ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL
BUSINESS ISSUER PURCHASERS OF EQUITY SECURITIES
Market Information
Our common stock is not traded on an exchange but is quoted on the OTC
Bulletin Board under the trading symbol "AOGC.OB". The prices set forth below
reflect the quarterly high and low bid prices for shares of common stock for the
past two years. These quotations reflect inter-dealer prices, without retail
markup, markdown or commission, and may not represent actual transactions.
Period High Sale or Bid Low Sale or Bid
---------------------------------------------------------------
1st Quarter 2006 $0.16 $0.08
2nd Quarter 2006 $0.18 $0.10
3rd Quarter 2006 $0.17 $0.10
4th Quarter 2006 $0.13 $0.10
1st Quarter 2007 $0.13 $0.10
2nd Quarter 2007 $0.12 $0.10
3rd Quarter 2007 $0.12 $0.10
4th Quarter 2007 $0.13 $0.06
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As at December 31, 2007, there were 4 market makers in our common stock.
As at December 31, 2007, there were approximately 216 holders of record of
our common stock.
The Company has not paid any cash dividends on its common stock and does
not anticipate paying cash dividends in the foreseeable future. We intend to
retain any earnings to finance the growth of the business. There can be no
assurance that we will ever pay cash dividends.
Recent Sales of Unregistered Securities
During the past three years, without registering the securities under the
Securities Act of 1933, the Company has issued following securities:
On December 22, 2005, 2,500,000 shares of common stock were issued to Mr EG
Albers under the terms of his employment contract pursuant to Section 4(2) of
the Securities Act, filed as an exhibit to the 2006 Form 10-KSB.
On April 12, 2006, 2,000,002 shares of Common Stock were issued to acquire
all the remaining shares of Alpha Oil & Natural Gas Pty Ltd pursuant to
Regulation S under the Securities Act, as described below. The recipients of
such shares were:
17
Sellers of Alpha and Allocation of Consideration
SELLER NO. OF SHARES NO. OF SHARES $
IN ALPHA IN AOGC
------- ------- ------
Natural Gas Corporation Pty Ltd 100,000 250,000 12,500
Batavia Oil & Gas Pty Ltd 100,000 250,000 12,500
National Oil & Gas Pty Ltd 500,000 1,250,002 62,500
Australis Finance Pty Ltd 100,000 250,000 12,500
------- ------- ------
TOTAL 800,000 2,000,002 100,000
======= ========= =======
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On April 12, 2006, 2,100,001 shares of common stock were issued to acquire
all the remaining shares of Nations Natural Gas Pty Ltd pursuant to Regulation S
under the Securities Act, as described below. The recipients of such shares
were:
Sellers of Nations and Allocation of Consideration
SELLER NO. OF SHARES NO. OF SHARES $
IN ALPHA IN AOGC
--------- --------- ------
Ernest Geoffrey Albers 300,001 315,001 7,500
Sacrosanct Pty Ltd 300,000 315,000 7,500
Natural Gas Corporation Pty Ltd 100,000 100,000 2,500
Batavia Oil & Gas Pty Ltd 100,000 100,000 2,500
National Oil & Gas Pty Ltd 1,100,000 1,150,000 27,500
Australis Finance Pty Ltd 100,000 120,000 2,500
--------- --------- ------
TOTAL 2,000,001 2,100,001 50,000
========= ========= ======
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On April 12, 2006, the Company completed the acquisitions of each of
Nations Natural Gas Pty Ltd (Nations) and Alpha Oil & Natural Gas Pty Ltd
(Alpha), both companies incorporated in Australia. A director of AOGC, Mr E
Geoffrey Albers, is a director and or shareholder of each of the sellers of
shares in Nations and Alpha. The acquisitions were entered into on September 10,
2004 and July 1, 2004, respectively.
Mr. E. Geoffrey Albers is a director and or shareholder of each of the
sellers of shares in Nations and Alpha. Mr. E. Geoffrey Albers had beneficial
ownership percentages of 99.8% in Alpha and 98.8% in Nations prior to the
acquisition by AOGC and had a beneficial ownership percentage of 53% in AOGC
prior to the completion of the acquisitions and had a beneficial ownership
percentage of 59.22% in AOGC after the completion of the acquisitions.
The purchase of Nations was made in order to acquire a 30% interest in the
four permits of the National Gas Consortium, being permits NT/P62, NT/P63,
NT/P64 and NT/P65. The shareholders of Nations have received 2,100,001 shares of
common stock in AOGC and have received AUD$50,000 as consideration for Nations.
The purchase of Alpha was made in order to acquire a 20% interest in the
Browse Joint Venture, being permits, WA-332-P, WA-333-P, WA-341-P and WA-342-P.
The shareholders of Alpha have received 2,000,002 shares of common stock in AOGC
and the payment of AUD$100,000. Prior to the agreement being finalised, Alpha
(with the approval of AOGC) sold its 20% interest in WA-341-P to a third party
for an amount substantially in excess of book value. The settlement funds have
been received by Alpha and were incorporated in settlement funds available to
AOGC through its wholly owned subsidiary, Alpha.
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All Alpha and Nations acquirers of the above unregistered securities
confirmed to AOGC by representation and warranty that they understood that the
Shares to be issued to them had not been, and would not be registered under the
U.S. Securities Act of 1933, as amended (the "Securities Act"), or under any
U.S. state securities laws, and that they were being issued pursuant to a "safe
harbor" exemption from registration contained in Regulation S promulgated under
the Securities Act based, in part, upon the representations and warranties of
each recipient.
Each recipient also represented and warranted that it had such knowledge
and experience in financial and business matters that it was capable of
evaluating the merits and risks of an investment in the Purchaser, and was an
"Accredited Investor" as defined in Regulation D promulgated under the
Securities Act and each recipient represented and warranted that it was not a
"U.S. Person" (as that term is defined in Rule 902 of Regulation S under the
Securities Act); and was not acquiring the Shares for the account or benefit of
any U.S. Person and has not pre-arranged any resale of any of the Shares with
any buyer located in the United States or otherwise with a U.S. Person; and had
not offered the Shares in the United States, and at all material times the
recipients were located outside the United States.
Furthermore, the stock certificate delivered by the Company to each
recipient was imprinted with a legend in the following form:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended (the "Securities Act") and have been
issued pursuant to an exemption from registration under Regulation S promulgated
under the Securities Act. Such shares are "restricted securities" as defined in
Rule 144 promulgated under the Securities Act and may not be offered for sale,
sold, delivered after sale, transferred, pledged, or hypothecated except: (i) in
accordance with the provisions of Regulation S under the Securities Act; (ii)
pursuant to registration under the securities Act; or (iii) pursuant to an
opinion of counsel reasonable satisfactory to Australian Oil & Gas Corporation
that such shares may be transferred without registration under the Securities
Act. Hedging transactions involving the shares represented by this certificate
may not be conducted unless in compliance with the Securities Act."
The recipients agreed, inter alia, that AOGC may refuse to register any
transfer of the shares that is not made in accordance with the provisions of
Regulation S, pursuant to registration under the Securities Act, or pursuant to
an available exemption from registration under the Securities Act.
It was said that each recipient may make, or cause to be made, any resales
of the Shares pursuant to one of the following methods:
(i) "offshore transactions" (as such term is defined in Regulation S)
pursuant to the resale safe harbor of Rule 904 of Regulation S adopted
under the Securities Act;
(ii) Rule 144 promulgated under the Securities Act; or
19
(iii) any other available exemption under the Securities Act; provided that
the Company shall first furnish the recipient with a written opinion
reasonably satisfactory to the Company in form and substance from counsel
reasonably satisfactory to the Company by reason of experience to the
effect that the recipient may transfer such shares as desired without
registration under the Securities Act (each such resale described (i)-(iv),
a "Permitted Resale" and collectively, the "Permitted Resales"). Any such
Permitted Resales shall be made in offshore transactions or in transactions
in the United States on the Over-the Counter Bulletin Board (OTC-BB) or
otherwise."
On January 31, 2007, 2,000,000 shares of common stock were issued to Mr EG
Albers under the terms of his employment contract pursuant to Section 4(2) of
the Securities Act, filed as an exhibit to the 2006 Form 10-KSB.
On January 18, 2008, 1,500,000 shares of common stock were issued to Mr EG
Albers under the terms of his employment contract pursuant to Section 4(2) of
the Securities Act, filed as an exhibit to the 2006 Form 10-KSB.
Share Repurchase Program
The Company does not maintain any stock repurchase program involving
purchases of the Company's common stock by or on behalf of the Company that
would require disclosure under Item 703 of the Regulation S-B.
ITEM 6. PLAN OF OPERATION
RISK FACTORS
The business operations of the Company are subject to risks, which may
impact adversely on its future performance. These risks may adversely affect the
value of our assets and this may affect the value of our common stock.
The following are some of the important factors that could affect our
financial performance or could cause actual results to differ materially from
estimates contained in our forward-looking statements. The important factors are
not exclusive.
Our future performance is difficult to evaluate because we have a limited
operating history and do not own or have development plans for any oil or
natural gas properties.
We began operations in August 2003 and have a limited operating and
financial history. As a result, there is little historical financial and
operating information available to help you evaluate our performance or an
investment in our common stock.
Potential conflicts of interest may cause us to enter into less favorable
agreements than we might have obtained from third parties.
Some of our directors are also directors or executive officers of other oil
and natural gas companies, which may from time to time compete with us for
farm-ins, working interest partners, or property acquisitions. We also may seek
to negotiate farm-in agreements or working interest agreements with companies
whose boards of directors include individuals who are directors or executive
officers of our company. Under Delaware law, a director that has an interest in
a contract or proposed contract or agreement shall disclose his interest in such
contract or agreement and shall refrain from voting on any matter in respect of
such contract or agreement. Nevertheless, we may enter into agreements with such
other companies that are not as favorable as that which we might have obtained
from unrelated third parties.
20
We will require additional equity capital or debt financings in the future,
which may not be available, or may only be available on unfavorable terms.
Our future capital requirements depend on many factors, including the
prospectivity of our exploration property and our profitability. To the extent
that available funds are insufficient to fund operating and capital
requirements, we will need to fund our exploration commitments by farmout or
sale of interests or by raising additional funds through debt financing or
curtail our growth and reduce our exploration activities. Any farmout or sale
activity or any equity or debt financing, if available at all, may be on terms
that are not favorable to us. In the case of farmout, sale or equity financings,
dilution to our stockholders could result, and in any case such securities may
have rights, preferences and privileges that are senior to existing shares. If
we cannot obtain adequate capital on favorable terms or at all, our business,
operating results and financial condition could be adversely affected.
Estimates of future cash flows may prove to be inaccurate, resulting in a
reduction of our working capital.
Estimates of future net cash flows from oil and gas interests we may wish
to develop, prepared by independent consultants, will be based upon estimates by
independent engineers of oil and natural gas reserves and the percentage of
those reserves which can be recovered and produced with current technology.
These estimates will include assumptions as to the prices received for the sale
of oil and natural gas. Any one or all of those estimates may be inaccurate,
which could materially affect resulting future net cash flows and working
capital.
We depend on our executive officers for critical management decisions and
industry contacts but have no key person insurance with these individuals.
We are dependent upon the continued services of our executive officers, in
particular, our President, Mr.E. Geoffrey Albers. While we do have an employment
contract with Mr.E. Geoffrey Albers, we do not carry key person insurance on his
life. The loss of the services of any of our executive officers, through
incapacity or otherwise, could have a material adverse effect on our business
and would require us to seek and retain other qualified personnel.
Exploring for and producing oil and natural gas are high risk activities with
many uncertainties that could adversely affect our business, financial condition
or results of operations.
Oil and natural gas exploration activities are subject to numerous risks
beyond our control, including the risk that drilling will not result in
commercially viable oil or natural gas reserves. Our decisions to explore,
assess, appraise or develop or otherwise exploit prospects or properties will
depend in part on the evaluation of data obtained through geophysical and
geological analyses, seismic and other data and engineering studies, the results
of which are often inconclusive or subject to varying interpretations.
Assessment of prospectivity and reserve estimates depend on many assumptions
that may turn out to be inaccurate. Our cost of drilling, completing and
operating wells will be uncertain until drilling concludes. Overruns in budgeted
expenditures are common risks that can make a particular project uneconomical.
Further, many factors may curtail, delay or cancel drilling, including the
following:
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o delays imposed by or resulting from compliance with regulatory
requirements;
o pressure or irregularities in geological formations;
o equipment failures or accidents;
o adverse weather conditions;
o reductions in oil and natural gas prices;
o title problems; and
o limitations in the market for oil and natural gas.
We may incur substantial losses and be subject to substantial liability claims
as a result of oil and natural gas exploration activities.
We are not insured against risks. Losses and liabilities arising from
uninsured and underinsured events could materially and adversely affect our
business, financial condition or results of operations. Our oil and natural gas
exploration activities are subject to all of the operating risks associated with
exploring for oil and natural gas, including the possibility of:
o environmental hazards, such as uncontrollable spills or flows of oil,
natural gas, brine, well fluids, toxic gas or other pollution into the
environment, including groundwater and shoreline contamination;
o abnormally pressured formations;
o mechanical difficulties, such as stuck oilfield drilling and service
tools and casing collapse;
o fires and explosions;
o personal injuries and death; and
o natural disasters.
Any of these risks could adversely affect our ability to operate or result
in substantial losses to our company. We may elect not to obtain insurance if we
believe that the cost of available insurance is excessive relative to the risks
presented. In addition, pollution and environmental risks generally are not
fully insurable. If a significant accident or other event occurs and is not
fully covered by insurance, then it could adversely affect us.
Market conditions or operational impediments may hinder our access to oil and
natural gas markets or delay any production.
Market conditions or the unavailability of satisfactory oil and natural gas
transportation arrangements may hinder our access to oil and natural gas markets
or delay any production. The availability of a ready market for any future oil
and natural gas production will depend on a number of factors, including the
demand for and supply of oil and natural gas and the proximity of reserves to
pipelines and terminal facilities. Our ability to market production (when and if
we have production) will depend in substantial part on the availability and
capacity of gathering systems, pipelines and processing facilities owned and
operated by third parties. Our failure to obtain such services on acceptable
terms could materially harm our business. We may be required to shut-in wells
for a lack of a market or because of inadequacy or unavailability of natural gas
pipeline or gathering system capacity. If that were to occur, then we would be
unable to realize revenue from those wells until production arrangements were
made to deliver our production to market.
22
We are subject to complex laws that can affect the cost, manner or feasibility
of doing business.
Exploration, production and sale of oil and natural gas are subject to
extensive Australian laws and regulations, including the Petroleum (Submerged
Lands) Act 1967 (Commonwealth of Australia) and all regulations, directions and
guidelines made thereunder We may be required to make large expenditures to
comply with our permit obligations and governmental regulations. Matters subject
to such obligations and regulation include:
o permit work program requirements;
o environmental approvals;
o seismic work program approvals
o permits for drilling operations;
o drilling bonds;
o development and production approvals;
o unitization and pooling of properties; and
o taxation.
Under these laws, we could be liable for personal injuries, property damage
and other damages. Failure to comply with these laws may also result in the
suspension or termination of our operations and subject us to administrative,
civil and criminal penalties. Moreover, these laws could change in ways that
substantially increase our costs of doing business. Any such liabilities,
penalties, suspensions, terminations or regulatory changes could materially and
adversely affect our financial condition and results of operations.
Our operations may incur substantial liabilities to comply with applicable
environmental laws and regulations.
Our oil and natural gas operations are subject to stringent Australian laws
and regulations relating to the release or disposal of materials into the
environment or otherwise relating to environmental protection, both of the
environment and of the living things within that environment. These laws and
regulations require the acquisition of approvals before seismic acquisition or
drilling commences, restrict the types, quantities, and concentration of
substances that can be released into the environment in connection with drilling
and production activities, limit or prohibit seismic or drilling activities in
protected areas, and impose substantial liabilities for pollution resulting from
our operations. Failure to comply with these laws and regulations may result in
the assessment of administrative, civil, and criminal penalties, incurrence of
investigatory or remedial obligations, or the imposition of injunctive relief.
Changes in environmental laws and regulations occur frequently, and any changes
that result in more stringent or costly waste handling, storage, transport,
disposal or cleanup requirements could require us to make significant
expenditures to maintain compliance, and may otherwise have a material adverse
effect on our results of operations, competitive position, or financial
condition as well. Under these environmental laws and regulations, we could be
held strictly liable for the removal or remediation of previously released
materials or property contamination regardless of whether we were responsible
for the release of such materials or if our operations were standard in the
industry at the time they were performed.
23
Competition in the oil and natural gas industry is intense, which may adversely
affect our ability to compete.
We operate in a highly competitive environment for the acquisition and
exploration of properties, marketing of oil and natural gas and securing
qualified and experienced personnel. Many of our competitors possess and employ
financial, technical and personnel resources substantially greater than ours,
which can be particularly important in the areas in which we operate. Those
companies often are able to pay more for oil and natural gas properties and
prospects and to evaluate, bid for and purchase a greater number of properties
and prospects than our financial or personnel resources permit. Our ability to
acquire additional prospects and to find and develop reserves in the future will
depend on our ability to evaluate and select suitable properties, to fund
exploration and to consummate transactions in a highly competitive environment.
There is substantial competition for capital available for investment in the oil
and natural gas industry. We may not be able to compete successfully in the
future in acquiring prospective resources, carrying out seismic and drilling
activities, developing reserves, marketing hydrocarbons, attracting and
retaining personnel and raising capital.
We may depend on industry partners and could be seriously harmed if they do not
perform satisfactorily, which is usually not within our control.
Because we have few employees, limited resources and revenues, we will
continue to be largely dependent on industry partners, including farmin
participants and joint venturers, for the success of our oil and gas exploration
projects. We could be seriously harmed if our industry partners do not perform
satisfactorily on projects that affect us. It is likely that we will have no
control over factors that would influence the performance of our partners.
We are controlled by a small number of principal stockholders who may exercise a
proportionately larger influence on the company than its stockholders with
smaller holdings.
We are controlled by a small number of principal stockholders who may cause
events to occur that are not in the interests of the Company's stockholders with
smaller holdings. Our President, Mr.E.Geoffrey Albers, and entities controlled
by him, own approximately 61% of the outstanding common stock (see Item 11).
Accordingly, Mr. Albers has effective control over the election of the Company's
directors and significant influence over our management, operations and affairs,
including the ability to prevent or cause a change in control of the Company.
Anti-takeover provisions of the certificate of incorporation, bylaws and
Delaware law could adversely impact a potential acquisition by third parties
that may ultimately be in the financial interests of the company's stockholders.
Our certificate of incorporation, bylaws and the Delaware General
Corporation Law contain provisions that may discourage unsolicited takeover
proposals. These provisions could have the effect of inhibiting fluctuations in
the market price of the Company's shares that could result from actual or
potential takeover attempts, preventing changes in its management or limiting
the price that investors may be willing to pay for shares of common stock. These
provisions, among other things, authorize the board of directors to designate
the terms of and to issue new series of preferred stock, to limit the personal
liability of directors, and to require the Company to indemnify directors and
officers to the fullest extent permitted by applicable law and to impose
restrictions on business combinations with some interested parties.
24
The market price of our common stock is highly volatile.
The market price of our common stock has been and is expected to continue
to be highly volatile. Prices for our common stock will be influenced by many
factors and may fluctuate widely as a result of factors beyond our control.
General factors which will bear on the price of our common stock include the
depth and liquidity of the market for the common stock, investor perception of
us and our financial and technical ability and general economic and market
conditions.
Our common stock is traded over the counter, which may deprive shareholders of
the full value of their shares.
Our common stock is quoted via the Over The Counter Bulletin Board
(OTC-BB). As such, our common stock may have fewer market makers, lower trading
volumes and larger spreads between bid and asked prices than securities listed
on an exchange such as the New York Stock Exchange or the NASDAQ Stock Market,
Inc. These factors may result in higher price volatility and less market
liquidity for the Common Stock.
A low market price may severely limit the potential market for our common stock.
Our common stock is currently trading at a price substantially below $5.00
per share, subjecting trading in the stock to certain SEC rules requiring
additional disclosures by broker-dealers. These rules generally apply to any
non-NASDAQ equity security that has a market price of less than $5.00 per share,
subject to certain exceptions (a "penny stock"). Such rules require the
delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and institutional or wealthy investors.
For these types of transactions, the broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to the sale. The broker-dealer also
must disclose the commissions payable to the broker-dealer, current bid and
offer quotations for the penny stock and, if the broker-dealer is the sole
market maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Such information must be provided to the
customer orally or in writing before or with the written confirmation of trade
sent to the customer. Monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. The additional burdens imposed upon
broker-dealers by such requirements could discourage broker-dealers from
effecting transactions in our common stock.
Management's Discussion and Analysis or Plan of Operation
General
Australian Oil & Gas Corporation is an independent energy company focused
on exploration and development of oil and natural gas reserves. Our core
business is directed at the acquisition of interests in oil and gas prospects in
the off-shore areas in Australia's territorial waters. Since August 2003, when
current management began operating the company, we have not conducted any
substantive revenue generating business operations. Management has identified
opportunities in oil and gas exploration in Australia, has acquired permits
authorising the exploration for petroleum, has carried out geological and
geophysical programs, including the acquisition of seismic data. It has not yet
made any decision as to the company's future operations other than as disclosed
elsewhere herein.
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We rely on the considerable experience in the oil and gas industry of our
President, Mr.E.G.Albers, and our consultants to identify and conduct initial
geological analyses of properties in which we acquire an interest. We have
devoted essentially all of our resources to the identification and acquisition
of large - tract oil and gas properties and seek to keep our overhead at a
minimum level through the retention of carefully selected consultants,
contractors and service companies. We use proven modern technologies to evaluate
properties and prospects. Generally, we expect to invest in projects at
different percentage levels of participation, with our intention being to spread
risk and to reduce the Company's financial commitments through either farmout or
sale.
To date, together with certain other affiliated joint venturers, the
Australian authorities have awarded us interests in 14 Petroleum Exploration
Permits. We now hold a 15% interest in permits ACP/33, ACP/35 and AC/P39. We
hold an 80% interest in NT/P70 and a 100% interest in NT/P73. Through the
acquisition of Alpha, our 100% owned subsidiary, we now hold a 20% interest in
the remaining permits of the Browse Joint Venture, being permits WA-332-P,
WA-333-P and WA-342-P. As a result of the acquisition of Nations, our 100% owned
subsidiary, we now hold a 24% interest in the permits of the National Gas
Consortium, being permits NT/P62, NT/P63, NT/P64, NT/P65, NT/P71 and NT/P72.
Liquidity and Capital Resources
The following table reflects our working capital position at December 31,
2007:
Current assets $484
Current liabilities $573
Working capital $(89)
Current ratio 0.84
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To date, in order to fund on-going administration and the cost of
acquisition of interests, the Company has largely relied on infusions of cash
through the advances of Great Missenden Holdings Pty Ltd, an affiliated company
associated with our President, Mr.E.Geoffrey Albers. We have also relied upon
farmin from National Gas Australia Pty Ltd (also an affiliated company
associated with Mr Albers) by way of farmout to fund a significant proportion of
our seismic and associated obligations. When we require further funds, it is our
intention that the additional funds would be raised in a manner deemed most
expedient by the Board of Directors at the time, taking into account budgets,
the interest of industry in co-participation in our programs, stock market and
oil and gas market conditions. When additional funds for exploration are
required, our strategy to meet our obligations by either partial sale of our
interests or farm out, the latter course of action being a vital part of
managements overall strategy. We would also look to further issues of stock or
the promotion of new companies formed for the purpose of funding exploration
within our permit interests. Should funds be required for appraisal or
development purposes we would, in addition, look to project loan finance.
26
Our cash requirements for the next 12 months to support the operations are
currently assessed to be approximately $400,000. This figure includes office
administration of $75,000, and payments of approximately $325,000 for
exploration with respect to the Permits of the Vulcan Joint Venture, the Permits
of the Browse Joint Venture and of the National Gas Consortium and NT/P70 and
NT/P73. The Company has sufficient liquid capital to support its operations
during the next twelve months.
In addition, if the Company is to maintain its portfolio of tenement
interests then it will have to make future binding commitments to carry out
specified work programs in order to meet permit terms. We may also elect to
carry out exploration over and above our minimum permit commitments or enter
into new projects with expenditure obligations.
Expenditure commitments include obligations arising from the minimum work
obligations for the initial 3 year period of exploration permits and thereafter
commitments made annually. Minimum work obligations, may, subject to negotiation
and approval, be varied or suspended or extended. They may also be satisfied by
farmout, sale, relinquishment or surrender of a permit.
However, if the Company requires further funds, the Company can seek the
farmout or sale of permit interests, or further advances from Great Missenden
Holdings Pty Ltd ("GMH") or the sponsorship of new companies for this purpose,
or through the sale of additional shares of our common stock.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements as defined in
Item 303(c) of Regulation S-B and it is not anticipated that the Company will
enter into any off-balance sheet arrangements.
Critical Accounting Policies
Management has identified the accounting policies described below as
critical to our business operations and the understanding of the results of
operations. The impact and any associated risks related to these policies on our
business operations are discussed throughout this section where such policies
affect our reported and expected financial results. The preparation of this
Annual Report requires us to make estimates and assumptions that affect the
reported amount of assets and liabilities, revenues and expenses of the Company
during the reporting period and contingent assets and liabilities as of the date
of our financial statements. There can be no assurance that the actual results
will not differ from those estimates.
Undeveloped oil and gas properties:
We will utilize the "successful efforts" method of accounting for
undeveloped mineral interests and oil and gas properties. Costs of carrying and
retaining undeveloped properties are to be charged to expense when incurred.
Capitalized costs are to be charged to operations at the time the Company
determines that no economic reserves exist. Proceeds from the sale of
undeveloped properties are to be treated as a recovery of cost. Proceeds in
excess of the capitalized cost realized from the sale of any such properties, if
any, are to be recognized as gain to the extent of the excess.
27
ITEM 7. FINANCIAL STATEMENTS
Our financial statements for the fiscal year ending December 31, 2007 are
attached hereto beginning on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 8A CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the
"Exchange Act"), we carried out an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures as of December 31, 2007.
This evaluation was carried out under the supervision and with the participation
of our President and Chief Financial Officer. Based upon that evaluation, our
President and Chief Financial Officer concluded that our disclosure controls and
procedures are effective as of such date.
As used herein, "disclosure controls and procedures" means controls and
other procedures of ours that are designed to ensure that information required
to be disclosed by us in the reports we file or submit under the Securities
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by us in
the reports we file under the Securities Exchange Act is accumulated and
communicated to our management, including our President and Chief Financial
Officer, or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure.
Internal Controls
Since the date of the evaluation described above, there were no significant
changes in our internal control or in other factors that could significantly
affect these controls, and there were no corrective actions with regard to
significant deficiencies and material weaknesses.
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Management's Report on Internal Control over Financial Reporting
The management of Australian Oil and Gas, Inc ("the Company") is
responsible for (1) the preparation of the accompanying financial statements;
(2) establishing and maintaining internal controls over financial reporting; and
(3) the assessment of the effectiveness of internal control over financial
reporting. The Securities and Exchange Commission defines effective internal
control over financial reporting as a process designed under the supervision of
the company's principal executive officer and principal financial officer, and
implemented in conjunction with management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements in accordance with generally accepted
accounting principles.
All internal control systems, no matter how well designed, have inherent
limitations and provide only reasonable assurance that the objectives of the
control system are met, Therefore, no evaluation of controls can provide
absolute assurance that all control issues and misstatements due to error or
fraud, if any, within the company have been detected. Additionally, any system
of controls is subject to risk that controls may become inadequate due to
changes in conditions or that compliance with policies or procedures mat
deteriorate. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because
changes in conditions or that compliance with the policies or procedures may
deteriorate.
As of December 31, 2007, management of the Company conducted as assessment
of the effectiveness of the company's internal control over financial reporting
based on criteria established in the framework in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. From this assessment, management has concluded that the company's
internal control over financial reporting was effective as of December 31, 2007.
This Annual Report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Company to provide only management's
report in this annual report.
/s/ E. Geoffrey Albers
----------------------
E. Geoffrey Albers,
Chief Executive Officer and
Chief Financial Officer
(Principal Executive and Financial Officer)
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ITEM 8B OTHER INFORMATION
Not applicable
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
Set forth below are the names of each of the executive officers of the
Registrant and the position held:
Name Age Position
Ernest Geoffrey Albers 63 President, Treasurer and
Director
William Ray Hill 57 Director, Vice President
Mark Anthony Muzzin 45 Director, Vice President
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Ernest Geoffrey Albers has been our President and Treasurer and a director
since August 2003. Mr. Albers is a company director with over 30 years
experience as a lawyer and administrator in Australian corporate law, petroleum
exploration and resource sector investment. During this period Mr Albers has
sponsored the formation of companies that have made the original Maari (Moki)
oilfield discovery and development in New Zealand, the Yolla Gas/Condensate
discovery in Bass Strait, the Evans Shoal gasfield discovery/ appraisal in the
Timor Sea, the Oyong and Wortel gas/oil discoveries in Indonesia and the SE Gobe
oilfield development in Papua New Guinea. He is a director of Australian
publicly listed companies; Bass Strait Oil Company Ltd, Cue Energy Resources
Limited, Moby Oil & Gas Limited and Octanex N.L. He is a member of the Petroleum
Exploration Society of Australia and a Fellow of the Institute of Directors in
Australia.
W. Ray Hill has been a director of the Company since August 2003. Mr. Hill
founded Rocky Mountain Minerals, Inc. in 1978 and is currently a director. Mr.
Hill is President and Director of The Zonia Company, an Arizona real estate
development company. Mr. Hill is the founder and President of Geowest
Corporation, which is involved in the development of a solid waste construction
and demolition landfill. In 1988 Mr. Hill founded Citizens Recycle & Collection,
a solid waste hauling and Transfer Company, which was acquired by Waste
Management, Inc. in 1996.
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Mark A Muzzin was appointed a director of the Company on November 16, 2005.
Mr Muzzin has had over 20 years of commercial experience and holds a B.A. degree
from Latrobe University, Melbourne, Australia. His career commenced in the mid
eighties for a London stock broking firm and has consulted for two of the major
banks in Australia in the share custodian area. He has been involved in capital
raising activities for resource companies in Australia and is a consultant for
various oil and gas companies. He is President of Rocky Mountain Minerals, Inc
and is a director of Goldsborough Limited, and is a director in a number of
Australian private companies. Mr Muzzin is a member of the Petroleum Exploration
Society of Australia.
Board/Committee Matters
The Company does not currently maintain separate standing committees,
including an Audit, Nominating or Compensation Committee, of the Board of
Directors, because of the small size of the Board and of the Company. As a
result, the entire Board of Directors acts as these Committees for the purpose
of overseeing these functions, including the Company's accounting and financial
reporting processes, and the audits of the financial statements by our
independent registered public accounting firm.
Board Attendance
The Board of Directors met six times during the year ended December 31,
2007. During 2007, each of the directors attended at least 100% of the total
number of meetings of the Board of Directors. It is the Company's policy that,
absent unusual or unforeseen circumstances, all of the directors are expected to
attend annual meetings of stockholders.
Audit Committee Financial Expert
We do not have an audit committee financial expert serving on our Board of
Directors because no current member of the Board has the requisite experience
and education to qualify as an audit committee financial expert as defined in
Item 401 of Regulation S-B and because we are a start up oil and gas exploration
company with limited revenues to date. However, in the future, the current
members of the Board intend to consider such qualifications in making future
nominations of persons to join our Board of Directors.
Report of the Board, Acting as the Audit Committee
The Board of Directors, acting as the Audit Committee, has prepared the
following report for inclusion in this Annual Report. The Board has the
responsibility for reviewing the Company's accounting practices, internal
accounting controls and financial results and is responsible for the engagement
of the Company's independent auditors. The Board met six times in 2006 and has
reviewed and discussed the audited financial statements with the Company's
management.
The Board has discussed with the independent auditors the matters required
to be discussed by SAS 61 (Codification of Statements on Auditing Standards, AU
Section 380), as may be modified or supplemented.
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The Board has received the written disclosures and the letter from the
independent auditors required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), as may be modified or
supplemented, and has discussed with the independent auditors the independent
auditors' independence.
Based on the review and discussions referred to in the foregoing three
paragraphs, the Board of Directors determined that the audited financial
statements be included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 2007 for filing with the Securities and Exchange
Commission.
E. Geoffrey Albers
Mark A. Muzzin
W. Ray Hill
Dated: March 28, 2008
THIS REPORT SHALL NOT BE DEEMED INCORPORATED BY REFERENCE INTO ANY FILING UNDER
THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934, EXCEPT TO THE
EXTENT THAT THE COMPANY SPECIFICALLY INCORPORATES IT BY REFERENCE, AND SHALL NOT
OTHERWISE BE DEEMED TO BE FILED UNDER SUCH ACTS.
Code of Ethics
The Board of Directors on March 28, 2007, adopted a code of ethics for the
Company's principal executive, financial and accounting officers. (See Exhibit
21 to the 2006 10KSB).
The Code has created written standards that require accountability for
adherence to the code and have been designed to deter wrongdoing and to promote
honest and ethical conduct, including the ethical handling of actual or apparent
conflicts of interest between personal and professional relationships. The code
requires full, fair, accurate, timely, and understandable disclosure in reports
and documents that the Company files with, or submits to, the Commission and in
other public communications. The code includes requirements for compliance with
applicable governmental laws, rules and regulations and the prompt internal
reporting of violations of the code to an appropriate person or persons
identified in the code.
The Company will provide to any person without charge, upon request, a copy
of such code of ethics. The Code is available by written request to the Company
at its address 2480 North Tolemac Way, Prescott, Arizona 86305, United States of
America or by email to admin@ausoil.com.
Section 16(A) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Act of 1934 requires our officers and
directors, and greater than 10% stockholders, to file reports of ownership and
changes in ownership of our securities with the Securities and Exchange
Commission. Copies of the reports are required by SEC regulation to be furnished
to us.
Based solely upon a review of Forms 3 and 4 furnished to the Company, the
Company is not aware of any director, officer, or beneficial owner of more than
ten percent of the Common Stock of the Company, who failed to file, on a timely
basis, reports required by Section 16(a) of the Securities Exchange Act of 1934.
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ITEM 10. EXECUTIVE COMPENSATION
Compensation awarded to, earned by, or paid to our sole executive officer
whose compensation exceeded $100,000.
Summary Compensation Table for 2007
Name and Principal Position Year Salary Stock Awards Total
($) ($) * ($)
--------------------------- ---- ------ ------------ --------
E.G. Albers 2007 NIL $90,000 $ 90,000
(PEO)
President and Treasurer
2006 NIL $200,000 $200,000
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* This amount is the SFAS 123(R) grant date fair value of the shares issued.
All other tables regarding executive officer compensation have been omitted
as inapplicable.
Our directors are not compensated for their service on the Board.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth, as of December 31, 2007, certain
information with respect to the beneficial ownership of shares of common stock
by (i) any officer of our company, (ii) each director of our company, (iii) each
person known to us to be the beneficial owner of more than 5 percent of our
outstanding shares of common stock, and (iv) our directors and executive
officers as a group.
Number
Beneficial Owner of Shares (1) Percent of Class (2)
---------------- ------------- --------------------
Ernest Geoffrey Albers (3) 21,900,003 61.00
William Ray Hill 100,000 0.28
Mark Anthony Muzzin 0 0
All executive officers and 22,000,003 61.28%
directors as a group (3 persons)
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(1) The number of shares and the percentage of the class beneficially owned by
the entities above are determined under rules promulgated by the SEC and
the information is not necessarily indicative of beneficial ownership for
any other purpose. Under such rules, beneficial ownership includes any
shares as to which the individual has sole or shared voting power or
investment power and also any shares which the individual has the right to
acquire within 60 days through the exercise of any stock option or other
right. The inclusion herein of such shares, however, does not constitute an
admission that the named stockholder is a direct or indirect beneficial
owner of such shares. Unless otherwise indicated, each person or entity
named in the table has sole voting power and investment power (or shares
such power with his or her spouse) with respect to all shares of capital
stock listed as beneficially owned by such person or entity.
(2) Percentages are based upon the total 35,900,531 outstanding shares of
Common Stock combined with the number of shares of Common Stock
beneficially owned by each person or entity.
(3) Includes shares of common stock registered in the names of Mr. Albers'
family members and affiliates.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Set forth below is information regarding transactions involving the Company
and executive officers, directors and significant shareholders of the Company
during the most recent fiscal year and for the prior fiscal year.
Some of our directors and officers are engaged in various aspects of oil
and gas exploration and development for their own account and through other
entities in which they are directors and or shareholders. Furthermore, as
described in this Item 12, certain of our directors and officers are involved in
transactions with the Company. We have no policy prohibiting, nor does our
Certificate of Incorporation prohibit, transactions between the Company and our
officers and directors. We may enter into cost-sharing arrangements with respect
to geological investigations, seismic acquisition and drilling of our
properties. Directors and officers may participate, from time to time, in these
arrangements and such transactions may be on a non-promoted basis (actual
costs), or on a promoted basis, but must be approved by a majority of the
disinterested directors of the Board of Directors.
With respect to Mr E.G. Albers, President, Treasurer and a director of AOGC
and each of its subsidiaries including Gascorp, Alpha and Nations, transactions
were entered into, in relation to:
* Great Missenden Holdings Pty Ltd: Mr. Albers is a director and
shareholder of Great Missenden Holdings Pty Ltd. Effective from April 4, 2005,
in return for the previous advances of $212,000, the Company issued to Great
Missenden Holdings Pty Ltd 212 Series I Convertible Notes of $1,000 each, with
an interest coupon of 10% per annum, convertible into shares of Common Stock at
any time on or before December 31, 2007 on the basis of 12,500 shares of Common
Stock for every $1,000 Convertible Note or part thereof. Effective from April
26, 2005, Great Missenden Holdings Pty Ltd approved a further $100,000 Line of
Credit to the Company in return for the issue to Great Missenden Holdings of 100
Series II Convertible Notes of $1,000 each with an interest rate of 10% per
annum, convertible into shares of Common Stock at any time on or before 31
December, 2008 on the basis of 10,000 shares of Common Stock for every $1,000
Series II Convertible Notes or part thereof. As at December 31, 2007, an amount
of $93,000 had been drawn down pursuant to the $100,000 Line of Credit, which
were converted into these Series II Notes. A total charge of $27,722 by way of
interest on all advances from Great Missenden Holdings Pty Ltd was incurred
during the year 2007.
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* Setright Oil & Gas Pty Ltd: Mr Albers is a director and shareholder of
Setright Oil & Gas Pty Ltd. For the year ended December 31, 2007, Setright Oil &
Gas Pty Ltd charged the Company $66,625 for the provision of accounting and
administrative services rendered by third parties for the benefit of the
Company, but not including services rendered by Mr. E Geoffrey Albers, who is
remunerated separately by way of the issue of shares of common stock. AOGC's
subsidiaries have the use of premises in Australia at Level 21, 500 Collins
Street, Melbourne, Victoria. The office space is taken on a nonexclusive basis,
with no rent payable, but the usage of the premises is included in the charges
Setright Oil & Gas Pty Ltd makes in respect to the administration of the
Company.
* Vulcan Joint Venture: With regard to exploration permits ACP/33, ACP/35
and AC/P39 (Vulcan Joint Venture), Mr. Albers is a director and shareholder in
each the joint venture participants; namely National Gas Australia Pty Ltd,
National Gas Australia Pty Ltd, Natural Gas Corporation Pty Ltd and Auralandia
N.L. Expenditure incurred during this period by National Gas Australia Pty Ltd
(in which Mr Albers is the sole shareholder and sole director) in relation to
the acquisition and processing of the 124 km(2) Oliver 3D Seismic Surveys in
AC/P33 was in the order of $2,950,000. Further expenditure in the order of
$1,750,000 was incurred during this period by National Gas Australia Pty Ltd in
relation to the reprocessing of the Onnia Seismic Surveys in AC/P35 and AC/P39.
As a result of incurring these expenditures, National Gas Australia Pty Ltd has
earned a 25% interest in each of AC/P33, AC/P35 and AC/P39 (Vulcan Joint
Venture), 5% of which was earned from AOGC subsidiary, Alpha.
* Browse Joint Venture: With regard to the remaining permits of the Browse
Joint Venture (WA-332-P, WA-333-P and WA-342-P), Mr. Albers is a director and
shareholder in each of Batavia Oil & Gas Pty Ltd and Hawkestone Oil Pty Ltd. He
is a major shareholder in the parent company of Goldsborough Energy Pty Ltd. All
of these companies are the holders of the Browse Joint Venture.
* National Gas Consortium. With regard to the National Gas Consortium
(NT/P62, NT/P63, NT/P64, NT/P65, NT/P71 and NT/P72), Mr. Albers is a director
and shareholder in each of National Gas Australia Pty Ltd, National Oil & Gas
Pty Ltd, and Australian Natural Gas Pty Ltd. Expenditure incurred during this
period by National Gas Australia Pty Ltd (in which Mr Albers is the sole
shareholder and sole director) in relation to the acquisition of the 887 line km
Sunshine Seismic Survey is in the order of $850,000. Further expenditure
incurred during this period by National Gas Australia Pty Ltd in relation to the
acquisition of the 3,291 line km Kurrajong 2D Seismic Survey is in the order of
$3,000,000. As a result of incurring this expenditure, National Gas Australia
Pty Ltd has earned a 20% interest in each of NT/P62, NT/P63, NT/P64, NT/P65,
NT/P71 and NT/P72, (National Gas Consortium), of which 6% was earned from
Nations.
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* NT/P70 Joint Venture. With regard to the NT/P70 Joint Venture, Mr Albers
is a director and shareholder in National Gas Australia Pty Ltd. Expenditure
incurred during this period by National Gas Australia Pty Ltd (in which Mr E.G.
Albers is the sole shareholder and sole director) in relation to the acquisition
of the 795 line km Crocodile 2D Seismic Survey is in the order of $950,000. As a
result of this expenditure, National Gas Australia Pty Ltd earned a 20% interest
in NT/P70 from AOGC.
* Acquisition of Subsidiaries
On April 12, 2006, AOGC completed the acquisitions of 100% of the voting
equity interests in each of Nations Natural Gas Pty Ltd (Nations) and Alpha Oil
& Natural Gas Pty Ltd (Alpha), both companies carrying on oil and gas
exploration activities offshore from Australia. Each company incorporated in
Australia. A director of AOGC, Mr. E. Geoffrey Albers, is a director and or
shareholder of each of the sellers of shares in Nations and Alpha.
Mr. E. Geoffrey Albers is a director and or shareholder of each of the
sellers of shares in Nations and Alpha. Mr. E. Geoffrey Albers had beneficial
ownership percentages of 99.8% in Alpha and 98.8% in Nations prior to the
acquisition by AOGC and had a beneficial ownership percentage of 53% in AOGC
prior to the completion of the acquisitions and had a beneficial ownership
percentage of 59.22% in AOGC after the completion of the acquisitions.
The purchase of Nations was made in order to acquire an interest in the
four permits of the National Gas Consortium, being permits, NT/P62, NT/P63,
NT/P64 and NT/P65. The shareholders of Nations have received 2,100,001 shares of
common stock in AOGC and the payment of AUD$50,000 as consideration for Nations.
The purchase of Alpha was made in order to acquire an interest in the
Browse Joint Venture, then being permits WA-332-P, WA-333-P, WA-341-P and
WA-342-P. The shareholders of Alpha have received 2,000,002 shares of common
stock in AOGC and the payment of AUD$100,000 as consideration for Alpha.
With respect to Mr M.A. Muzzin, Vice President and Director of AOGC and a
Director of its subsidiaries, Nations Natural Gas Pty Ltd and Alpha Oil &
Natural Gas Pty Ltd. Mr. Muzzin is a director of Goldsborough Energy Pty Ltd, a
subsidiary of Goldsborough Limited. Goldsborough Energy Pty Ltd holds a 10%
interest in the Browse Joint Venture.
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