UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q/A

(Amendment No. 1)

 

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

 

For Quarterly Period Ended June 30, 2011

 

OR

 

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                to               .

 

Commission File No. 0-29832

 

AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.

(Exact Name of Registrant as Specified in its Charter)

 

British Columbia, Canada	75-2712845
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification #)

 

1301 Avenue M, Cisco, TX	76437
(Address of Principal Executive Offices)	(Zip Code)

 

(254) 442-2638

Registrant's Telephone Number Including Area Code

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes [x]   No [_]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company.

 

[_] Large accelerated filer   [_] Accelerated filer   [_] Non-accelerated filer   [x] Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)   Yes [_]   No [x]

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

 

There were 20,905,269 shares of common stock, No Par Value,

outstanding as of July 28, 2011

EXPLANATORY NOTE

 

This Amendment No. 1 to the Form 10-Q Quarterly Report (the "Amendment") amends the Form 10-Q Quarterly Report of Australian-Canadian Oil Royalties LTD. (the "Company") for the quarter ended June 30, 2011, originally filed with the U.S. Securities and Exchange Commission on August 15, 2011 (the "Original Form 10-Q").

 

The purpose of this Amendment is to:

•   update the cover page of the filing, including a correction of the latest practicable date of corporate issuers number of shares;

•   furnish the interactive data files that comprise Exhibit 101;

•   revise and reformat the Exhibit Index, Part II, Item 6, including a list of the files relevant to Exhibit 101.

 

Except as described above, the Amendment does not modify or update the disclosures presented in, or exhibits to, the Original Form 10-Q in any way. The Amendment continues to speak as of the date of the Original Form 10-Q. Furthermore, the Amendment does not reflect events occurring after the dates of the Original Form 10-Q.

PART I – Financial Information

 

Item 1. Financial Statements

 

Australian-Canadian Oil Royalties Ltd.

Balance Sheets

 

				June 30,			December 31,
				2011			2010
				(unaudited)			(audited)
Assets
CURRENT ASSETS
	Cash			$	24,908		$	2,345
	Accounts receivable				26,187			28,992
			Total Current Assets		51,095			31,337
PROPERTY AND EQUIPMENT
	Oil and gas properties-being amortized				582,792			582,792
	Oil and gas properties-not being amortized				565,077			565,077
	Office equipment and software				24,783			24,783
	Accumulated depreciation and depletion				(239,325)			(216,771)
			Net Property and Equipment		933,327			955,881
OTHER ASSETS					1,084			1,084
			TOTAL ASSETS	$	985,506		$	988,302
Liabilities and Stockholders' Equity
CURRENT LIABILITIES
	Accounts payable – trade			$	896		$	11,243
	Account payable – related party				48,542			39,216
	Accrued expenses				170,730			115,486
	Loans from stockholders				26,266			26,266
	Loans from officers				25,000			25,000
			Total Current Liabilities		271,434			217,211
STOCKHOLDERS' EQUITY
	Preferred stock no par value (50,000,000 shares authorized
		none outstanding)			—			—
	Common stock, no par (50,000,000 shares authorized
		20,905,269 and 20,048,284 shares in 2011 and 2010
		issued and outstanding)			3,846,099			3,745,099
	Additional paid in capital				175,152			173,552
	Accumulated deficit				(3,307,179)			(3,147,560)
			Total Stockholders' Equity		714,072			771,091
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY				$	985,506		$	988,302

 

See accompanying notes to financial statements.

Australian-Canadian Oil Royalties Ltd.

STATEMENTS OF OPERATIONS

For the Three Months and Six Months Ended June 30, 2011 and 2010

(Unaudited)

 

				Three Months						Six Months
				2011			2010			2011			2010
OIL AND GAS REVENUES				$	14,171		$	(2,906)		$	47,271		$	13,784
COST OF SALES
	Production taxes				33			—			71			19
	Transportation costs				3,110			1,263			8,138			1,263
	Depletion				11,184			3,695			22,368			7,391
		GROSS PROFIT/LOSS			(156)			(7,864)			16,694			5,111
OPERATING EXPENSES
	Personnel costs				33,941			5,313			65,992			16,969
	Professional fees				28,081			6,412			37,995			37,597
	Promotion and advertising				5,287			1,647			11,012			6,245
	Office expenses				1,421			558			2,709			2,052
	Depreciation				93			(345)			185			185
	Directors' fees and other				48,094			431			48,171			951
			Total Operating Expenses		116,917			14,016			166,064			63,999
OPERATING LOSS					(117,073)			(21,880)			(149,370)			(58,888)
OTHER INCOME/(EXPENSE)
	Interest expense				(1,176)			(289)			(2,339)			(754)
NET LOSS BEFORE INCOME TAXES					(118,249)			(22,169)			(151,709)			(59,642)
	Australian income taxes				(399)			1,717			(7,910)			(2,975)
NET LOSS				$	(118,648)		$	(20,452)		$	(159,619)		$	(62,617)
				$	(0.01)		$	0.00		$	(0.01)		$	0.00
Weighted Average Number of Common
	Shares Outstanding:
		Basic			20,380,388			19,587,745			20,238,058			19,556,255

 

See accompanying notes to financial statements.

Australian-Canadian Oil Royalties Ltd.

STATEMENTS OF CASH FLOWS

For the Six Months Ended June 30, 2011 and 2010

(Unaudited)

 

			2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss			$	(159,619)		$	(62,617)
Adjustments to reconcile net (loss) to net cash
	provided by operations:
		Depreciation, depletion and amortization		22,553			7,576
		Value of expenses contributed by officers		1,600			1,600
		Stock issued for services		25,000			—
		Stock issued for officers and directors		26,000			—
Changes in:
	Receivables			2,805			4,240
	Accounts payable and accrued expenses			54,224			22,738
NET CASH (USED) BY OPERATING ACTIVITIES				(27,437)			(26,463)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from sale of common stock			50,000			25,000
NET CASH FLOWS PROVIDED FROM FINANCING ACTIVITIES				50,000			25,000
NET INCREASE (DECREASE) IN CASH				22,563			(1,463)
		Cash, Beginning of Period		2,345			6,262
		Cash, End of Period		24,908			4,799
SUPPLEMENTAL DISCLOSURES:
	Cash payments for:
		Interest	$	—		$	—
		Australian income taxes		7,910			2,975

 

See accompanying notes to financial statements.

Australian-Canadian Oil Royalties Ltd.

SELECTED INFORMATION FOR FINANCIAL STATEMENTS

 

June 30, 2011

(Unaudited)

 

NOTE 1: BASIS OF PRESENTATION

 

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions of Regulation S-B. They do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material change in the information included in the Company's Report on Form 10-K for the year ended December 31, 2010. In the opinion of Management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six-month period ended June 30, 2011, are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

 

NOTE 2: GOING CONCERN CONSIDERATIONS

 

The Company neither has sufficient cash on hand nor is it generating sufficient revenues to cover its operating overhead. These facts raise doubt as to the Company's ability to continue as a going concern. The Company has been operating over the past year based on loans/stock purchases from its officers/directors. There is no guarantee that such officers/directors will continue to provide operating funds for the Company. In order to pursue its goals and commitments under the Australian concession prospects that it has obtained, the Company will be required to obtain significant funding or to exchange all or portions of its interests in those concessions to meet the minimum expenditure requirements underlying the concessions. Management's plans include attempting to find a drilling company to farm out the working interests under the concessions, raising funds from the public through a stock offering, and attempting to acquire additional producing interests in exchange for stock. Management intends to make every effort to identify and develop sources of funds. There is no assurance that Management's plans will be successful.

Item 2. Management's Discussion and Analysis and Plan of Operations

 

Any statements that are contained in this Form 10-Q that are not statements of historical fact are forward-looking statements. Readers can identify these statements by words such as 'may,' 'will,' 'expect,' 'anticipate,' 'estimate,' 'continue' or other similar words. These statements discuss future expectations, contain projections of results of operations or financial condition or state other forward-looking information and are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, including such factors as uncertainties in cash flow, expected costs of litigation, the outcome of litigation, the potential impact of government regulations and rulings, fluctuations in the economic environment and other such matters, many of which are beyond the control of the Company. Readers are cautioned that forward-looking statements are not guarantees of future performance and that actual results or developments may differ materially from those expressed or implied in the forward-looking statements.

 

The following discussion and analysis should be read in conjunction with the Company's financial statements and notes thereto as of December 31, 2010 and June 30, 2011 for the respective periods then ended.

 

General Discussion:

 

The Company’s strategy is two fold: 1) to seek overriding royalty interests in oil and gas concessions within sedimentary basins in Australia, and 2) to seek working interests in oil and gas concessions within sedimentary basins of Australia to promote oil and gas exploration through seismic programs and drilling operations.

 

The Company’s ability to explore other oil and gas opportunities is dependent on adequate capital resources being available and equity being obtained, and/or finding partners to fund the exploration and drilling programs on the areas in which the Company holds working interests.

 

The Company holds overriding royalty interests in the Cooper/Eromanga Basins that cover parts of Queensland and South Australia. The Company’s overriding royalties total 488,040 net royalty acres under 13,679,838 gross surface acres in thirteen concessions located in the Cooper/Eromanga Basins. In addition, the Company also owns 3,113 net royalty acres under 672,040 gross acres in four concessions located in the Bass Strait of the Gippsland Basin, located offshore of the State of Victoria, Australia. The Company also has working interests under 7,914,460 gross surface acres covering four concessions located in Queensland and South Australia.

ACOR began its movement from being primarily an oil royalty company to an exploration company in 2000 when ACOR et al was awarded three large concessions in South Australia. The risk of exploration was downgraded by the success rate by new junior oil companies in the Cooper/Eromanga Basin averaging 52%. ACOR entered into a farm-out arrangement with Holloman Energy Corp. to drill three wells retaining a 13.8325% carried working interest. During 2008, Holloman drilled the Pecos #1 well on PEL 112, being the first of the three well program. The Pecos #1 was completed as a dry hole. During 2008 Holloman obtained approval from the South Australian Government for new exploration terms giving a new five-year work program for PEL 112 and consolidating PEL 108 & 109 to a new exploration permit PEL 444. The Company’s terms and conditions mentioned above remain in force on these two permits. Holloman has entered into a joint venture letter of intent with Brandenburg Energy Corp. to conduct a 125 square kilometer 3D seismic program over both PEL 112 and 444 plus drill a total of six wells. ACOR agreed to reduce its carried working interest from 13.8325% to 8.65% in this new exploration program to be conducted by Brandenburg Energy Corp. on PEL 112 and 444.

 

ACOR is the concession holder of ATP-582, located in Queensland Australia, in the prolific Cooper/Eromanga Basin. The permit area covers approximately 6,716,000 gross acres. ATP 582 lies within the Georgina Basin, which covers most of the central-eastern part of the Northern Territory and is considered one of the most prospective undeveloped onshore petroleum provinces in Northern Territory and Queensland. Although the Georgina Basin has not had a discovery today, the Cambrian Thorntonia-Arthur Creek succession of the Georgina Basin possess all of the required elements necessary for petroleum generation, migration and entrapment. Of particular interest in the Georgina Basin and on ATP 582 is the presence of the Arthur Shale, which has similar characteristics to the Brakken Shale of Western Canada and North Dakota that has produced more than 10 TCF of gas and 1 Billion barrels of oil.

 

The improvement in multi high-pressure fracing technology over the past 10 years has made low permeable shale very economic to produce both oil and gas and has been widely used in North America to unlock unconventional reservoirs in shale bearing hydrocarbons. This technology has not been utilized in the Georgina Basin; however, on the adjoining concession to the east in the Northern Territory two horizontal wells are planned for drilling into the Arthur Creek Shale utilizing the current high pressure multiple stage fracing on this formation. ATP 582 is well positioned, with the northern most 1,000,000 acres of its 6,716,000 acres known to have the presence of the Arthur Creek Shale in place.

 

The adjoining concession to the west of ATP 582 operated by Baraka Petroleum Limited plans a four well program and if successful plans to expand to a 20 well exploration drilling program. The Company has entered into a Joint Venture arrangement where the partner will operate the concession, pay to obtain Native Title clearance, shoot a new seismic grid survey over the leads identified by ACOR management from old seismic data to confirm good drillable targets, with plans to drill a well to earn a 50% working interest under ATP 582 (ACOR will be carried for 50% WI). During the quarter, native title was obtained on ATP582 allowing exploration to begin subject to environmental approvals and clearances.

A 12” pipeline was constructed to the Longtom Field with the first delivery of gas beginning on October 21, 2009. Revenues from gas sales for the Company began in 2010. During 2010, the Longtom Field was shut in due to mercury levels exceeding gas plant standards. A processing plant was installed to remove the excess mercury and production from the Longtom Field resumed during the fourth quarter of 2010 (November 2010). Revenues from gas sales for the Company’s 5% of 1% override are expected to be received during the second half of 2011. It was reported that gas sales for the months of May and June 2011 were at record levels with over 3,300,000 MCF produced each month. Offshore works to enhance the reliability of the offshore production system is planned for the second half of 2011, depending on vessel availability. Planning for the drilling of the Longtom South Prospect, located approximately 3.5 kilometers south of the field infrastructure, is also planned during the second half of 2011, subject to rig availability.

 

ATP 560 covers 625,600 acres under which the Company holds a 25% of 1% override. The Utopia Oil Field is situated in ATP 560P in the Eromanga Basin in southwest Queensland, approximately 150 km north east of the Jackson Oilfield and 50 km south of the Kenmore Oilfield. The Utopia Field is a broad low-relief structure, with a maximum relief of approximately 10 m. The field produces from the Early Cretaceous Murta Formation and is the largest known Murta pool in the Queensland Eromanga Basin. The oil pool is at an approximate depth of 1020 m. The most recent technical review of Utopia, undertaken in June 2004, determined the field could contain up to 2.86 million barrels of recoverable oil.

 

During the current quarter Utopia-11H, a horizontal development well, was drilled and completed as a Murta oil producer after a 176.5-meter horizontal drain hole was successfully drilled. The operator reports excellent oil shows in very good quality reservoir sand continued to be encountered while drilling the horizontal leg. The Utopia-11H well is expected to be placed into production during the third quarter.

 

Liquidity and Capital Resources

 

The Company has historically addressed its long-term liquidity needs for the oil and gas exploration and development for its Australian working interests through the use of farm-out agreements. The Company sells a portion of its ownership interest in the concession to an outside party who is then responsible for the exploration activities i.e. seismic, drilling etc. This is the strategy that management is following in order to meet the expenditure requirements on the Australian concessions.

 

In addition, the Company may also satisfy its future capital requirements by selling its common stock. Should the Company become unable to reach satisfactory farm-out arrangements or obtain financing from the sale of its securities or some other source, the Company may not be able to achieve some of its future goals.

 

The principal assets of ACOR are oil and gas properties (both those being amortized and those not being amortized) reported at $1,147,869 on June 30, 2011 with no changes since December 30, 2010. The nominal decrease in assets from December 31, 2010 to June 30, 2011 is related to the increase in accumulated depreciation of property and equipment.

The Total Current Assets increased from December 31, 2010 to June 30, 2011 from $31,337 to $51,095. The Company's Total Current Assets as of June 30, 2010, was $9,709 with Total Current Liabilities of 146,755, giving a liquidity ratio of .066 to 1. The Company's Total Current Assets as of June 30, 2011, was $51,095 with Total Current Liabilities of 271,434, giving a liquidity ratio of .188 to 1. The Company's cash position was $24,908 on June 30, 2011 compared to $2,345 and $4,799 on December 31, 2010 and June 30, 2010 respectively. The fluctuations in current assets from June 30, 2010 compared to December 31, 2010 and June 30, 2011 is directly related to the amount of cash on hand.

 

The Company continues to operate without any long-term debt.

 

Stockholders' Equity decreased when comparing June 30, 2011 to December 31, 2010 being $714,072 and $771,091 respectively, due to an increase in current liabilities.

 

Management believes that its current cash balance is sufficient to fund immediate administrative needs. However, long-term plans are expected to require significant additional capital and there is not any assurance that the Company will be able to obtain such funds or obtain the required capital on terms favorable to the Company.

 

During the quarter ended June 30, 2011 the Company issued to an accredited investor 555,556 restricted common shares for $50,000. Also, issued during the quarter were 50,000 shares valued at $11,000 for consulting services, 80,000 shares issued to two directors valued at $16,000, and 71,429 restricted shares issued to the Company’s Chief Financial officer valued at $10,000. The number of shares issued and outstanding as of June 30, 2011 was 20,905,269.

 

Results of Operations

 

Revenues of $14,171 were reported for the quarter ended June 30, 2011. Oil and gas revenues accrued from prior periods caused the quarter ended June 30, 2010 to report a negative $2,906 due to an adjustment made during this quarter. Oil and gas revenues reported for the six months ended June 30, 2011 was $47,271 compared to $13,784 for the six months ended June 30, 2010 reflecting the gas sales from the Longtom Field on VicP54 located in the Bass Strait of the Gippsland Basin of Australia. The Australian revenues were generated from concessions ATP 267, ATP 299, ATP 560, PEL 115 and VicP54 under which the Company hold overriding royalty interests.

 

Total Operating Expenses were $116,917 for the three months ended June 30, 2011 compared to $14,016 for the quarter ended June 30, 2010. The principal reason for the increase is caused by personnel costs up from $5,313 to $33,941, professional fees were up from $6,412 to $28,081 and Directors’ fees were up from $431 to $48,094. Personnel costs included fees paid to the Company’s Chief Financial Officer in the form of 71,429 shares of stock valued at $10,000. Professional fees were up due to accounting and auditing fees incurred for the preparation of the audit and first quarter financial statements. Directors each received 40,000 shares for their services valued at $8,000 each, of which only two directors elected to receive their shares during the quarter. The shares for the other four directors remain outstanding.

Total Operating Expenses were $166,064 for the six months ended June 30, 2011 compared to $63,999 for the six months ended June 30, 2010. The principal reason for the increase is due to personnel costs and directors’ fees.

 

The Company's three-month operating loss was $117,073 for the quarter ended June 30, 2011 compared to an operating loss of $21,880 for the same period in 2010. As stated above, the increase in personnel costs, professional fees and directors’ fees caused operating losses to increase.

The Company’s interest expense for the three-months ended June 30, 2011 was $1,176 compared to $289 for the same period ended in 2010. The Company’s interest expense for the six-months ended June 30, 2011 was $2,339 compared to $754 for the six-months ended June 30, 2010.

 

The net loss for the three months ended June 30, 2011 was $118,648 compared to a net loss of $20,452 for the quarter ended June 30, 2010. The increase in net loss is primarily attributable to the increase in personnel costs, professional fees and directors’ fees. The net loss for the six months ended June 30, 2011 was $159,619 compared to a net loss of $62,617 for the six-months June 30, 2010.

 

Subsequent Events

 

There were no significant subsequent events to report since June 30, 2011.

 

Plan of Operation and Funding

 

The Company plans to seek additional oil and gas concessions in Australia on a ground level basis and will seek partners to join in this process. The Company has been successful in the past (2006 and 2007) to enter into farm-out arrangements on concessions awarded to the Company and its partners. These farm-out arrangements have allowed the Company to retain a carried interest and in some cases receive cash consideration in addition to deferring the exploration commitments on concessions to the buyers.

 

Material Commitments

 

The Company as of June 30, 2011 does not have any material work or exploration commitments on its oil and gas interests in Australia as the Company has been successful in entering into farm-out arrangements to transfer those exploration costs to others in lieu of cash, carried working interests and/or an override.

 

Purchase of Significant Equipment

 

The Company does not intend to purchase any significant equipment during the year.

 

Related Party Transactions

 

During the second quarter of 2011, the Company paid $6,441 for personnel costs and other expenses to related parties, primarily Secretarial Services, Inc. and Tensleep Oil & Production, Inc. In addition, the Company reimbursed Australian Grazing & Pastoral Co., Pty. Ltd. for professional fees. Robert Kamon, the Company's Secretary, controls these entities.

Off-Balance Sheet Arrangements

 

As of June 30, 2011, the Company had no off-balance sheet arrangements.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

We are a small reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

Item 4: Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules, regulations and related forms, and that such information is accumulated and communicated to our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

As of June 30, 2011, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and our principal financial officer of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

 

Changes in Internal Controls

 

There have been no changes in our internal controls over financial reporting during the quarter ended June 30, 2011 that have materially affected or are reasonably likely to materially affect our internal controls.

PART II. OTHER INFORMATION

 

Item 6. Exhibits

 

31.1	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.ins	XBRL Instance Document
101.xsd	XBRL Taxonomy Extension Schema Document
101.cal	XBRL Taxonomy Extension Calculation Linkbase Document
101.def	XBRL Taxonomy Extension Definition Linkbase Document
101.lab	XBRL Taxonomy Extension Label Linkbase Document
101.pre	XBRL Taxonomy Extension Presentation Linkbase Document

 

 

SIGNATURES

 

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

 

	Australian-Canadian Oil Royalties Ltd.
Date: August 5, 2011	/s/ MAHNAZ NOURMAND By: Mahnaz Nourmand, Principal Financial Officer