms of the agreement, and accordingly, $13,667 was recorded as a stock issuance obligation.

Refer to Note 9.

42

STRATEGIC AMERICAN OIL CORPORATION
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2009

The Company's ownership interests in estimated quantities of proved gas reserves and changes in net proved reserves, all of which are located in the United States, are summarized below:

On August 1, 2009, the Company amended a business development services agreement dated June 1, 2009. Under the terms of the amendment, the Company increased the monthly issuance from 28,572 to 50,000 shares of restricted common stock. The amended agreement was extended until July 31, 2010, automatically renewing on a monthly basis subject to written termination. The amendment can be terminated subsequent to February 1, 2010.

On August 12, 2009, the Company agreed to extend the term of 5,158,238 warrants from August 14, 2009, to August 14, 2010. Each warrant entitles the holder to purchase an additional common share of the Company at an exercise price of $1.00 per share, and was originally issued between October 6, 2006 and October 10, 2008.

43

STRATEGIC AMERICAN OIL CORPORATION
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2009

On September 3, 2009, the Company issued a $200,000 promissory note bearing interest at 3% per annum, due 90 days from the date of issuance. Additionally, the Company issued to the Lender, as fully paid and non-assessable, 200,000 non-transferable and registerable share purchase warrants (each a "Warrant"), to acquire an equivalent number of common shares of the Company (each a "Warrant Share"), at an exercise price of $0.25 per Warrant Share and for an exercise period of up to three years from the date of issuance. On October 16, 2009 the Company repaid $100,000 of the outstanding principal.

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 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 Company evaluated subsequent events through the financial statement filing date of November 12, 2009.

44

We have had no disagreements with our principal independent accountants.

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting.

As of July 31, 2009 management assessed the effectiveness of the Company's internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control -Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and SEC guidance on conducting such assessments. Based on that evaluation, management concluded that, as at July 31, 2009, our internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed at the time in which the internal control procedures were implemented that adversely affected our internal controls and that may be considered to be a material weakness.

The matters involving internal controls and procedures that the Company's management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) inadequate entity level controls due to: (i) weak tone at the top to implement an effective control environment, and (ii) ineffective audit committee due to a lack of a majority of independent members (1 of 3) on the current audit committee and a lack of a majority of outside directors on our board of directors; (2) inadequate segregation of duties consistent with control objectives; and (3) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.

Management believes that the material weaknesses set forth in items (2) and (3) above did not have a material adverse effect on the Company's financial results for the year ended July 31, 2009. However, management believes that the material weaknesses in entity level controls set forth in item (1) results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.

We are committed to improving our financial organization. As part of this commitment, when resources become available to us we will i) expand our personnel to improve segregation of duties consistent with control objectives, ii) appoint one or more outside directors to our board of directors who shall be appointed to our audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management; and iii) prepare and implement sufficient written policies and checklists which will set forth procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.

45

We will continue to monitor and evaluate the effectiveness of our internal controls and procedures over financial reporting on an ongoing basis and are committed to taking further action by implementing additional enhancements or improvements, or deploying additional human resources as may be deemed necessary.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Our management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only our management's report in this annual report.

There have been no changes in our internal control over financial reporting during our fourth quarter of our fiscal year ended July 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Not applicable.

Our directors and executive officers and their respective ages as of the date of this annual report are as follows: