UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 17, 2006
AUSTRALIAN OIL & GAS CORPORATION
------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 000-26721 84-1379164
--------------------------- ---------- ---------------
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
2480 North Tolemac Way, Prescott, Arizona 86305
----------------------------------------- --------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (928) 778 1450
-----------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
EXPLANATORY STATEMENT
---------------------
This Amended Current Report on Form 8-K/A amends and supplements the Current
Report on Form 8-K filed with the Commission on April 17, 2006. This Amended
Current Report provides, among others, the information required by Item 9.01 -
Financial Statements, Pro Forma Information and Exhibits.
Item 2.01. Completion of Acquisition or Disposition of Assets.
As reported on Form 8-K filed on April 17, 2006, Australian Oil & Gas
Corporation (AOGC) completed on April 12, 2006 the acquisitions of each of
Nations Natural Gas Pty Ltd (Nations) and Alpha Oil & Natural Gas Pty Ltd
(Alpha), both companies incorporated in Australia.
Item 9.01. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. In accordance with Item 9.01
(a), the following are filed herewith and incorporated herein by reference:
- Financial statements of Alpha Oil & Natural Gas Pty Ltd (Alpha)
- Independent Auditor's Report
- Balance Sheet at December 31, 2005
- Statement of Operations for the years ended December 31, 2005 and
2004
- Statement of Changes in Shareholders' Equity for the years ended
December 31, 2005 and 2004
- Statement of Cash Flows for year ended December 31, 2005
- Notes to Financial Statements
- Financial statements of Nations Natural Gas Pty Ltd (Nations)
- Independent Auditor's Report
- Balance Sheet at December 31, 2005
- Statement of Operations for the years ended December 31, 2005 and
2004
- Statement of Changes in Shareholders' Equity for the years ended
December 31, 2005 and 2004
- Statement of Cash Flows for year ended December 31, 2005
- Notes to Financial Statements
(b) PRO FORMA FINANCIAL INFORMATION. In accordance with Item 9.01 the following
are filed herewith and incorporated herein by reference. Unaudited pro
forma financial statements as of December 31, 2005 and March 31, 2006 are
filed herewith and incorporated herein by reference:
o Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the year ended December 31, 2005
o Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March
31, 2006
o Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the three months ended March 31, 2006
(c) EXHIBITS.
The exhibits listed in the following Exhibit Index are filed are filed as
part of this report.
EXHIBIT NO. DESCRIPTION
----------- -----------------------------------------------------------------
10.1 Sale and Purchase of Shares in Alpha Oil & Natural Gas Pty Ltd,
dated as of April 12, 2006.
10.2 Amending Agreement to the Sale and Purchase of Shares in Alpha
Oil & Natural Gas Pty Ltd, dated as of June 29, 2006.
10.3 Sale and Purchase of Shares in Nations Natural Gas Pty Ltd, dated
as of April 12, 2006.
10.4 Amending Agreement to the Sale and Purchase of Shares in Nations
Natural Gas Pty Ltd, dated as of June 29, 2006.
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 hereunto duly authorized.
AUSTRALIAN OIL & GAS CORPORATION
Date: July 17, 2006 By: /s/ E. Geoffrey Albers
----------------------
E. Geoffrey Albers
President
Index to Financial Statements
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED:
Financial Statements of Alpha Oil & Natural Gas Pty Ltd (Alpha)
---------------------------------------------------------------
Audit Report................................................................F-1
Balance Sheet...............................................................F-2
Statement of Operations.....................................................F-3
Statement of Changes in Shareholders' Equity................................F-4
Cash Flow Statement.........................................................F-5
Notes to the Financial Statements....................................F-6 - F-13
Financial Statements of Nations Natural Gas Pty Ltd (Nations)
-------------------------------------------------------------
Audit Report...............................................................F-14
Balance Sheet..............................................................F-15
Statement of Operations....................................................F-16
Statement of Changes in Shareholders' Equity...............................F-17
Cash Flow Statement........................................................F-18
Notes to the Financial Statements...................................F-19 - F-26
(b) Pro Forma Financial Information:
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the year ended December 31, 2005...........................................F-27
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
March 31, 2006.............................................................F-28
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the three months ended March 31, 2006......................................F-29
Notes to Unaudited Condensed Consolidated Financial Statements for the three
months ended March 31, 2006
............................................................................F-30
INDEPENDENT AUDITORS' REPORT
----------------------------
We have audited the accompanying balance sheet of Alpha Oil & Natural Gas Pty
Ltd as of 31 December 2005, and the related income statement, statement of
changes in equity and cash flow statement for each of the two years in the
period ended 31 December 2005. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in Australia and the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as, evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the balance sheet of Alpha Oil & Natural Gas Pty Ltd at
31 December 2005 and the results of its operations and its cash flows for each
of the two years in the period ended 31 December 2005 in conformity with
accounting principles generally accepted in Australia.
Accounting principles generally accepted in Australia vary in certain respects
from accounting principles generally accepted in the United States. The
application of the accounting principles generally accepted in the United Stated
would have affected the determination of net income for each of the two years in
the period ended 31 December 2005 and the determination of total equity at 31
December 2005 to the extent summarised in note 14 to the financial statements.
/s/ PKF
--------------------
Melbourne, Australia
5 July 2006
F-1
ALPHA OIL & NATURAL GAS PTY LTD
BALANCE SHEET
AS AT 31 December 2005
2005
NOTES A$
---------
Current Assets
Cash and cash equivalents 1
Receivables from director related entities 4 25,004
---------
TOTAL CURRENT ASSETS 25,005
---------
Non-Current Assets
Deferred exploration costs 5 272,267
---------
TOTAL NON-CURRENT ASSETS 272,267
---------
TOTAL ASSETS 297,272
---------
Current Liabilities
Payables 6 293,524
---------
TOTAL CURRENT LIABILITIES 293,524
---------
TOTAL LIABILITIES 293,524
---------
NET ASSETS 3,748
---------
Shareholders' Equity
Contributed equity 1,000,001
Accumulated losses (996,253)
---------
TOTAL SHAREHOLDERS' EQUITY 3,748
---------
See accompanying notes to the financial statements
F-2
ALPHA OIL & NATURAL GAS PTY LTD
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED 31 December 2005 and 2004
2005 2004
NOTES A$ A$
-------- ---------
Revenues - -
Expenses 2 (11,861) (984,392)
-------- ---------
Loss before income tax (11,861) (984,392)
Income tax benefit 3 - -
-------- ---------
Loss after income tax (11,861) (984,392)
-------- ---------
See accompanying notes to the financial statements
F-3
ALPHA OIL & NATURAL GAS PTY LTD
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED 31 December 2005 and 2004
Contributed Accumulated Total
Equity Losses Equity
A$ A$ A$
---------- ---------- ----------
Balance at 1 January 2004 1,000,001 -- 1,000,001
Loss after income tax -- (984,392) (984,392)
---------- ---------- ----------
Balance at 31 December 2004 1,000,001 (984,392) 15,609
Loss after income tax -- (11,861) (11,861)
---------- ---------- ----------
Balance at 31 December 2005 1,000,001 (996,253) 3,748
========== ========== ==========
See accompanying notes to the financial statements
F-4
ALPHA OIL & NATURAL GAS PTY LTD
CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 December 2005
2005 2004
NOTES A$ A$
-------- --------
CASH FLOWS FROM ACTIVITIES
Net increase in cash held -- --
Cash at the beginning of the financial year 1 1
-------- --------
CASH AT THE END OF THE FINANCIAL YEAR 1 1
-------- --------
RECONCILIATION OF LOSS AFTER INCOME TAX TO NET
CASH USED IN OPERATING ACTIVITIES
Loss after income tax (11,861) (984,392)
Write down of Investments -- 974,995
Movements in assets
Decrease in receivables 1 --
Increase in deferred exploration costs (228,638) (43,629)
Movements in liabilities
Increase in payables 240,498 53,026
-------- --------
Net cash used in operating activities -- --
-------- --------
See accompanying notes to the financial statements
F-5
ALPHA OIL & NATURAL GAS PTY LTD
NOTES TO THE FINANCIAL STATEMENTS
31 DECEMBER 2005
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Alpha Oil and Natural Gas Pty Ltd is a company incorporated and domiciled
in Australia with its registered office at Level 25, 500 Collins St,
Melbourne, Victoria. Operations of the company comprise exploration
activities for oil and gas reserves.
The financial report was authorised by the directors for issue on July 5,
2006.
(a) Basis of Preparation
The financial report is a general purpose financial report which has been
prepared in accordance with Accounting Standards, Urgent Issues Group
Interpretations, other authoritative pronouncements of the Australian
Accounting Standards Board. This is the first AIFRS financial report
presented by Alpha Oil and Natural Gas Pty Ltd. Australian Accounting
Standards include Australian equivalents to International Financial
Reporting Standards (IFRS). Compliance with the Australian equivalents to
IFRS (AIFRS) ensures that the financial report complies with IFRS.
The financial report is presented in Australian dollars and conforms with
Australian Accounting Standards that require management to make judgements,
estimates and assumptions that affect the application of policies and
reported amounts of assets and liabilities, income and expenses. The
estimates and associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the judgements
and carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates.
The financial report has been prepared on the basis of historical costs
and, except where stated, does not take into account changing money values
or fair values of assets. These accounting policies have been consistently
applied and are consistent with those of the previous year.
(b) Going Concern
The financial report has been prepared under the going concern concept
(which assumes the realisation of assets and the extinguishment of
liabilities in the normal course of business at the amounts stated in the
financial statements) on the assumption that the Company achieves
appropriate funding by capital raising or sale or farmout of its petroleum
exploration tenement interests. The directors consider this basis to be
appropriate.
Details of funds received subsequent to year end are disclosed in note 12.
(c) Recoverable amount assets
At each reporting date, the Company assesses whether there is any
indication that an asset may be impaired. Where an indicator of impairment
exists, the Company makes a formal estimate of the recoverable amount.
Where the carrying amount of an asset exceeds its recoverable amount the
asset is considered impaired and is written down to its recoverable amount.
Recoverable amount is the greater of fair value less costs to sell and
value in use. It is determined for an individual asset, unless the asset's
value in use cannot be estimated to be close to its fair value less costs
to sell and it does not generate cash inflows that are largely independent
of those from other assets or groups of assets, in which case, the
recoverable amount is determined for the cash-generating unit to which the
asset belongs.
In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the
asset.
F-6
ALPHA OIL & NATURAL GAS PTY LTD
NOTES TO THE FINANCIAL STATEMENTS
31 DECEMBER 2005
(d) Taxes
Income Tax
Income taxes are accounted for using the comprehensive balance sheet
liability method whereby:
o The tax consequences of recovering (settling) all assets
(liabilities) are reflected in the financial statements;
o Current and deferred tax is recognised as income or expense
except to the extent that the tax related to equity items or to a
business combination;
o A deferred tax asset is recognised to the extent that it is
probable that future taxable profit will be available to realise
the asset;
o Deferred tax asset and liabilities are measured at the tax rates
that are expected to apply to the period where the asset is
realised or the liability settled.
Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of GST,
except where the amount of GST incurred is not recoverable from the
taxation authority. In these circumstances, the GST is recognised as part
of the cost of acquisition of the asset or as part of the expense.
Receivables and payables are stated with the amount of GST included.
(e) Receivables
Trade and other receivables are stated at principle amounts due at balance
date plus any accrued interest less impairment losses.
(f) Payables
Trade and other payables are stated at principle amounts due at balance
date plus any accrued interest.
(g) Contributed Equity
Ordinary share capital is recognised at the fair value of the consideration
received by the Company. Transactions costs arising on the issue of
ordinary shares are recognised directly in equity as a reduction of the
consideration received.
(h) Exploration and Evaluation Expenditure
Exploration and evaluation expenditure is measured on the cost basis,
accumulated separately for each area of interest and carried forward
provided that one of the following conditions is met:
- such costs are expected to be recouped through successful development
and exploitation of the area of interest or sale; or
- exploration activities have not yet reached a stage which permits a
reasonable assessment of the existence or otherwise of economically
recoverable reserves, and active and significant operations in
relation to the area are continuing.
Exploration expenditure which no longer satisfies the above conditions is
written off. In addition, a provision is raised against exploration
expenditure where the directors are of the opinion that the carried forward
net cost may not be recoverable. The increase in the provision is charged
against the results for the year.
F-7
ALPHA OIL & NATURAL GAS PTY LTD
NOTES TO THE FINANCIAL STATEMENTS
31 DECEMBER 2005
(i) Restoration, Rehabilitation and Environment Expenditure
Restoration, rehabilitation and environmental costs necessitated by
exploration and evaluation activities are provided for as part of the cost
of those activities. Costs are estimated on the basis of the present value
of the future expenditure required to settle the obligation, current legal
requirements and current technology.
Estimates of future costs are reassessed at least annually. Changes in
estimates relating to areas of interest in the exploration and evaluation
phase are dealt with retrospectively, with any amounts that would have been
written off or provided against under the accounting policy for exploration
and evaluation immediately written off. Changes in estimates of costs
relating to producing areas are dealt with prospectively over the remaining
resource life.
(j) Joint Ventures
Interest in joint ventures is brought to account by including in the
respective classifications, the Company's share of individual assets
employed and share of liabilities and expenses incurred. Where the Company
is acquiring or disposing of a joint venture interest, the Company's share
of joint venture assets is based on the contributions made to the joint
venture.
F-8
ALPHA OIL & NATURAL GAS PTY LTD
NOTES TO THE FINANCIAL STATEMENTS
31 DECEMBER 2005
2. EXPENSES
2005 2004
NOTES A$ A$
-------- --------
Loss from ordinary activities before income tax expense has been
arrived at after charging the following items:
Audit fees 3,500 5,000
ASIC fees 212 470
Interest Expense 8,149 3,927
Write down of investments 13 - 974,995
-------- --------
11,861 984,392
-------- --------
3. INCOME TAX
Prima facie income tax benefit calculated at 30% of the
loss (3,558) (2,819)
Deferred tax asset not brought to account 3,558 2,819
-------- --------
Income tax expense - -
-------- --------
Estimated deferred tax asset arising from tax losses
and temporary differences not recognised as an asset because
recovery is not probable 6,377 2,819
The deferred tax asset will only be obtained if:
(a) the company derives future assessable income of a nature and of an
amount sufficient to enable the benefit to be realised;
(b) the company continues to comply with the conditions for deductibility
imposed by the law; and (c) no changes in tax legislation adversely affect
the company in realising the benefit.
4. RECEIVABLES
2005
A$
---------
Advances to director related entities 10 25,004
---------
25,004
---------
5. DEFERRED EXPLORATION COSTS
Carrying amount at beginning of period 43,629
Deferred exploration cost capitalised during the year 228,638
---------
Carrying amount at end of period 272,267
---------
Ultimate recovery of deferred exploration costs carried forward is
dependent upon achieving appropriate funding by capital raising or sale or
farmout of petroleum exploration tenement interests for continued support
of exploration activities.
6. PAYABLES
Trade creditors 182,400
Payables due to Director related entities 10 102,624
Other trade payables and accrued expenses 8,500
---------
293,524
---------
F-9
ALPHA OIL & NATURAL GAS PTY LTD
NOTES TO THE FINANCIAL STATEMENTS
31 DECEMBER 2005
7. EXPLORATION EXPENDITURE COMMITMENTS
2005
A$
-------
Minimum work requirements contracted for under exploration permit interests
are estimated at balance date:
Browse Joint Venture
Payable within one year 59,178
Payable later than one year but not later than three years 25,205
-------
84,383
Expenditure commitments include obligations arising from farm-in
arrangement, and minimum work obligations for the initial 3 year period of
exploration permits and thereafter annually. Minimum work obligations may,
subject to negotiation and approval, be varied. They may also be satisfied
by farmout, sale, relinquishment or surrender of permit.
8. INTEREST IN JOINT VENTURES
The Company has a twenty percent interest in the assets, liabilities and
output of the Browse Joint Venture operations for the exploration and
development of petroleum in Australia.
The Company has taken up its share of joint venture transactions based on
the Company's contributions to the joint venture. Expenditure commitments
in respect of the joint ventures are disclosed in Note 7.
9. KEY MANAGEMENT PERSONNEL DISCLOSURES
The key management personnel in Alpha Oil and Natural Gas Pty Ltd are EG
Albers, director, and Mark A Muzzin, general manager.
During the year key management personnel:
o Received no remuneration or benefits (2004: Nil)
o Received no shares, options or any right over the equity of the
company (2004: Nil)
Related party transactions between the company and director related
entities are disclosed in note 10.
10. OTHER RELATED PARTY TRANSACTIONS
2005
A$
-------
Advances to Director Related Entities of EG Albers:
Great Missenden Holdings 25,004
The above receivable relates to the sale of investments by Alpha Oil and
Natural Gas Pty Ltd during the year.
Advances from Director Related Entities of EG Albers:
Australian Oil & Gas Corporation 742
Batavia Oil & Gas Pty Ltd 55,284
Exoil Limited 46,598
-------
102,624
The above loans relate to invoices paid on behalf of Alpha Oil and Natural
Gas Pty Ltd.
F-10
ALPHA OIL & NATURAL GAS PTY LTD
NOTES TO THE FINANCIAL STATEMENTS
31 DECEMBER 2005
11. FINANCIAL INSTRUMENTS
(a) Fair Value
All financial assets and liabilities are stated at cost, which
approximates fair value.
(b) Credit Risk Exposure
The maximum credit risk exposure of financial assets is
represented by the carrying amounts recognised in the balance
sheet.
(c) Interest Rate Risk
The Company is not exposed to any significant interest rate risk.
(d) Currency Rate Risk
The Company incurs seismic exploration and well drilling costs in
US dollars. To this extent, the Company is exposed to exchange
rate fluctuations between the Australian and US dollar.
Otherwise, the Company is not exposed to any significant currency
rate risk.
12. EVENTS SUBSEQUENT TO REPORTING DATE
-Alpha Oil & Natural Gas Pty Ltd sold its twenty percent interest in WA341P
on 16 March 2006 to Conoco Philips WA Exploration Pty Ltd for US$1.24m.
-On 12 April, 2006 Australian Oil & Gas Corporation completed its
acquisition of one hundred percent of the shares of Alpha Oil & Natural Gas
Pty Ltd.
13. INVESTMENTS
At 30 June 2004, the value of investments held by the Company was written
down for impairment. Directors based their re-assessment of valuations on
the progress of exploration in the permits held by the investee-companies.
In addition, the directors took account of the perceived prospects and
ability of each of the investee-companies and their joint venture
participants to fund the required exploration program in their respective
joint venture blocks.
The largest component of the write down was due to inherent uncertainty
caused by sovereignty claims. During 2004, the newly independent nation of
East Timor claimed that exploration permits located adjacent to the Timor
Sea were illegal as the acreage was subject to the sovereignty of East
Timor. While the company does not agree with the basis of these claims,
they undermined the undisputed title that investee-companies believed they
had up to that time.
14. US GAAP EQUIVALENT FINANCIAL STATEMENTS
The financial statements have been prepared in accordance with accounting
principles generally accepted in Australia ("A-GAAP"), which differ in
certain significant respects from accounting principles generally accepted
in the United States of America ("US-GAAP").
Under A-GAAP, the Company capitalised exploration and evaluation
expenditure for each separate area of interest in line with the accounting
policy disclosed in note 1.
Under US-GAAP, exploration and evaluation expenditure (including the cost
of feasibility studies) is expensed as incurred for an area of interest
until commercial feasibility is established in compliance with Securities
Act Industry Guide 7. After an area of interest has been assessed as
commercially feasible, expenditures specific to that area of interest for
further development are capitalised.
F-11
ALPHA OIL & NATURAL GAS PTY LTD
NOTES TO THE FINANCIAL STATEMENTS
31 DECEMBER 2005
The effect of complying with US-GAAP results in additional expense of
A$228,638 (2004: A$43,629). The financial statements under US-GAAP are
shown below:
(i) Income Statement
2005 2004
A$ A$
-------- ---------
Revenues -- --
Expenses 240,499 1,028,021
------- ---------
Loss before income tax 240,499 1,028,021
Income tax expense relating to loss -- --
-------- ---------
Loss after income tax 240,499 1,028,021
------- ---------
(ii) Statement of Changes in Equity
Contributed Accumulated Total
Equity Losses Equity
A$ A$ A$
----------- ----------- -----------
Balance at 1 January 2004 1,000,001 -- 1,000,001
Loss after income tax -- (1,028,021) (1,028,021)
----------- ----------- -----------
Balance at 31 December 2004 1,000,001 (1,028,021) (28,020)
Loss after income tax -- (240,499) (240,499)
----------- ----------- -----------
Balance at 31 December 2005 1,000,001 (1,268,520) (268,519)
=========== =========== ===========
(iii) Balance Sheet
2005
A$
Current Assets
Cash and cash equivalents 1
Receivables 25,004
------
TOTAL CURRENT ASSETS 25,005
------
TOTAL ASSETS 25,005
------
Current Liabilities
Payables 293,524
-------
TOTAL CURRENT LIABILITIES 293,524
-------
TOTAL LIABILITIES 293,524
-------
NET ASSET (DEFICIENCY) (268,519)
---------
Shareholders' Equity
Contributed equity 1,000,001
Accumulated losses (1,268,520)
-----------
TOTAL SHAREHOLDERS' EQUITY (DEFICIENCY) (268,519)
===========
F-12
ALPHA OIL & NATURAL GAS PTY LTD
NOTES TO THE FINANCIAL STATEMENTS
31 DECEMBER 2005
(iv) Cash flow Statement
2005 2004
A$ A$
------- -------
CASH FLOWS FROM ACTIVITIES
Net increase in cash held -- --
Cash at the beginning of the financial year 1 1
------- -------
CASH AT THE END OF THE FINANCIAL YEAR 1 1
------- -------
RECONCILIATION OF LOSS AFTER INCOME TAX TO NET CASH USED
IN OPERATING ACTIVITIES
Loss after income tax (240,499) (1,028,021)
Write down of Investments to recoverable amount -- 974,995
Expensed Exploration costs 228,638 43,629
Movements in liabilities
Increase in payables 11,861 9,397
------- -------
Net cash used in operating activities -- --
------- -------
F-13
INDEPENDENT AUDITORS' REPORT
----------------------------
We have audited the accompanying balance sheet of Nations Natural Gas Pty Ltd as
of 31 December 2005, and the related income statement, statement of changes in
equity and cash flow statement for each of the two years in the period ended 31
December 2005. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in Australia and the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as, evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the balance sheet of Nations Natural Gas Pty Ltd at 31
December 2005 and the results of its operations and its cash flows for each of
the two years in the period ended 31 December 2005 in conformity with accounting
principles generally accepted in Australia.
Accounting principles generally accepted in Australia vary in certain respects
from accounting principles generally accepted in the United States. The
application of the accounting principles generally accepted in the United Stated
would have affected the determination of net income for each of the two years in
the period ended 31 December 2005 and the determination of total equity at 31
December 2005 to the extent summarised in note 14 to the financial statements.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As described in note 1(b), at 31 December
2005, the Company had not yet commenced revenue producing operations. This
condition raises substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ PKF
--------------------
Melbourne, Australia
5 July 2006
F-14
NATIONS NATURAL GAS PTY LTD
BALANCE SHEET
AS AT 31 December 2005
2005
NOTES A$
----------
Current Assets
Receivables from director related entities 4 185,002
----------
TOTAL CURRENT ASSETS 185,002
----------
Non-Current Assets
Deferred exploration costs 5 31,979
----------
TOTAL NON-CURRENT ASSETS 31,979
----------
TOTAL ASSETS 216,981
----------
Current Liabilities
Payables 6 44,640
----------
TOTAL CURRENT LIABILITIES 44,640
----------
TOTAL LIABILITIES 44,640
----------
NET ASSETS 172,341
----------
Shareholders' Equity
Contributed equity 1,600,000
Accumulated losses (1,427,659)
-----------
TOTAL SHAREHOLDERS' EQUITY 172,341
=========
See accompanying notes to the financial statements
F-15
NATIONS NATURAL GAS PTY LTD
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED 31 December 2005 and 2004
2005 2004
NOTES A$ A$
-------- ----------
Revenues -- --
Expenses 2 (6,539) (1,421,120)
-------- ----------
Loss before income tax (6,539) (1,421,120)
Income tax expense relating to loss 3 -- --
-------- ----------
Loss after income tax (6,539) (1,421,120)
-------- ----------
See accompanying notes to the financial statements
F-16
NATIONS NATURAL GAS PTY LTD
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED 31 December 2005 and 2004
Contributed Accumulated Total
Equity Losses Equity
A$ A$ A$
Balance at 1 January 2004 1,600,000 -- 1,600,000
Loss after income tax -- (1,421,120) (1,421,120)
------------ ---------- ----------
Balance at 31 December 2004 1,600,000 (1,421,120) 178,880
Loss after income tax -- (6,539) (6,539)
------------ ---------- ----------
Balance at 31 December 2005 1,600,000 (1,427,659) 172,341
============ ========== ==========
See accompanying notes to the financial statements
F-17
NATIONS NATURAL GAS PTY LTD
CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 December 2005
2005 2004
NOTES A$ A$
-------- ---------
CASH FLOWS FROM ACTIVITIES -- --
RECONCILIATION OF LOSS AFTER INCOME TAX TO NET CASH USED
IN OPERATING ACTIVITIES
Loss after income tax (6,539) (1,421,120)
Write down of Investments -- 1,414,998
Movements in assets
Increase in deferred exploration costs (7,044) --
Decrease in investments 185,002 --
Increase in receivables (185,002) --
Movements in liabilities
Increase in payables 13,583 6,122
-------- ---------
Net cash used in operating activities -- --
-------- ---------
See accompanying notes to the financial statements
F-18
NATIONS NATURAL GAS PTY LTD
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2005
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nations Natural Gas Pty Ltd is a company incorporated and domiciled in
Australia with its registered office at Level 25, 500 Collins St,
Melbourne, Victoria, Australia. Operations of the company comprise
exploration activities for oil and gas reserves.
The financial report was authorised by the directors for issue on July 5,
2006.
(a) Basis of Preparation
The financial report is a general purpose financial report which has been
prepared in accordance with Accounting Standards, Urgent Issues Group
Interpretations, other authoritative pronouncements of the Australian
Accounting Standards Board. This is the first AIFRS financial report
presented by Nations Natural Gas Pty Ltd. Australian Accounting Standards
include Australian equivalents to International Financial Reporting
Standards (IFRS). Compliance with the Australian equivalents to IFRS
(AIFRS) ensures that the financial report complies with IFRS.
The financial report is presented in Australian dollars and conforms with
Australian Accounting Standards that require management to make judgements,
estimates and assumptions that affect the application of policies and
reported amounts of assets and liabilities, income and expenses. The
estimates and associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the judgements
and carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates.
These accounting policies have been consistently applied and are consistent
with those of the previous year.
(b) Going Concern
The financial report has been prepared under the going concern concept
(which assumes the realisation of assets and the extinguishment of
liabilities in the normal course of business at the amounts stated in the
financial statements) on the assumption that the Company achieves
appropriate funding by capital raising or sale or farmout of its petroleum
exploration tenement interests. The directors consider this basis to be
appropriate. Details of acquisition of the shares of the Company subsequent
to year end are disclosed in note 12.
If the company is unable to continue as a going concern it may be required
to realise its assets and extinguish its liabilities other than in the
normal course of business and at amounts different to those stated in the
financial statements. The financial report does not include any adjustments
relating to the recoverability and classification of asset carrying amounts
or the amount of liabilities that might result should the company be unable
to continue as a going concern and meet its debts as and when they become
due and payable.
(c) Recoverable amount assets
At each reporting date, the Company assesses whether there is any
indication that an asset may be impaired. Where an indicator of impairment
exists, the Company makes a formal estimate of the recoverable amount.
Where the carrying amount of an asset exceeds its recoverable amount the
asset is considered impaired and is written down to its recoverable amount.
Recoverable amount is the greater of fair value less costs to sell and
value in use. It is determined for an individual asset, unless the asset's
value in use cannot be estimated to be close to its fair value less costs
to sell and it does not generate cash inflows that are largely independent
of those from other assets or groups of assets, in
F-19
NATIONS NATURAL GAS PTY LTD
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2005
which case, the recoverable amount is determined for the cash-generating
unit to which the asset belongs.
In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the
asset.
(d) Taxes
Income Tax
Income taxes are accounted for using the comprehensive balance sheet
liability method whereby:
o The tax consequences of recovering (settling) all assets
(liabilities) are reflected in the financial statements;
o Current and deferred tax is recognised as income or expense
except to the extent that the tax related to equity items or to a
business combination;
o A deferred tax asset is recognised to the extent that it is
probable that future taxable profit will be available to realise
the asset;
o Deferred tax asset and liabilities are measured at the tax rates
that are expected to apply to the period where the asset is
realised or the liability settled.
Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of GST,
except where the amount of GST incurred is not recoverable from the
taxation authority. In these circumstances, the GST is recognised as part
of the cost of acquisition of the asset or as part of the expense.
Receivables and payables are stated with the amount of GST included.
(e) Receivables
Trade and other receivables are stated at principle amounts due at balance
date plus any accrued interest less impairment losses.
(f) Payables
Trade and other payables are stated at principle amounts due at balance
date plus any accrued interest.
(g) Contributed Equity
Ordinary share capital is recognised at the fair value of the consideration
received by the Company. Transactions costs arising on the issue of
ordinary shares are recognised directly in equity as a reduction of the
consideration received.
(h) Exploration and Evaluation Expenditure
Exploration and evaluation expenditure is measured on the cost basis,
accumulated separately for each area of interest and carried forward
provided that one of the following conditions is met:
- such costs are expected to be recouped through successful development
and exploitation of the area of interest or sale; or
F-20
NATIONS NATURAL GAS PTY LTD
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2005
- exploration activities have not yet reached a stage which permits a
reasonable assessment of the existence or otherwise of economically
recoverable reserves, and active and significant operations in
relation to the area are continuing.
Exploration expenditure which no longer satisfies the above conditions is
written off. In addition, a provision is raised against exploration
expenditure where the directors are of the opinion that the carried forward
net cost may not be recoverable. The increase in the provision is charged
against the results for the year.
(i) Restoration, Rehabilitation and Environment Expenditure
Restoration, rehabilitation and environmental costs necessitated by
exploration and evaluation activities are provided for as part of the cost
of those activities. Costs are estimated on the basis of the present value
of the future expenditure required to settle the obligation, current legal
requirements and current technology.
Estimates of future costs are reassessed at least annually. Changes in
estimates relating to areas of interest in the exploration and evaluation
phase are dealt with retrospectively, with any amounts that would have been
written off or provided against under the accounting policy for exploration
and evaluation immediately written off. Changes in estimates of costs
relating to producing areas are dealt with prospectively over the remaining
resource life.
(j) Joint Ventures
Interest in joint ventures is brought to account by including in the
respective classifications, the Company's share of individual assets
employed and share of liabilities and expenses incurred. Where the Company
is acquiring or disposing of a joint venture interest, the Company's share
of joint venture assets is based on the contributions made to the joint
venture.
F-21
NATIONS NATURAL GAS PTY LTD
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2005
2. Expenses
2005 2004
NOTES A$ A$
-------- ---------
Loss before income tax expense has been arrived at after charging the
following items:
ASIC fees 694 --
Audit fees 3,500 5,000
Interest Expense 2,345 1,122
Write down of investments 13 -- 1,414,998
-------- ---------
6,539 1,421,120
-------- ---------
3. TAX
Prima facie income tax benefit calculated at 30% of the loss (1,962) (1,837)
Deferred tax asset not brought to account 1,962 1,837
-------- ---------
Income tax expense -- --
-------- ---------
Estimated deferred tax asset arising from tax losses
and temporary differences not recognised as an asset because
recovery is not probable 3,799 1,837
The deferred tax asset will only be obtained if:
(a) the company derives future assessable income of a nature and of an
amount sufficient to enable the benefit to be realised;
(b) the company continues to comply with the conditions for deductibility
imposed by the law; and (c) no changes in tax legislation adversely affect
the company in realising the benefit.
4. RECEIVABLES
Advances to Director related entities 10 185,002
5. DEFERRED EXPLORATION COSTS
Deferred exploration costs 31,979
Ultimate recovery of deferred exploration costs carried forward is
dependent upon achieving appropriate funding by capital raising or sale or
farmout of petroleum exploration tenement interests for continued support
of exploration activities.
6. PAYABLES
Current
Loans from Director related entities 10 36,140
Audit Fees payable 8,500
--------
44,640
--------
F-22
NATIONS NATURAL GAS PTY LTD
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2005
2005
A$
---------
7. EXPLORATION EXPENDITURE COMMITMENTS
Minimum work requirements contracted for under exploration permit interests
are estimated at balance date:
National Gas Consortium
Payable not later than one year 328,356
---------
328,356
---------
8. INTEREST IN JOINT VENTURES
The Company has a thirty percent interest in the assets, liabilities and
output of the National Gas Consortium operations for the exploration and
development of petroleum in Australia. The Company has taken up its share
of joint venture transactions based on the Company's contributions to the
joint venture. Expenditure commitments in respect of the joint ventures are
disclosed in Note 7.
9. KEY MANAGEMENT PERSONNEL
The key management personnel in Nations Natural Gas Pty Ltd are EG Albers,
director, and M.A Muzzin, general manager.
During the year key management personnel:
o Received no remuneration or benefits (2004: Nil)
o Received no shares, options or any right over the equity of the
company (2004: Nil)
Related party transactions between the company and director related
entities are disclosed in note 10.
10. RELATED PARTY DISCLOSURES
2005
Transactions with Directors A$
----------
Advances from Director Related Entities of EG Albers:
Australian Oil & Gas Corporation 694
Gascorp Ltd 786
National Oil & Gas Pty Ltd 34,660
----------
36,140
The above loans relate to invoices paid on behalf of Nations Natural Gas
Pty Ltd.
Advances to Director Related Entities of EG Albers:
Loan to Albers EJ & PJ 51,900
Loan to Australian Oil & Gas Corporation 100,000
Loan to Australis Finance Pty Ltd 16,200
Loan to Exoil Limited 2
Loan to Sacrosanct Pty Ltd 16,900
----------
185,002
----------
The above loans relate to consideration receivable by Nations Natural Gas
Pty Ltd for shares sold.
F-23
NATIONS NATURAL GAS PTY LTD
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2005
11. FINANCIAL INSTRUMENTS
(a) Fair Value
All financial assets and liabilities are stated at cost, which
approximates fair value.
(b) Credit Risk Exposure
The maximum credit risk exposure of financial assets is represented by
the carrying amounts recognised in the balance sheet.
(c) Interest Rate Risk
The Company is not exposed to any significant interest rate risk.
(d) Currency Rate Risk
The Company incurs seismic exploration and well drilling costs in US
dollars. To this extent, the Company is exposed to exchange rate
fluctuations between the Australian and US dollar. Otherwise, the
Company is not exposed to any significant currency rate risk.
12. EVENTS SUBSEQUENT TO REPORTING DATE
On 12 April, 2006 Australian Oil & Gas Corporation completed its
acquisition of 100 percent of the shares of Nations Natural Gas Pty Ltd.
13. INVESTMENTS
At 30 June 2004, the value of investments held by the Company was written
down for impairment. Directors based their re-assessment of valuations on
the progress of exploration in the permits held by the investee-companies.
In addition, the directors took account of the perceived prospects and
ability of each of the investee-companies and their joint venture
participants to fund the required exploration program in their respective
joint venture blocks.
The largest component of the write down was due to inherent uncertainty
caused by sovereignty claims. During 2004, the newly independent nation of
East Timor claimed that exploration permits located adjacent to the Timor
Sea were illegal as the acreage was subject to the sovereignty of East
Timor. While the company does not agree with the basis of these claims,
they undermined the undisputed title that investee-companies believed they
had up to that time.
14. US GAAP EQUIVALENT FINANCIAL STATEMENTS
The financial statements have been prepared in accordance with accounting
principles generally accepted in Australia ("A-GAAP"), which differ in
certain significant respects from accounting principles generally accepted
in the United States of America ("US-GAAP").
Under A-GAAP, the company capitalised exploration and evaluation
expenditure for each separate area of interest in line with the accounting
policy disclosed in note 1.
Under US-GAAP, exploration and evaluation expenditure (including the cost
of feasibility studies) is expensed as incurred for an area of interest
until commercial feasibility is established in compliance with Securities
Act Industry Guide 7. After an area of interest has been assessed as
commercially feasible, expenditures specific to that area of interest for
further development are capitalised.
The effect of complying with US-GAAP results in additional expense of
A$7,044 (2004: A$24,935). The financial statements under US-GAAP are shown
below:
F-24
NATIONS NATURAL GAS PTY LTD
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2005
2005 2004
(i) Income Statement A$ A$
--------- ---------
Revenues -- -
Expenses 13,583 1,446,055
--------- ---------
Loss before income tax 13,583 1,446,055
Income tax expense relating to loss -- --
--------- ---------
Loss after income tax 13,583 1,446,055
--------- ---------
ii) Statement of Changes in Equity
Contributed Accumulated Total
Equity Losses Equity
A$ A$ A$
Balance at 1 January 2004 1,600,000 -- 1,600,000
Loss after income tax -- (1,446,055) (1,446,055)
--------------- ---------- ----------
Balance at 31 December 2004 1,600,000 (1,446,055) 153,945
Loss after income tax -- (13,583) (13,583)
--------------- ---------- ----------
Balance at 31 December 2005 1,600,000 (1,459,638) 140,362
=============== =========== ===========
2005
A$
(iii) Balance Sheet
Current Assets
Receivables 185,002
-----------
TOTAL CURRENT ASSETS 185,002
-----------
TOTAL ASSETS 185,002
-----------
Current Liabilities
Payables 44,640
-----------
TOTAL CURRENT LIABILITIES 44,640
-----------
TOTAL LIABILITIES 44,640
-----------
NET ASSETS 140,362
-----------
Shareholders' Equity
Contributed equity 1,600,000
Accumulated losses (1,459,638)
-----------
TOTAL EQUITY 140,362
-----------
F-25
NATIONS NATURAL GAS PTY LTD
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2005
2005 2004
(iv) Cash flow Statement A$ A$
-------- ---------
CASH FLOWS FROM ACTIVITIES -- --
RECONCILIATION OF LOSS AFTER INCOME TAX TO NET CASH USED IN
OPERATING ACTIVITIES
Loss after income tax (13,583) (1,446,055)
Write down of Investments to recoverable amount -- 1,414,998
Movements in liabilities
Increase in payables 13,583 31,057
-------- ---------
Net cash used in operating activities -- --
-------- ---------
F-26
AUSTRALIAN OIL & GAS CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED 31 DECEMBER 2005
Pro Forma
AOGC Alpha Nations Combined
$ $ $ $
Revenues - - - -
Expenses 320,997 8,631 4,758 334,386
-------- -------- -------- --------
Profit (loss) before income tax expense (320,997) (8,631) (4,758) (334,386)
Income tax expense - - - -
-------- -------- -------- --------
Net profit (loss) from after
income tax expense (320,997) (8,631)` (4,758) (334,386)
-------- -------- -------- --------
Loss per common share (0.01) (0.01)
--------- ----------
Weighted average number of
Shares outstanding 29,800,528 29,800,528
--------- ----------
See notes to Pro-forma consolidated financial statements (unaudited)
F-27
AUSTRALIAN OIL & GAS CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AT 31 MARCH 2006
Pro Forma Pro Forma
AOGC Alpha Nations Adjustment Combined
$ $ $ $ $
CURRENT ASSETS
Cash and cash equivalents 8,634 1,091,806 - - 1,100,440
Trade and other receivables 359 - - - 359
------- --------- -------- --------- --------
TOTAL CURRENT ASSETS 8,993 1,091,806 - - 1,100,799
------- --------- -------- --------- --------
NON-CURRENT ASSETS
Receivables 1050 17,773 131,010 (71,640) b 78,193
Investments 596,770 - - (596,770) a -
Interests in Joint Venture - 296,243 22,732 (153,146) c 165,829
------- --------- -------- --------- --------
TOTAL NON-CURRENT ASSETS 597,820 314,016 153,742 (821,556) 244,022
------- --------- -------- --------- --------
TOTAL ASSETS 606,813 1,405,822 153,742 (821,556) 1,344,821
======= ========= ======== ========= =========
CURRENT LIABILITIES
Trade and Other Payables 201,378 6,042 6,042 - 213,462
------- -------- -------- -------- --------
TOTAL CURRENT LIABILITIES 201,378 6,042 6,042 - 213,462
------- -------- -------- -------- --------
NON-CURRENT LIABILITIES
Payables 100,293 202,605 25,195 (71,640) b 256,453
Convertible Notes 256,000 - - - 256,000
-------- -------- -------- -------- --------
TOTAL NON-CURRENT LIABILITIES 356,293 202,605 25,195 (71,640) 512,453
-------- -------- -------- -------- --------
TOTAL LIABILITIES 557,671 208,647 31,237 (71,640) 725,915
-------- --------- -------- --------- --------
SHAREHOLDERS' EQUITY/ DEFICIENCY
Common Stock 26,100 710,834 1,137,333 (1,848,167)a 26,100
Capital in excess of par value 708,900 - - 708,900
Retained Earnings/( Accumulated losses) (685,858) 486,341 (1,014,828) 1,098,251 b,c (116,094)
--------- --------- -------- --------- ----------
TOTAL SHAREHOLDERS'
EQUITY / (DEFICIENCY) 49,142 1,197,175 122,505 (749,916) 618,906
--------- --------- -------- --------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 606,813 1,405,822 153,742 (821,556) 1,344,821
========= ========= ======== ======== ==========
See notes to Pro-forma consolidated financial statements (unaudited)
F-28
AUSTRALIAN OIL & GAS CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED 31 MARCH 2006
Pro Forma Pro Forma
AOGC Alpha Nations Adjustment Combined
$ $ $ $ $
Revenues 18 1,091,800 - 1,251,397 1,091,818
Expenses 74,768 32 2 - 74,802
-------- --------- -------- -------- ---------
Profit (loss) before income tax expense (74,750) 1,091,768 (2) 1,251,397 1,017,016
Income tax expense - - - - -
-------- --------- -------- -------- ---------
Net profit (loss) from after
income tax expense (74,750) 1,091,768 (2) 1,251,397 1,017,016
-------- --------- -------- --------- ---------
(Loss)/Earnings per common share (*) 0.07
---------- ---------
Weighted average number of
shares outstanding 29,800,528 29,800,528
---------- ----------
* Less than $0.01 per share
F-29
AUSTRALIAN OIL & GAS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1 - ACQUISITION
On April 12, 2006 Australian Oil and Gas Corporation completed its acquisition
of a hundred percent acquisition of the shares of Alpha Oil and Natural Gas Pty
Limited and Nations Natural Gas Pty Limited. Both companies are incorporated and
domiciled in Australia. Each of the pro-forma consolidated financial statements
on F-27 to F-29 have been presented as if the acquisition of the subsidiaries
had occurred by the date of the financial statement.
NOTE 2 - PRO FORMA ADJUSTMENTS
The pro-forma adjustments arising from the consolidation of Alpha Oil and
Natural Gas Pty Limited and Nations Natural Gas Pty Limited are explained below.
(a) Eliminations of investment in subsidiaries
Australian Oil and Gas Corporation paid a total of $596,770 to acquire
all the shares in its subsidiaries. This investment is eliminated
against the fair value of the net assets acquired in Nations Natural
Gas Pty Limited and Alpha Oil and Natural Gas Pty Limited resulting in
an extraordinary gain of $1,251,397.
(b) Eliminations of intercompany receivable and payables.
At 31 March, 2006 Australian Oil and Gas Corporation owed Nations
Natural Gas Pty Limited $70,590 and was owed $523 by Alpha Oil and
Natural Gas Pty Limited and $526 Nations Natural Gas Pty Limited.
(c) Compliance with US GAAP
The financial statements of Alpha Oil and Natural Gas Pty Limited and
Nations Natural Gas Pty Limited have been prepared in accordance with
accounting principles generally accepted in Australia ("A-GAAP"),
which differ in certain significant respects from accounting
principles generally accepted in the United States of America
("US-GAAP").
Under A-GAAP, the Company capitalized exploration and evaluation
expenditure for each separate area of interest.
Under US-GAAP, exploration and evaluation expenditure (including the
cost of feasibility studies) is expensed as incurred for an area of
interest until commercial feasibility is established in compliance
with Securities Act Industry Guide 7. After an area of interest has
been assessed as commercially feasible, expenditures specific to that
area of interest for further development are capitalized.
The effect of complying with US-GAAP results in additional expense of
$130,414 for Alpha Oil and Natural Gas Pty Limited and $22,732 for
Nations Natural Gas Pty Limited
F-30