UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-KSB

                 Annual Report Under Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                   For the fiscal year ended December 31, 2007

                         Commission File Number: 0-29832

                     AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.


BRITISH COLUMBIA, CANADA                                         75-2712845
---------------------------------                          ---------------------
 (State or other Jurisdiction of                              (IRS Employer
  Incorporation or Organization)                            Identification No.)

                                   PO Box 1629
                         1301 AVE. M, CISCO, TEXAS 76437
                    (Address of Principal Executive Offices)

                                 (254) 442-2638
                (Issuer's Telephone Number, including Area Code)

        Securities registered pursuant to Section 12(b) of the Act: None

          Securities registered pursuant to Section 12 (g) of the Act:
                           Common Stock, no par value

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

Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K (section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of issuer's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB [X]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule12b-2 of the Exchange Act). Yes [ ] No [X]

State issuer's revenues for its most recent fiscal year (ending December 31,
2007): $70,798.

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or average bid and asked price of such common equity, as of the
last business day of the registrant's most recently completed fiscal quarter:
March 31, 2008 was $1,948,054.

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of April 8, 2008 (the last practicable date): Class: Common
Stock, no par value - Outstanding as of April 8, 2008 was 13,741,912. The
Company's OTC Bulletin Board Symbol is "AUCAF".


<PAGE>




FORWARD LOOKING STATEMENTS

Statements made in this Form 10-KSB that are not historical or current facts are
"forward looking statements" made pursuant to the safe harbor provisions of
Section 27A of the Securities Act of 1933 (the "Act") and Section 21E of the
Securities Exchange Act of 1934. These statements often can be identified by the
use of terms such as "may," "will," "expect," "believe," "anticipate,"
"estimate," "approximate," or "continue," or the negative thereof. We intend
that such forward-looking statements be subject to the safe harbors for such
statements. We wish to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. Any
forward-looking statements represent management's best judgment as to what may
occur in the future. However, forward-looking statements are subject to risks,
uncertainties and important factors beyond our control that could cause actual
results and events to differ materially from historical results of operations
and events and those presently anticipated or projected. We disclaim any
obligation subsequently to revise any forward-looking statements to reflect
events or circumstances after the date of such statement or to reflect the
occurrence of anticipated or unanticipated events.

AVAILABLE INFORMATION

Australian-Canadian Oil Royalties Ltd. files annual, quarterly, current reports,
proxy statements, and other information with the Securities and Exchange
Commission (the "Commission"). You may obtain copies of our Commission filings
by going to the Commission's website at https://www.sec.gov.


                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

BUSINESS DEVELOPMENT

Australian-Canadian Oil Royalties Ltd. ("ACOR" or "the Company") was
incorporated in British Columbia, Canada, in April of 1997. The Company's U.S.
office is located at 1301 Avenue M., Cisco, Texas 76437.

The Company has continued to be active in working interests and royalty
opportunities both domestically and internationally. The business of ACOR during
2007 was to make a study of available oil and gas development acreage in
Australia and select and apply for the exploration permits on the areas which
demonstrate a high probability of success with the maximum rate of return for
dollars invested.

ACOR's website is located at WWW.AUSSIEOIL.COM.

CURRENT BUSINESS OPERATIONS

The Company is a purchaser and holder of both overriding royalty interests and
working interests both on an international and domestic basis. ACOR's business
is related to the principal products of oil and gas, and is dependent on various
factors, which are discussed below. The average sales price per barrel of oil
from Australia during 2007 was $US 71.13.

The acquisition, exploration, development, production and sale of oil and gas
are subject to many factors that are outside the Company's control. These
factors include: market prices; national and international economic conditions;
import and export quotas; availability of drilling rigs, casing, pipe, and other
equipment and supplies; availability of and proximity to pipelines and other
transportation facilities; the supply and price of competitive fuels; and the
regulation of prices, production, transportation, and marketing by domestic and
foreign governmental authorities. Additionally, the Company generally has no
control over whether the owner or operator of leases to which its overriding
royalty interests are attributable will elect to explore for oil and gas on such
properties, or to develop them following discoveries that may occur. Each of
these factors may affect the rate at which oil and gas are produced on
properties in which the Company has an interest or affect whether wells will be
drilled on such properties, and could otherwise materially affect ACOR's
earnings.

                                      -2-
<PAGE>


On the Company's overriding royalties in Australia there were a total of 16
wells drilled in the Cooper/Eromanga Basin resulting in 13 producers, and 3 dry
holes for the year ended December 31, 2007. For further information see Item 2
Description of Property.


PROPOSED FUTURE BUSINESS OPERATIONS


The Company's strategy is two fold; 1) to seek overriding royalty interests in
oil and gas concessions within sedimentary basins in Australia and 2) develop
and explore existing concessions in which the Company holds working interest
through exploration - seismic and drilling.


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

COMPETITION

The Company is competing with other oil companies for oil and gas leases and
concessions. The oil and gas industry is highly competitive in all of its
phases, with competition for favorable producing royalties, overriding
royalties, and good oil and gas leases being particularly intense. The Company
believes that the exploration program, promised expenditures, geological and
geophysical skill, and familiarity with an area of operations are the primary
competitive factors in the identification, selection, and acquisition of
desirable leases. When attempting to purchase interests in such properties, the
Company competes with independent operators and major oil companies.

FOREIGN TAXES AND UNITED STATES TAX CREDITS

As a result of its overriding royalty interests attributable to properties
outside the United States, the Company is subject to the imposition of taxes by
foreign governments upon the Company's income derived from such foreign
jurisdictions. These taxes are of various types, with differing tax rates, and
are subject to change. Generally, the Company's income from a foreign
jurisdiction will be taxed in the same manner as that for other companies
operating in the jurisdiction, but discriminatory taxation by a particular
jurisdiction may occur. The current non-resident corporate income tax rate in
Australia, for overriding royalty interests, is 30%.

As a Canadian corporation, the Company is liable for income taxes under the laws
of Canada. Under Canadian law the Company's Australian-source income is subject
to a 46% tax (on Canadian income). We believe the 30% Australian tax should be a
credit toward the payment of the 46% Canadian tax under double taxation treaties
between the countries.

The Company is taxable in the U.S. on U.S. source income. Because there has been
neither U.S. source net income nor any income effectively connected with a U.S.
trade or business, there have been no U.S. taxes incurred to date.

GOVERNMENTAL REGULATION

Oil and gas operations are subject to federal, state and local laws and
regulations governing waste, environmental quality, pollution control,
conservation and other measures regarding environmental and ecological matters.
It is impossible to predict the impact of environmental legislation and
regulations on the Company's operations and earnings in the future.

The domestic production and sale of oil and gas are subject to federal
regulation by the Department of Energy and the Federal Energy Regulation
Commission. Rates of production of oil and gas have for many years been subject
to federal and state conservation laws and regulations. In addition, oil and gas
operations are subject to extensive federal and state regulations concerning
exploration, development, production, transportation, and pricing, and even to
interruption or termination by governmental authorities.

                                      -3-
<PAGE>


In foreign countries, the Company may be subject to governmental restrictions on
production, pricing and export controls. Regulations existing or imposed upon
the Company or its properties at the time of their acquisition may change to an
unpredictable extent. The Company will have little or no control over the change
of regulations or imposition of new regulations and restrictions, expropriation
or nationalization by foreign governments or the imposition of additional
foreign taxes. Management believes that these actions are unlikely to be
undertaken by the state governments of South Australia or Queensland, where all
of the foreign oil and gas properties from which the Company receives royalty
income are currently located. The same belief applies for the government of
Victoria, since ACOR has acquired an overriding royalty under VIC/P45 and
VIC/P53.

NATIVE TITLE

The Company has cleared Native Title on PEL 108, PEL 109 and PEL 112 since the
former Annual Report and is pursing title on ATP 582.

Native title claims over oil and gas areas by native aboriginal groups have
become commonplace in Australia since the mid-1990's. Native title is the
activity of aboriginal groups' land claims over existing and potential oil and
gas exploration and development areas. Although native Australians are claiming
certain areas, they have not, as yet, proven actual ownership. However, any
recognized native title claim must be dealt with under the provisions of the
Native Title Act of 1993, and overseen by the state governments, which manage
specific areas within state boundaries. Due to native title claims, a certain
level of risk can be expected which could have a detrimental effect on the
timing of projects.

Both the South Australian and Queensland State governments have initiated
negotiations between industry and native title claimants. These negotiations are
being managed independently by each state and could have independent outcomes.
The Company has no involvement in these negotiations. ACOR has cleared Native
Title on all of its South Australian acreage at a cost of thousands of dollars
and a 1% overriding royalty of that so that the areas can now be drilled and
developed.

The Company's operations could also be affected from time to time by other
federal, state and local laws and regulations and by political developments,
such as the Native Title issue in onshore Australia.

While title to permits is assured, there can be no exploration on the permit
areas until negotiations with natives are completed. When negotiations over the
release areas discussed below are completed, exploration and development on the
related areas will commence.

SOUTH AUSTRALIA NATIVE TITLE STATUS:

The Native Title issue in South Australia was resolved during the first quarter
of 2003. The successful negotiation, between Industry, Government, and a number
of native tribes of Australia, covered areas leased under the Primary Industries
and Resources, South Australia (PIRSA) Cooper-Eromanga Basins Exploration
Opportunities Acreage Release, 1998, (also known as the "CO-98 Release"). The
success of this negotiation was paramount in the completion of all future
negotiations within South Australia. A well was drilled on PEL 100, which was
drilled to 8,000 feet and was a dry hole during the fiscal year ended December
31, 2005. The area has a number of other structures, which could be drilled.

Native Title clearance has been obtained on South Australian areas PEL's 86, 87,
88, 89, 100, 108, 109, 111, 112 & 115 all of which the Company holds and
interest (For further information see Item 2 - Description of Property).

QUEENSLAND NATIVE TITLE STATUES:

In Queensland, the Company is paying annual rentals, but access for exploration
is blocked until successful Native Title negotiations are completed. It is not
clear at the time of this report how long the negotiations will take to settle
with the local natives on ATP 582.

                                      -4-
<PAGE>


FOREIGN CURRENCY

Due to the nature of the Company's activities in Australia, portions of the
Company's operating capital may at times be held in various foreign currencies.
This subjects the Company to the risk of currency fluctuations and changes in
rates of conversion for different currencies. The Company does not engage or
expect to engage in any hedging or other transactions, which are intended to
manage risks relating to foreign currency fluctuations. Additionally, revenues
generated in foreign countries in which the Company has or may acquire interests
may be subject to governmental regulations, which restrict the free
convertibility of such funds, and all remittances of funds out of these
countries might require the approval of the applicable government's exchange
control agency. Presently, the Company experiences no difficulties with the free
convertibility of funds from Australia. In the Company's opinion, the foreign
exchange control laws currently in effect in Australia, do not unreasonably
delay the remittance of funds generated in Australia to the United States. The
exchange rate on April 8, 2008 was $1.00 Australian = $093 United States.

REGULATION OF OIL AND NATURAL GAS PRODUCTION

Our oil and natural gas exploration, production and related operations are
subject to extensive rules and regulations promulgated by federal, state and
local authorities and agencies. Failure to comply with such rules and
regulations can result in substantial penalties. The regulatory burden on the
oil and natural gas industry increases our cost of doing business and affects
our profitability. Although we believe we are in substantial compliance with all
applicable laws and regulations, because such rules and regulations are
frequently amended or reinterpreted, we are unable to predict the future cost or
impact of complying with such laws.

Many states require permits for drilling operations, drilling bonds and reports
concerning operations and impose other requirements relating to the exploration
and production of oil and natural gas. Such states also have statutes or
regulations addressing conservation matters, including provisions for the
unitization or pooling of oil and natural gas properties, the establishment of
maximum rates of production from wells, and the regulation of spacing, plugging
and abandonment of such wells.

ENVIRONMENTAL MATTERS

Our operations and properties will be subject to extensive and changing federal,
state and local laws and regulations relating to environmental protection,
including the generation, storage, handling, emission, transportation and
discharge of materials into the environment, and relating to safety and health.
The recent trend in environmental legislation and regulation generally is toward
stricter standards, and this trend will likely continue. These laws and
regulations may (i) require the acquisition of a permit or other authorization
before construction or drilling commences and for certain other activities; (ii)
limit or prohibit construction, drilling and other activities on certain lands
lying within wilderness and other protected areas; and (iii) impose substantial
liabilities for pollution resulting from our operations. The permits required
for several of our operations are subject to revocation, modification and
renewal by issuing authorities. Governmental authorities have the power to
enforce their regulations, and violations are subject to fines or injunctions,
or both. In the opinion of management, we are in substantial compliance with
current applicable environmental law and regulations, and we have no material
commitments for capital expenditures to comply with existing environmental
requirements. Nevertheless, changes in existing environmental laws and
regulations or in interpretations thereof could have a significant impact on our
business operations, as well as the oil and natural gas industry in general.


RESEARCH AND DEVELOPMENT ACTIVITIES

During 2005 the Company began an aggressive program with its partners on
Australian concessions PEL 108 and 112 located in South Australia by engaging a
Geophysicist and a fifty member team to conduct a 190 kilometer 2D seismic
survey and $1,900,000 worth of seismic data was also reviewed on PEL 108 and
112. ACOR entered into a farm-out agreement with Holloman Corporation where
Holloman would commit to drill three (3) wells with the Company receiving a
13.8325% carried working interest through both the drilling and completion in
these three wells. Subsequent to the end of the 2007 fiscal year, Holloman
drilled the Pecos #1 well on PEL 112 being the first of the three well program.
The Pecos #1 was completed as a dry hole. Due to inconsistencies between the
original seismic interpretation and drilling data, Holloman tendered a request
for an extension of the work program to determine future drilling prospects,
already identified, so as to maximize the potential of the program. For
additional information see Description of Properties - Cooper/Eromanga Basin -
PEL 108, 109 & 112 on page 11.

                                      -5-
<PAGE>


During the first quarter of 2007 the Company entered into a farmout arrangement
on its 25% working interest in Vic/P60, an oil and gas concession located in the
Bass Strait of Australia. The Company received $152,896 in cash and retained a
2.125% override. Subsequently Holloman acquired this working interest and has
filed a request for an extension for additional time to evaluate the escalation
of the costs of the 3-D seismic costs that has occurred since the execution of
the agreement to perform the work program. Holloman is awaiting the government
of Victoria decision as of April 8, 2008.

During 2007 the Company negotiated with JV Partners of Dallas where they would
earn 50% working interest in ATP582 by bearing 100% of the costs associated with
obtaining clear native title, pay 100% of the cost to shoot $US1,000,000 of new
seismic and pay for 100% of the cost to drill one well. No exploration work can
begin until the native title is cleared.

PERSONNEL

The Company has three employees and hires part time people on an as needed
basis. The Company also engages consultants and professionals when needed for
specific projects and/or tasks.

DEFINITIONS

The following definitions are provided to clarify certain terms used in this
report:

APPLICATION AREA - An area for which the Company has applied for the grant of an
Exploration Permit.

AUTHORITY TO PROSPECT ("ATP") - a concession granted by the State of Queensland,
Australia, which entitles its holders to an exclusive right to explore for oil
and natural gas in Queensland in the particular area covered by the ATP. Each
ATP has an initial term of four years. The area covered by an ATP is reduced by
relinquishment of approximately one-fourth of the area at the start of the third
year of its effectiveness and an additional one-fourth of the original area at
the start of the fourth year of its effectiveness. The area to be relinquished
is chosen by the holder of the ATP. An ATP will require some kind of geological
and/or geophysical operations, such as new seismic or seismic interpretation,
drilling or other operations during the term of the tenure. The amount of work
to be performed depends upon the expenditures required for each specific year of
the tenure. Holders are only required to expend those amounts as set out in the
original concession document. Applications for renewal may be filed at the time
of expiration of an ATP.

BLOCK - Resource Exploration Concessions in Australia are described and
identified by blocks. Each block is measured by 5 minutes latitude by 5 minutes
longitude.

CARRIED WORKING INTEREST - where working interest is paid is paid by a third
party through is the drilling phase or both the drilling and completion of a
well. After the carried portion of the well has been satisfied then the carried
working interest holder is responsible for its share of expenditures.

DEVELOPMENTAL WELLS - oil and gas wells drilled within the proven area of an oil
or gas reservoir to the depth of a stratigraphic horizon known to be productive.

DRY HOLE - a well found to be incapable of producing oil or gas in sufficient
quantities to justify completion.

EXPLORATION PERMIT - an exclusive offshore exploration permit with a term of six
years. Said permit is managed by the Victorian State Government.

EXPLORATORY WELL - a well drilled to find and produce oil and gas in an unproved
area or to find a new reservoir in a field previously found to be productive of
oil or gas in another reservoir.

GROSS PRODUCTION - the total production of oil, gas, or natural gas liquids from
a property or group of properties for any specified period of time.

MCF - thousand cubic feet of natural gas

MMCF - million cubic feet of natural gas

                                      -6-
<PAGE>


NET ROYALTY ACRE - generally, a measurement of royalty or overriding royalty and
the equivalent of the full customary one-eighth royalty of the gross production
of revenue free and clear of exploration, drilling and production costs from one
acre of land. The number of net royalty acres used in this report applies to
figures as of March 25, 2002 and the number will change as relinquishments take
place on the ATPs, as an ATP expires or is canceled, or any new areas are added.

OVERRIDING ROYALTY INTEREST ("ORRI") - an interest assigned out of the lessee's
leasehold or working interest. The amounts payable from ORRIs are payments
calculated as a percentage of either gross production or the gross revenues of
the working interest (based on the wellhead price) from a concession or lease,
usually free and clear of all exploration, drilling and development and
production costs, except for any applicable taxes and federal levies. In
calculating the wellhead price, pipeline and trucking costs have already been
deducted from the refinery price. The overriding royalties discussed herein are
generally expressed as a percent of the gross production.

PETROLEUM EXPLORATION LICENSE ("PEL") - an exclusive oil and gas exploration
permit issued by the South Australian Department of Primary Industries and
Resources. The initial term of the tenure is for a five (5) year period.

PETROLEUM RESOURCE RENT TAX - a tax on net income in Australia reduced by
indexing on offshore production, which replaces the royalty and is a deduction
from Australian income tax.

PRODUCING WELLS - wells capable of producing oil or gas in commercial
quantities, including those wells capable of producing in commercial quantities
that are shut in, or wells that are not currently producing in commercial
quantities but have been commercially productive in the past.

ROYALTY - generally, a share of the production reserved by the grantor of an oil
or gas lease or concession. The royalty interest is customarily free of cost or
expense incident to exploration, development or production, except for
production or gathering taxes.

SPUD DATE OR SPUDDED - The date drilling operations begin.

WORKING INTEREST ("WI") - all or a fractional part of the ownership rights
granted by a concession or lease. The owner of a WI or a part thereof pays all
costs of exploration and is entitled to the gross production, less royalties
retained by the grantor or lessor, and less ORRIs or other non-operating
interests created and assigned from the WI. The owner of a WI may incur
operating expenses in excess of income.

RISK FACTORS

An investment in our common stock involves a number of very significant risks.
You should carefully consider the following risks and uncertainties in addition
to other information in evaluating our company and its business before
purchasing shares of our common stock. Our business, operating results and
financial condition could be seriously harmed due to any of the following risks.

The risks described below are all of the material risks that we are currently
aware of that are facing our company. Additional risks not presently known to us
may also impair our business operations. You could lose all or part of your
investment due to any of these risks.

We have a history of operating losses, expect to continue to incur losses, and
may never be profitable, and we must be considered to be in the exploration
stage. Further, we have been dependent on sales of our equity securities and
debt financing to meet our cash requirements.

Our development of and participation in what could evolve into an increasing
number of oil and gas prospects may require substantial capital expenditures.
The uncertainty and factors described throughout this section may impede our
ability to economically find, develop, produce, and acquire natural gas and oil
reserves. As a result, we may not be able to achieve or sustain profitability or
positive cash flows from operating activities in the future.

                                      -7-
<PAGE>


We have received a going concern opinion from our independent auditors report
accompanying our December 31, 2007 and December 31, 2006 financial statements.
The independent auditor's report accompanying our December 31, 2007 and 2006
audited financial statements contains an explanatory paragraph expressing
substantial doubt about our ability to continue as a going concern. The
consolidated financial statements have been prepared "assuming that the Company
will continue as a going concern." Our ability to continue as a going concern is
dependent on raising additional capital to fund our operations and ultimately on
generating future profitable operations. There can be no assurance that we will
be able to raise sufficient additional capital or eventually have positive cash
flow from operations to address all of our cash flow needs. If we are not able
to find alternative sources of cash or general positive cash flow from
operations, our business and shareholders will be materially and adversely
affected.

RISKS RELATED TO OUR COMMON STOCK

Our common stock is classified as a "penny stock" under SEC rules which limits
the market for our common stock. The SEC has adopted rules that regulate
broker-dealer practices in connection with transactions in "penny stocks." Penny
stocks generally are equity securities with a price of less than $5.00 (other
than securities registered on certain national securities exchanges or quoted on
the NASDAQ system, provided that current price and volume information with
respect to transactions in such securities is provided by the exchange or
system). Penny stock rules require a broker-dealer, prior to a transaction in a
penny stock not otherwise exempt from those rules, to deliver a standardized
risk disclosure document prepared by the SEC, which specifies information about
penny stocks and the nature and significance of risks of the penny stock market.
A broker-dealer must also provide the customer with bid and offer quotations for
the penny stock, the compensation of the broker-dealer, and sales person in the
transaction, and monthly account statements indicating the market value of each
penny stock held in the customer's account. In addition, the penny stock rules
require that, prior to a transaction in a penny stock not otherwise exempt from
those rules; the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the trading activity in the secondary market for
stock that becomes subject to those penny stock rules. If a trading market for
our common stock develops, our common stock will probably become subject to the
penny stock rules, and shareholders may have difficulty in selling their shares.

ITEM 2.  DESCRIPTION OF PROPERTY

The Company's principal office space is located at 1301 Avenue M, Cisco, Texas
76437. The office space is for corporate identification, mailing, and courier
purposes and costs us approximately $3,200 a year to an affiliate. This $3,200
has been recorded as an expense and contributed capital in the financials.

The Company holds overriding royalty interests in the Cooper/Eromanga Basins
that covers parts of Queensland and South Australia. These Company's overriding
royalties total 508,685 net royalty acres under 15,440,116 gross surface acres
in fifteen concessions. In addition the Company also owns 60,398 net royalty
acres under 893,199 gross acres in the Bass Strait of the Gippsland Basin
located offshore of the state of Victoria, Australia. See Table of Overriding
Royalty Interests on page 9 for ownership and size of each concession.

The Eromanga Basin encompasses the southwestern portion of the State of
Queensland and the northeast corner of South Australia, and is Australia's main
onshore producing oil and gas basin.

The Cooper Basin is located in the northeast part of the State of South
Australia. Management believes ACOR's overrides are in a prime location since
the majority of ACOR's interests form nearly continuous blocks adjoining the
producing block of Santos et al. which has reserves in excess of one billion
barrels of oil equivalent and is making approximately $A118 billion worth of
oil, gas and associated hydrocarbons per year (equivalent to about $110 billion
in U. S. dollars) based on an oil price of $110 per barrel.

On the 16,333,315 gross surface acres where ACOR holds overriding royalty
interests, there are giant anticlines, large faults and hundreds of seismic
highs, all of which indicate possibilities of oil and gas reserves. In addition,
about $27 million worth of seismic information has been completed and is
available on the areas.

                                      -8-
<PAGE>


ACOR is currently receiving revenues from four of its overriding royalty
interests - ATP 267, ATP 299, ATP 560 and PEL 115. A successful gas well was
completed on ATP 543 in 1996. After completion of a gas pipeline gas began to be
marketed in August 1999, but the pipeline reduced the gas price and the well was
shut in.

ACOR has overriding royalty interests in three Permits in the Gippsland Basin,
VIC/P45, 53 and 54. The Bass Strait of the Gippsland Basin is located between
the State of Victoria and Tasmania which has in excess of 4 billion barrels of
oil/condensate and 12 TCF gas reserves discovered since exploration drilling
began in 1964.

In addition to ACOR's large overriding royalty position it also has working
interests in five concession of which four are located in the Cooper/Eromanga
Basin and one is in the Bass Strait of the Gippsland Basin. See the table for
Working Interest Holdings for additional information.

                   NON-PRODUCING OVERRIDING ROYALTY INTERESTS

                                                 PERCENTAGE OF    NET
    AREA         CONCESSION              GROSS    1% OF GROSS   ROYALTY
                   HOLDER                ACRES    PRODUCTION     ACRES    BLOCKS
--------------------------------------------------------------------------------
BASS STRAIT OF GIPPSLAND BASIN
  VIC/P45    Apache Energy Ltd.         214,896       7.50%      1,284       12
  VIC/P53    Cue Petroleum              182,858       5.00%        731       11
  VIC/P54    Apache Energy Ltd.         155,676       5.00%        623       11
  VIC/P60    Holloman                   339,769     212.50%*    57,760       24
                                                                ======
                 TOTAL                  893,199                 60,398

COOPER-EROMANGA BASIN
   PEL 86   Victoria Petroleum       1,066,000      10.00%      8,528       56
   PEL 87   Victoria Petroleum       1,066,000      10.00%      8,528       56
   PEL 88   Cooper Energy            1,230,000      30.00%     29,520       64
   PEL 89   Victoria Petroleum       1,208,000      10.00%      9,664       66
   PEL 111  Victoria Petroleum         292,819      10.00%      2,343       56
 ATP 544    Australian Petroleum
              Industries Pty. Ltd.     901,600       8.08%      5,828       49
 ATP 550    Discovery Geo
              (Australia) Corp.        276,000      25.00%      5,520       15
 ATP 582    Cooper-Eromanga Oil      6,716,000      67.10%    360,515      365
 ATP 616    Sundance Resources         147,200     333.33%     39,253        8
                                    ----------                -------
                 TOTAL              12,903,619                469,699


                     PRODUCING OVERRIDING ROYALTY INTERESTS
                                                 PERCENTAGE OF   NET
    AREA         CONCESSION              GROSS    1% OF GROSS   ROYALTY
 & # of WELLS        HOLDER                ACRES    PRODUCTION   ACRES    BLOCKS
--------------------------------------------------------------------------------
COOPER/EROMANGA BASIN
    PEL 115
      8 Wells  Victoria Petroleum      273,297       10.00%       2,186     56
  ATP 267
     25 Wells  Santos                  220,800       17.15%       3,029     12
  ATP 299
    102 Wells  Santos                  441,600        5.75%       2,031     24
  ATP 543      Vernon E. Faulconer
    1 Well        Australia, Inc.      956,800       25.00%      19,136     52
  ATP 560      First Sourceenergy
    3 Wells       Group Inc.           625,600       25.00%      12,512     34
  Patchawarra
     SW        Santos                   18,400        6.25%          92      1
                                      --------                 --------
                 TOTAL               2,536,497                   38,986

                                      -9-
<PAGE>


                            WORKING INTEREST HOLDINGS

                                          PERCENTAGE OF    NET
    AREA         CONCESSION       GROSS    1% OF GROSS   ROYALTY
                   HOLDER         ACRES    PRODUCTION     ACRES      BLOCKS
--------------------------------------------------------------------------------
COOPER/EROMANGA BASIN
  ATP 582    ACOR              6,716,000   100.0000%    6,716,000      365
  PEL 100    Cooper Energy       145,659     1.0000%        1,456        8
  PEL 108    Holloman            506,811    13.8325%       70,104       28
  PEL 109    Holloman            372,633    13.8325%       51,544       20
  PEL 112    Holloman            818,904    13.8325%      113,275       45
                               ---------                ---------
                 TOTAL         8,560,007                6,952,379




The following is a summary of the Company's Australian properties divided into
three areas 1) Gippsland Basin - Victoria, 2) Cooper/Eromanga Basin of South
Australia and 3) Cooper/Eromanga Basin of Queensland:

BASS STRAIT OF THE GIPPSLAND BASIN

VIC/53

VIC/P53 is an offshore concession covering 182,858 gross acres under which the
Company holds a 15% of 1% of gross production. Drilling is planned during the
fourth quarter of 2008 on Vic/53 to test the Bazzard structure that has been
identified by 3-D seismic. It is reported to be a large structure with the
potential of having reserves in the 50 million barrel range. Other prospects
were alsoidentified during the 3-D seismic program.


VIC/54

VIC/P54 is an offshore concession covering 155,676 gross acres under which the
Company holds a 5% of 1% of gross production. On December 23, 2004 the operator
began drilling the Grayling 1-A on VIC/54. The operator confirmed three gas
columns in the well from the well log analysis. The wire-line logs provided
sufficient data regarding the reservoir quality and hydrocarbon composition of
the Golden Beach reservoirs not to warrant drill stem testing. Given its
proximity to Longtom another gas discovery on the area, gas at the Grayling
location may provide additional reserves for a future development in VIC/P54.


The Longtom-3 drilled and completed during the summer of 2006 clearly
demonstrated that wells can be drilled in the field that will enable the
production of gas at commercial rates. Two production tests were conducted on
the well:

         The first test produced gas from the 400 sand at a creditable
         23MMscf/d. The results from this test confirm the flow potential of the
         400 sand reservoir in the Longtom field, addressing a major concern
         leading up to the drilling of the Longtom-3 well. A flow was not
         achieved in the second test of Longtom-2 (conducted over the 400 sand).
         Nexus has interpreted this test as having failed due to down-hole
         mechanical problems.

         The second test, over the 100, 200 and 300 sand intervals in the
         horizontal hole section exceeded expectations producing an estimated
         77MMcf/d when bypassing the test separator and 59MMcf/d when fl owing
         through the test separator (the separator's flow capacity). Sampling
         during the test recorded expected levels of carbon dioxide (less than
         1%) and less than one part per million hydrogen sulphide.

                                      -10-
<PAGE>


In addition the second test indicated that the condensate yield is higher in the
100 sands than in the sands above it, which will provide an economic boost to
the project.

The Longtom-4 development well is scheduled for drilling during the summer of
2008. The first gas from the Longtom Gas Field is forecasted to occur during the
third quarter of 2008. The operator estimates the daily production of 11,000
barrels of oil equivalent per day from the 3,400 foot pay section in the
Longtom-3.

VIC/P60

VIC/P60 is an offshore concession covering 339,769 gross acres under which the
Company holds a 25% working interest. In April 2005, the Company conducted a
study of the data on VIC/P60 that identified six (6) structures, of which one of
the six (6) structures, the A-1 Prospect lies in 100-200 meters of shallow
water. The A-1 prospect is approximately 4.97 miles long and 1.24 miles wide
with a seismic bright spot anomaly rated good to excellent. The seismic bright
spot is 108' thick and 820' horizontal by 20,500' perpendicular wide behind a
fault on the flank of the anticline. He has traced the beds to the nearest oil
and gas fields after processing 5,000 +/- seismic lines.

The Company sold its 25% working interest for $152,896 in cash and retained an
overriding royalty interest of 2.125% in concession Vic/P60. Subsequently
Holloman acquired this working interest and has filed a request for an extension
for additional time to evaluate the escalation of the costs of the 3-D seismic
costs that has occurred since the execution of the agreement to perform the work
program. Holloman is awaiting the government of Victoria decision as of April 8,
2008.


COOPER/EROMANGA BASIN - SOUTH AUSTRALIA


PEL 88


ACOR owns a 3/10ths of 1% overriding royalty interest under PEL 88, which covers
1,230,000 gross acres. Three prospects have been identified on PEL 88, Acacia,
Casuarina and Lancier. The potential recoverable reserves of each of these
prospects are 15,000,000 barrels of oil in the Acacia, 18,000,000 barrels of oil
in the Casuarina and 48,000,000 barrels of oil in the Lancier. No assurance can
be made that these prospects will be drilled.


PEL 100

ACOR holds a 1% working interest in the Cleansweep #1 which was drilled
subsequent to the end of the 2007 fiscal year and was completed as a Birkhead
formation producer. The well tested on 444 barrels of oil on a drill stem test.
The Cleansweep well was drilled to a total depth of 8,694 feet and is estimated
to have the potential of 4.8 million barrels of recoverable oil in place.

PEL 108, 109 & 112


On June 21, 2006, ACOR signed a farm-out agreement with Holloman Corporation of
Odessa, Texas for the oil & gas exploration of ACOR's PELs 108, 109, & 112,
located in South Australia in the prolific Cooper/Eromanga Basin. ACOR retained
a 13.8325% carried working interest through the drilling and completion of the
first 3 wells under PELs 108, 109, & 112.


Holloman Corporation became the new Operator. Holloman Corp. has agreed to drill
and complete 3 wells to earn 66.667% working interest in all 3 areas. Holloman
Corp. will carry ACOR for 13.8325% in the first three wells. After the third
well, ACOR will pay its part of any future exploration performed on the 3 areas,
subject to the terms of the Joint Operating Agreement. Subsequent to the end of
the 2007 fiscal year, Holloman drilled the Pecos #1 well on PEL 112 being the
first of the three well program. The Pecos #1 was completed as a dry hole. Due
to inconsistencies between the original seismic interpretation and drilling
data, Holloman tendered a request for an extension of the work program to
determine future drilling prospects, already identified, so as to maximize the
potential of the program.

                                      -11-
<PAGE>



PEL 111


ACOR owns a 1/10th of 1% overriding royalty interest under PEL 111, which covers
292,819 gross acres. Mapping of PEL 111 seismic data coupled with the
reprocessing of existing seismic data identified 20 leads and prospects for
potential oil and gas in the Birkhead, Hutton, Tirrawarra and Patchawarra
formations. The Ascender Prospect was drilled in September 2007 on PEL 111 and
it is reported the well was drilled out of closure which could leave the West
Ascender Prospect as future exploration target.


Of the 20 plus prospects seven have been classified as drillable prospects for
potential oil in the Birkhead formation. Three of these drillable prospects are
the Catalina, Gannet and Warhawk all of which are planned for drilling in 2008.
The Catalina is most likely to be the first prospect drilled which has the
potential of containing 24 billion cubic feet of gas and 1 million barrels of
oil.

     PEL 115

This permit covers 273,297 gross acres under which ACOR holds an overriding
royalty interest of 10% of 1% of gross production. PEL 115, is located in the
prolific Cooper/Eromanga Basin in South Australia. The Mirage-1 well completed
in July 2005 initially flowed clean oil at rate of 372 barrels of oil per day on
a 1/2 inch choke. Mirage-1 is currently producing on optimized beam pump
operation at a rate of 140 barrels of oil per day from the perforated 52 foot
interval from 4330 feet to 4481 feet.

The interpreted recoverable oil reserve for the Mirage Oil Field based on 2D
seismic geophysical mapping is in a range from a mean of 1.3 million barrels up
to a maximum of 3.6 million barrels. The interpretation of the 3D data set
suggest that Mirage-1 could be part of a larger feature covering approximately
20 square kilometers that includes the Lightning and Jindivik prospects, 3.10
miles to the north-east. Such an area has the potential of containing up to 23
million barrels of oil in place, subject to the presence of suitable Murta sand
reservoir.

In the southern part of PEL 115, interpretation of the 3D Mirage and extensive
2D seismic data have defined four Jurassic and Permian oil and gas prospects
(Voodoo, Fury, Airacobra and Thuderbolt). In the northern part of PEL 115 two
Jurassic prospects have been identified (Avro and Skyhawk) and three Permian
prospects known as the Delta, Hurricane and Metear. No drilling dates have been
announced for these propects.

COOPER/EROMANGA BASIN - QUEENSLAND


ATP 299


ACOR owns a .0575% of 1% ORRI under ATP-299 and its Petroleum Licenses which
covers 441,600 gross acres and currently has 102 completed wells under which
ACOR receives overriding royalties. The Tintaburra Block is reported to contain
approximately 84 million barrels of proved plus probable oil in place. The 2006
program included the development of the Mulberry Field, which could potentially
recover an additional 20 million barrels of oil from the Block.

Twenty-three (23) were drilled in the Tintaburra Block in 2006. Of the
twenty-three (23), there were three (3) Plugged & Abandoned. Initial production
rates from these wells average 200 barrels of oil per day. Production is
expected to increase as more of the successful wells are brought on-line and as
the wells receive pressure support from the nearby water injection wells.

Nine(9) additional Tintaburra wells were added in 2007 to the number of
producing wells on ATP 299 increasing the total number of productive wells to
102. Also during 2007 four wells were drilled from a single pad and all
encountered the primary target, the Mid-Birkhead reservoir with reservoir
thickness ranging from 5 to 15 meters. These wells are being used to accelerate
production and improve sweeping efficiency in the Mid-Birkhead reservoir.

The program so far has been the most successful onshore oil-drilling program
undertaken in Australia with a success rate for drilling in the mid Birkhead
reservoir unit at 80 acre spacing continues at in excess of 80%.

                                      -12-
<PAGE>

ATP 267

An eleven well exploration, appraisal and development drilling campaign was
announced in December 2006 on ATP 267 under which the Company holds an
overriding royalty interest of 17.15% of 1%. ATP 267 covers approximately
220,800 gross acres. An application has been made for a Petroleum Lease over the
area of the Currambar-1 oil discovery, which was drilled in January 2006 in ATP
267P. The well is awaiting installation of surface facilities before being
placed on production. The Nockatunga joint venture is planning to undertake a
multi-well appraisal and development drilling campaign, which will include
further drilling on the Muthero oil field to appraise the Birkhead oil pool
discovered in the Muthero-3 well. Santos is operator of the Nockatunga oil
fields.

On December 31st 2006, the Dilkera North-1 exploration well was spudded and
reached a total depth of 4,717 feet subsequent to year-end. The drill stem test
(" DST") 1 over the interval 3448-3477 feet in the Murta Member recovered 31
barrels of oil. The well was cased and suspended as a future oil producer in
2007.

The Kamel-1 well was drilled in March 2007 and was tied to the production field
facilities of the Thungo Oil Field and brought on line in early January 2008.
Two wells were drilled in the Nockatunga oil field in October 2007 however, no
commercial hydrocarbons were encountered.

ATP 560

ATP 560 covers 625,600 acres under which the Company holds a 25% of 1% override.
The Utopia Oil Field is situated in ATP 560P in the Eromanga Basin in southwest
Queensland, approximately 150 km north east of the Jackson Oilfield and 50 km
south of the Kenmore Oilfield. During the year, the Joint Venture produced
18,846 barrels (bbls) of light crude oil from the Utopia Oil Pool. Production
came from Utopia 1, Utopia 2, Utopia 3, and Utopia 6 wells. Utopia 4 was shut
in, and Utopia 5 was plugged and abandoned. The Joint Venture is considering
numerous options to accelerate production from the field. The Utopia field is a
broad low-relief structure, with a maximum relief of approximately 10 m. The
field produces from the Early Cretaceous Murta Formation and is the largest
known Murta pool in the Queensland Eromanga Basin. The oil pool is at an
approximate depth of 1020 m. The most recent technical review of Utopia
undertaken in June 2004 determined the field may contain up to 2.86 million
barrels of recoverable oil.

ATP 582

On March 30, 2006 ACOR began work on the geological studies on ACOR's ATP-582.
ATP-582 is located in Queensland Australia in the prolific Cooper/Eromanga
Basin. The permit area covers approximately 6,716,000 gross acres. The Southern
zone of ATP-582 is currently the best part of the area of the concession for oil
& gas exploration. Besides being up dip of the approximately $1 billion dollar
annual production from the Santos-Exxon producing block, it is along strike with
many new discovery wells that have sustained daily production of 1,000 - 3,000
barrels of oil per day. ACOR management has currently identified two prospects
on ATP-582 from the 850 miles seismic data, owned by ACOR. Two prospects have
been identified:


         The Samphire prospect covers approximately 3,800 acres and exhibits
         approximately 110 feet of closure. It is possible that a good potential
         exists for a 10-15 million barrel field, with a possible potential of
         approximately 40 million barrels.


         The Samphire West, which covers around 4,700 acres. If the Samphire
         prospect proves to be productive, a number of additional field
         discoveries may result from leads in the Southern part of ATP-582. Both
         prospects are a series of sandstone (clastic) reservoirs of pinch-outs
         and structural traps that have formed on the flank of the local high.


On September 26th, 2006 entered into a Joint Venture arrangement where the
partner will operate the concession and plans to shoot new a seismic grid survey
over the leads identified by ACOR management from old seismic data to confirm
good drillable targets with plans to drill a well. ACOR will be carried for 50%
WI in the 1st well drilled under ATP-582. No exploration work can begin until
native title has been cleared.

                                      -13-
<PAGE>


DOMESTIC - KENTUCKY

The Company entered into an Agreement with Resource and Energy Technologies
Company for the drilling and development of oil and gas in the Park City Field
Prospect in Edmonson County, Kentucky. The field is located in the Highland Rim
Physiographic Province that extends over portions of central Kentucky and middle
Tennessee.


ACOR originally held a 1/8th Working Interest in the Park City Gas Field,
however, negations are currently in progress for entering into a Pooling
Agreement that could change the Company's working interest. The Operator
reported in April 2008 "that the gas wells in the Park City Gas Field have been
hooked up to the gathering system. The meter run skids have been installed at
each wellhead. The gathering system has been purged and is charged. The gas
plant has arrived and has been installed. The mechanical and electrical
completion for the plant is scheduled for the 12th or 13th of this month.
Commissioning is scheduled to begin about the 15th. This start-up phase should
last about three week."

ITEM 3. LEGAL PROCEEDINGS

Management is not aware of any legal proceeding contemplated by any governmental
authority or any other party involving the Company or its properties. As of the
date of this Annual Report, no directory, officer or affiliate is (i) a party
adverse to our Company in any legal proceeding, or (ii) has an adverse interest
to our Company in any legal proceedings. Management is not aware of any other
legal proceedings pending or that have been threatened against the Company or
its properties.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

During the fiscal year ended December 31, 2007, no matters were submitted to the
Company's stockholders for approval, other than the election of directors and
ratify the selection of auditor at the annual meeting held December 21, 2007.


                                                            PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS

MARKET FOR COMMON EQUITY

The principal trading market for the common equity securities of the Company is
the National Association of Securities Dealers OTC Bulletin Board quotation
system. The symbol is: AUCAF. The following are the highs and lows for each
quarter for fiscal year ended December 31, 2007 and 2006, respectively. These
quotations reflect inter-dealer prices, without retail mark-up, mark- down or
commissions, and may not represent actual transactions.

                                             2007                   2006
                                    --------------------------------------------
                                     HIGH        LOW          HIGH        LOW
                                    ------      ------       ------     -------
         1st Quarter                 $0.43      $0.24         $1.75      $0.27
         2nd Quarter                  0.40       0.25          1.87       0.80
         3rd Quarter                  0.32       0.15          1.05       0.25
         4th Quarter                  0.69       0.32          0.41       0.27


The approximate number of securities holders of record of Australian-Canadian
Oil Royalties Ltd. on December 31, 2007 was 322 of record, which does not
include stockholders whose shares are held in street or nominee names. We have
no outstanding stock options or warrants to purchase our securities.

                                      -14-
<PAGE>




DIVIDEND POLICY

No dividends have ever been declared by the Board of Directors on our common
stock. Our losses do not currently indicate the ability to pay any cash
dividends, and the Company does not indicate the intention of paying cash
dividends either on our common stock in the foreseeable future.

Securities Authorized For Issuance Under Compensation Plans

As of the date of this Annual Report, the Company has no equity compensation
plan.

RECENT SALES OF UNREGISTERED SECURITIES

During fiscal year ended December 31, 2007, the Company issued 427,643
unregistered shares to consultants for a value of $136,762.90. Also during the
year the Company issued 100,000 unregistered shares as consideration to certain
officers and directors for a value of $33,000. The Company acquired an override
under two offshore concessions located in Western Australia for 100,000 shares
of restricted common stock valued at $25,000.


SHARES ELIGIBLE FOR FUTURE SALE

On April 8, 2007 the Company had 13,916,912 common shares issued and
outstanding, of which the Company believes it has approximately 5,200,000 shares
that can be sold pursuant to Rule 144 under the Securities Act of which
approximately 1,250,000 shares is held by officers and directors.

A current shareholder who is an "affiliate" of the Company, defined in Rule 144
as a person who directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the Company,
will be required to comply with the resale limitations of Rule 144. Sales by
affiliates will be subject to the volume and other limitations of Rule 144,
including certain restrictions regarding the manner of sale, notice
requirements, and the availability of current public information about the
Company. The volume limitations generally permit an affiliate to sell, within
any three month period, a number of shares that does not exceed the greater of
one percent of the outstanding shares of common stock or the average weekly
trading volume during the four calendar weeks preceding the sale. A person who
ceases to be an affiliate at least three months before the sale of restricted
securities beneficially owned for at least six months may sell the restricted
securities under Rule 144 without regard to any of the Rule 144 limitations.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OR OPERATION

The following discussion should be read in conjunction with our audited
financial statements and the related notes accompanied thereto. The following
discussion contains forward-looking statements that reflect our plans, estimates
and beliefs. Our actual results could differ materially from those discussed in
the forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to those discussed below and elsewhere
in this SEC 2007 Form 10-KSB, particularly in the section entitled "Risk
Factors". Our audited financial statements are stated in United States Dollars
and are prepared in accordance with United States Generally Accepted Accounting
Principles.

GENERAL DISCUSSION:

ACOR's 2007 fiscal year was another active year on the companies properties in
Australia. On the Company's overriding royalties in Australia there were a total
of 16 wells drilled in the Cooper/Eromanga Basin resulting in 13 producers, and
3 dry holes for the year ended December 31, 2007.

ACOR began its movement from being primarily an oil royalty company to an
exploration company in 2000 when ACOR et al was awarded three large concessions
in South Australia. ACOR continued this movement toward exploration as the
potential of one of these concessions, PEL 112, became more apparent as
discoveries were made closer to this concession. Another key factor was there
are no dry holes on PEL 112 and is on trend with the new discoveries. The risk
of exploration was down graded by the success rate by new junior oil companies
in the Cooper/Eromanga Basin averaging 52%.

                                      -15-
<PAGE>


The Company entered into a Letter Agreement in December 2006, which led to a
formal agreement being entered into during the first part of 2007 to sell its
25% working interest in an offshore oil and gas concession located in the Bass
Strait known as Vic/P60. The terms of the sale was cash of $152,896 in cash and
retained an overriding royalty interest of 2.125%.

Vic/P60 is a 339,769 acre concession, which is located in the Bass Strait of the
Gippsland Basin positioned between southern Victoria and Tasmania. The Bass
Strait is a world-class petroleum province as more than 4 billion barrels of
oil/condensate and 12 TCF gas reserves have been discovered in the Basin since
exploration began in 1964, with remaining reserves estimated at 600 million
barrels of oil and 5 trillion cubic feet of gas. VIC/P60 is adjacent to giant
producing fields and an expanding gas market. Proven petroleum exists with a
variety of untested play types, which include potential in deeper stratigraphic
levels.

ACOR has overriding royalty interests under 16,333,315 gross surface acres in
the Cooper/Eromanga and Bass Strait of the Gippsland Basin plus has working
interest under 8,560,007 gross surface acres. For additional information
regarding these concessions including those mentioned above in this section see
Item 2 Description of Property on page 8.

ACOR's management is optimistic about the future drilling planned on its
Australian interests, especially for the next couple of years.

RESULTS OF OPERATION

The Company's oil and gas revenues were up approximately 68% when comparing 2006
to 2007. In 2006 the revenues were $42,145 compared to $70,798 in 2007. The
increase in drilling activity that began in 2005 coupled with the increase in
crude oil prices increased the Company's revenues in Australia on its overriding
royalties primarily concessions ATP 299 and ATP 267. It is normal to have 3 to 6
month delay for Australian entities to distribute production revenues.
Additional drilling occurred during the later part of 2007, which provides the
opportunity for greater sources of revenue from its investments in Australia.

The categories of Personnel Costs, Professional fees and Promotion and
advertising reported expenditures of $436,221 for 2006 compared to $275,417, for
2007. Of the $436,221 the Company paid $262,000 through the issuance of
unregistered common stock in 2006 and of the $275,417 the Company paid $136,793
through the issuance of unregistered common stock in 2007. The unregistered
shares were issued for those services based on the close stock price at the time
of issuance without any discount for their lack of liquidity. The allocation of
the $213,638 in personnel cost is $155,500 for contract services, $32,400 in
wages and $25,600 for officer compensation. The unusual decrease in Promotion
and Advertising from $287,824 in 2006 to ($22,169) is directly related to the
return of 150,000 shares of the Company's common stock that was originally
issued for Public Relation services that was returned during 2007.

The other categories of expenditures for 2005 are not significant. However there
was a dramatic decrease in director fees from $161,412 in 2006 to $65,560
incurred in 2007.

Other income for the Company includes interest earned in 2006 of $10,645
compared to no interest income for 2007. The decrease is due to lower cash
balances held in interest bearing accounts.

The net loss for the year ended December 31, 2006 was $620,354 compared to a net
loss of $329,570 for the year ended December 31, 2007. Per share losses were
$0.02 per share for the year ended 2007 compared to $0.05 per share for the year
ended December 31, 2006.

                                      -16-
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

The Company's Total Current Assets as of December 31, 2007 were $97,058 compared
to $14,181 on December 31, 2006. The increase in current assets is due to the
increase of both cash on hand and accounts receivable. Accounts receivable are
oil sales that have been made but have not been received. The Total Current
Liabilities as of December 31, 2007 were $463,002 placing the Company's
liquidity ratio of current assets to current liabilities at .20 to 1 being an
improvement over the previous year that had Total Current Liabilities on
December 31, 2006 of $345,769 placing the Company's liquidity ratio of current
assets to current liabilities at .04 to 1. Cash on hand as of December 31, 2007
was $71,777 as compared to $2956 on hand as of December 31, 2006.

The Company plans to meet its operating expenditures from a private placement of
its restricted common stock. The Company is seeking exploration partners on its
various oil and gas concessions located in Australia.

Total assets of the Company decreased slightly from $1,085,996 on December 31,
2006 to $1,032,775 on December 31, 2007, a decrease of $53,221. The Company oil
and gas properties decreased from $994,058 in 2006 to $872,595 a decrease of
$121,463 primarily due to the sale of the Company's 25%working interest in oil
and gas concession known as Vic/P60.

Total Current Liabilities of the Company increased from $345,769 on December 31,
2006 to $463,002 on December 31, 2006. The loans from officers/directors of the
Company was increased from $177,194 on December 31, 2006 to $214,786 on December
31, 2007.

The accrued expenses for shown for December 31,2007 are $164,400 in director
fees, $66,000 in consulting fees and the $16,600 in accrued interest.

SUBSEQUENT EVENTS

Subsequent to the end of the 2007 fiscal year, Holloman drilled the Pecos #1
well on PEL 112 being the first of the three well program. The Pecos #1 was
completed as a dry hole. Due to inconsistencies between the original seismic
interpretation and drilling data, Holloman tendered a request for an extension
of the work program to determine future drilling prospects, already identified,
so as to maximize the potential of the program. No assurance can be made that an
extension of time will be granted by the South Australian Government and if
granted that additional wells will be drilled on PEL 112.


PLAN OF OPERATION AND FUNDING

The Company plans to seek additional oil and gas concessions in Australia on
ground level basis and will seek partners to join in this process. The Company
was successful in both 2006 and 2007 entered into farm-out arrangements to defer
the exploration commitments on six concessions.

MATERIAL COMMITMENTS

The Company had material commitments on several working interest properties in
Australia. However during 2007 the Company was successful in entering into
farm-out arrangements to transfer the exploration cost to others in lieu of
cash, carried working interest or an override.

PURCHASE OF SIGNIFICANT EQUIPMENT

The Company does not intend to purchase any significant equipment during the
next twelve months.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2005, the Financial Accounting Standards Board ("FASB") issued SFAS No.
154 "Accounting Changes and Error Corrections" ("SFAS No. 154"), which replaces
APB Opinion No. 20, "Accounting Changes", and SFAS No. 3, "Reporting Accounting
Changes in Interim Financial Statements", which requires that a voluntary change
in accounting principle be applied retrospectively to all prior period financial
statements presented, unless it is impractical to do so. SFAS No. 154 also
provides that a change in method of depreciating or amortizing a long-lived
non-financial asset be accounted for as a change in estimate effected by a
change in accounting principle, and also provides that correction of errors in
previously issued financial statements should be termed a "restatement". SFAS
No. 154 is effective for fiscal years beginning after December 14, 2005. We do
not believe the adoption of SFAS No. 154 will have a material impact on our
financial statement.

                                      -17-
<PAGE>


In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment" ("SFAS
No. 123R"). SFAS No. 123R requires all share-based payments to employees,
including grants of employee stock options and purchases under employee stock
purchase plans, to be recognized as an operating expense in the income
statement. The cost is recognized over the requisite service period based on
fair valued measured on grant dates, and the new standard may be adopted using
either the modified prospective transition method or the modified retrospective
transition method. In April 2005, the SEC approved a change in the effective
date of SFAS No. 123R for public companies to be effective in the annual, rather
than interim, periods beginning after June 14, 2005. SFAS No. 123R is effective
for the Company beginning January 1, 2006. In March 2005, the SEC issued Staff
Accounting Bulletin No. 107 (`SAB No. 107") "Share-Based Payment", which
expressed views of the SEC regarding the interaction between SFAS No. 123R and
certain SEC rules and regulations. SAB No. 107 also provides the SEC's views
regarding the valuation of share-based payment arrangements for public
companies. We have evaluated the requirements of SAB No. 107 in connection with
our adoption of SFAS No. 123R and expect that these new pronouncements will have
a material impact on our results of operations for future employee stock options
granted.

ACCOUNTING FOR NATURAL GAS AND OIL PRODUCING ACTIVITIES

We use the full cost method to account for our natural gas and oil producing
activities. Under this accounting method, we capitalize substantially all of the
costs incurred in connection with the acquisition, development, and exploration
of natural gas and oil reserves in full cost pools maintained by geographic
areas, regardless of whether reserves are actually discovered and apply a
quarterly full cost ceiling test. Adverse changes in conditions (primarily gas
price declines) could result in permanent write-downs in the carrying value of
oil and gas properties as well as non-cash charges to operations, but would not
affect cash flows.

We have adopted the provisions of SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 requires the fair value of a liability for an asset
retirement obligation to be recognized in the period in which it is incurred if
a reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the related oil and gas
properties. As of December 31, 2006 management has determined that there are no
material asset retirement obligations.

PROPERTY, EQUIPMENT AND DEPRECIATION

We follow the full cost method of accounting for our oil and gas operations
whereby all costs related to the acquisition of methane, petroleum, and natural
gas interests are capitalized. Under this method, all productive and
non-productive costs incurred in connection with the exploration for and
development of oil and gas reserves are capitalized. Such costs include land and
lease acquisition costs, annual carrying charges of non-producing properties,
geological and geophysical costs, costs of drilling and equipping productive and
non-productive wells, and direct exploration salaries and related benefits.
Proceeds from the disposal of oil and gas properties are recorded as a reduction
of the related capitalized costs without recognition of a gain or loss unless
the disposal would result in a change of 20 percent or more in the depletion
rate.

Depreciation and depletion of proved oil and gas properties is computed on the
units-of-production method based upon estimates of proved reserves, as
determined by independent consultants, with oil and gas being converted to a
common unit of measure based on their relative energy content.

The costs of acquisition and exploration of unproved oil and gas properties,
including any related capitalized interest expense, are not subject to
depletion, but are assessed for impairment either individually or on an
aggregated basis. The costs of certain unevaluated leasehold acreage are also
not subject to depletion. Costs not subject to depletion are periodically
assessed for possible impairment or reductions in value. If a reduction in value
has occurred, costs subject to depletion are increased or a charge is made
against earnings for those operations where a reserve base is not yet
established.

Estimated future removal and site restoration costs are provided over the life
of proven reserves on units-of-production basis. Costs, which include production
equipment removal and environmental remediation, are estimated each period by
management based on current regulations, actual expenses incurred, and
technology and industry standards. The charge is included in the provision for
depletion and depreciation and the actual restoration expenditures are charged
to the accumulated provision amounts as incurred.

                                      -18-
<PAGE>


We apply a ceiling test to capitalized costs which limits such costs to the
aggregate of the estimated present value, using a ten percent discount rate of
the estimated future net revenues from production of proven reserves at year end
at market prices less future production, administrative, financing, site
restoration, and income tax costs plus the lower of cost or estimated market
value of unproved properties. If capitalized costs are determined to exceed
estimated future net revenues, a write-down of carrying value is charged to
depletion in the period.

ITEM 7. FINANCIAL STATEMENTS

The following financial statement information for Australian-Canadian Oil
Royalties Ltd. begins following the signature page of this form. The Index to
the Financial Statements is on page F-1.

     Report of Independent Registered Public Accounting Firm
     Balance Sheets
     Statements of Operations and Comprehensive Loss
     Statements of Stockholders' Equity
     Statements of Cash Flows
     Notes to Financial Statements


ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

Our principal independent accountant from inception through September 5, 2005
was Robert Early & Company, P.C. of Abilene, Texas. Beginning September 6, 2005
Killman, Murrell & Company, P.C. of Odessa, Texas became independent accountant
for the Company. There are no disagreements between the Company and its previous
auditor Robert Early & Company, P.C. and its current auditor, Killman, Murrell &
Company, P.C.

ITEM 8A.   CONTROLS AND PROCEDURES

FINANCIAL DISCLOSURE CONTROLS AND PROCEDURES

Under the supervision and with the participation of our President and Chief
Financial Officer, we conducted an evaluation of the effectiveness of the design
and operations of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of
December 31, 2003. Based on this evaluation, our President and Chief Financial
Officer concluded that our disclosure controls and procedures were effective
such that the material information required to be included in our Securities and
Exchange Commission ("SEC") reports is recorded, processed, summarized and
reported within the time periods specified in applicable SEC rules and forms
relating to our reporting obligations, and was made known to them by others
within the Company, particularly during the period when this report was being
prepared.

AUDIT COMMITTEE REPORT

The audit committee has reviewed and discussed with management our audited
financial statements as of and for fiscal year ended December 31, 2007. The
audit committee has also discussed with Killman, Murrell & Company, P.C. the
matters required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as amended, by the Auditing Standards Board
of the American Institute of Certified Public Accountants. The audit committee
has received and reviewed the written disclosures and the letter from Killman,
Murrell & Company, P.C. required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, as amended, and has discussed
with Killman, Murrell & Company, P.C. their independence.

Based on the reviews and discussions referred to above, the audit committee has
recommended to the Board of Directors that the audited financial statements
referred to above be included in our Annual Report on Form 10-KSB for fiscal
year ended December 31, 2006 filed with the Securities and Exchange Commission.

                                      -19-
<PAGE>


ITEM 8B. OTHER INFORMATION

Not applicable.



                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

DIRECTORS - The Board of Directors of the Company presently consists of five
members. Each director is elected at the annual meeting of shareholders to hold
office until the next annual meeting of shareholders and until his successor has
been elected and qualified. The following table sets forth information
concerning the persons currently serving as directors of the Company.

                                                                     DATE FIRST
                                         POSITION WITH                ELECTED
   NAME                     AGE           THE COMPANY               AS DIRECTOR
--------------------------------------------------------------------------------
Kenneth W. Campbell          77           Director                     1997
Robert Kamon                 80           Director &                   1997
                                          Secretary
Howard Siegel                65           Director                     2006
Jan Soleimani                56           Director                     2007
Andre Sakhai                 27           Director &
                                          President                    2005

EXECUTIVE OFFICERS - Unless otherwise specified by the Board, all executive
officers are elected for a term of one year, commencing with the date of the
first meeting of the Board following the annual meeting of shareholders, and
serve until their successors are elected or appointed and qualified, or until
their respective death, resignation, removal or disqualification. All of the
Company's officers are executive officers. The following table sets forth
certain information with respect to the persons currently serving as executive
officers of the Company.

                                                                   DATE FIRST
                                       POSITION WITH               ELECTED
       NAME             AGE            THE COMPANY                AS OFFICER
 -------------------------------------------------------------------------------
 Robert Kamon            80             Secretary &                  1997
                                        Director

 Andre Sakai             27             President &                  2005
                                        Director

 Bernard Lipton          67             Chief Financial Officer      2007

ANDRE SAKHAI, President & Director, attended Arizona State University, which
included a curriculum of financial accounting and microeconomics, as well as
money and banking. Mr. Sakhai is a licensed real estate salesperson in the state
of New York and has other experience in computer functions as well as experience
in all aspects of the financial markets.

BERNARD LIPTON, CHIEF FINANCIAL OFFICER, is a 1962 graduate from the Brooklyn
College and has been a Certified Public Accountant since 1968 in the state of
New York. His accounting firm specializes in providing tax services and
consulting for both corporate and individuals.

ROBERT KAMON, Director and Secretary, is a petroleum-engineering graduate of the
University of Texas at Austin, Texas. Mr. Kamon has been President of three
NASDAQ listed companies. He is currently the President of several private
companies - Australian Grazing and Pastoral Co. Pty. Ltd. since 1954,
International Oil Lease Service Corp. since 1961, and Tensleep Oil and
Production, Inc. since 1989.

KENNETH W. CAMPBELL, Director, is a graduate of the University of Brandon
(Manitoba, Canada). He is President of Solar Energy Resources, Ltd., a privately
held independent Canadian oil and gas producer.

                                      -20-
<PAGE>


HOWARD SIEGEL, Director, is a graduate of the University of Oklahoma and has a
law degree from Saint Mary's University Law School. Mr. Siegel has been a member
of the State of Texas Bar Association since 1969 and became a member of the
Colorado Bar Association in 1989. Mr. Siegel has over thirty years of experience
in all matters of corporate law, oil & gas, real estate, employee benefits,
taxation and general practice.

JAN SOLEIMANI, DIRECTOR, is the owner of Bokara Rug Company in New York. His
company manufactures high quality handmade rugs for distribution to elite
furniture stores across the United States. Mr. Soleimani has been an active
businessman for 32 years in the manufacturing and distribution of high quality
handmade rugs plus has been involved in other successful business ventures
including real estate development.

FAMILY RELATIONSHIPS

There are no family relationships between the officers and directors of the
Company, however Ely Sakhai, a major shareholder is the father of Andre Sakhai,
president and director of the Company.


ITEM 10.  EXECUTIVE COMPENSATION

The executive officers of ACOR have received no salary or cash bonuses since the
organization of the Company. The Company has no bonus, pension, or profit
sharing plans. The Company pays for copies, phone usage, travel expenses, and
other labor to non-related parties.

The Company issued 100,000 unregistered shares of the Company's common stock as
compensation to its officers and directors for a total value of $33,000.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding the beneficial ownership of
the common stock of the Company as of April 8, 2008 by each of the Company's
officers and directors, each person who is known by the Company to own
beneficially more than 5% of the outstanding common stock and all officers and
directors of the Company as a group. The title of class is common stock, no par
value.

                                            # OF SHARES
             NAME AND                       BENEFICIALLY           PERCENT OF
      ADDRESS OF STOCKHOLDER                  OWNED                   CLASS
 -------------------------------------------------------------------------------
Tensleep Oil & Production, Inc.*             908,000                 6.525%
1304 Avenue L
Cisco, Texas   76437

Ken Campbell                                 250,000                 1.796%
307 Triune Bay
Calgary, Alberta T1X 1G4
Canada

Robert Kamon**                             1,994,501                14.332%
1304 Avenue L
Cisco, Texas  76437

Howard Siegel                                 40,000                  .287%
P.O. 940572
Houston, Texas 77094


Andre Sakhai                                 161,211                 1.158%
10 East 29th Street, Apt. 12J
New York, New York 10016

                                      -21-
<PAGE>


Jan Soleimani                                850,000                 6.107%
21 Windsor Dr.
Old Westbury, New York   11568

Bernard Lipton                                60,000                  .431
760 Jericho
Westbury, NY 11590

All officers and directors as a group      4,263,712                30.636%

Ely Sakhai                                 3,159,105                22.701%
10 Windsor Dr.
Old Westbury, New York   11568

*Tensleep Oil & Production, Inc. (Tensleep) is controlled by Robert Kamon.
Robert Kamon owns 50% of the shares of Tensleep.

**Robert Kamon's (1,447,507 shares), Tensleep's (908,000 shares), International
Oil Lease Service Corp.'s (394,444 shares), and Australian Grazing & Pastoral
Co., Pty. Ltd.'s (152,550 shares) holdings are all attributed to Robert Kamon
for purposes of presenting his beneficial ownership percentage. Robert Kamon is
President of these companies.

Note: The stockholders identified in this table have sole voting and investment
power with respect to the shares beneficially owned by them.

The owners have no rights to acquire additional shares through options,
warrants, rights, or conversion privileges within the next sixty days.

CHANGES IN CONTROL

Management is not aware of any current arrangements, which would result in a
change of control of the Company.

ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company owns 13.832.5% Working Interest, Ely Sakhai, Director, owns 16.6667%
working interest and Robert Kamon, Director and Secretary, owns 4.5% Working
Interest in PEL 108, PEL 109, and PEL 112 in Australia. Ely Sakhai acquired an
equal 12 1/2% working interest in the Park City Gas Field in Kentucky for cash,
while the Company acquired its 12 1/2 % interest through the issuance of
restricted common shares. Ely Sakhai is the father of Andre Sakhai, who is also
a Director of the Company.

Two of the directors of the Company, Robert Kamon and Ken Campbell, are active
in the oil and gas industry personally. The activities of each could result in a
conflict of interest between their other oil and gas activities and those of the
Company.

Robert Kamon is President of Tensleep Oil & Production, Inc., International Oil
Lease Service Corp. (IOLS), and Australian Grazing & Pastoral Co., Pty. Ltd.
(AGP). IOLS and AGP are in the business of applying for and acquiring oil and
gas concessions in Australia; therefore, activities may involve a conflict of
interest with the Company.

Tensleep Oil and Production, Inc. is also in the business of oil and gas
exploration and its activities may involve a conflict of interest with the
Company.

                                      -22-
<PAGE>







ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

  EXHIBIT NO.                 DESCRIPTION
---------------     ---------------------------------------------------------

     31.1 *Certification of Chief Financial Officer pursuant to Section 302 of
          the Sarbanes-Oxley Act of 2002.

     31.2 *Certification of Chief Executive Officer pursuant to Section 906 of
          the Sarbanes-Oxley Act of 2002.

     32.  *Certification of Chief Financial Officer pursuant to Section 906 of
          the Sarbanes-Oxley Act of 2002.

-----------------
*Filed herewith.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

The firm of Killman, Murrell & Company, P.C. served as the Company's independent
auditor for the years ended December 31, 2005, 2006 and 2007. The Board of
Directors of the Company, in its discretion, may direct the appointment of
different public accountants at any time during the year, if the Board believes
that a change would be in the best interests of the stockholders. The Board of
Directors has considered the audit fees, audit-related fees, tax fees and other
fees paid to the Company's accountants, as disclosed below, and had determined
that the payment of such fees is compatible with maintaining the independence of
the accountants.

Audit and Audit-Related Fees: The aggregate fees, including expenses, billed by
the Company's principal accountant in connection with the audit of our financial
statements for the most recent fiscal year included in our Annual Report on Form
10-KSB; and for the review of our financial information and our quarterly
reports on Form 10-QSB during the years ending December 31, 2007 and 2006 were
$50,620 and $32,107 respectively.

Tax Fees: The Company incurred no fees for tax compliance with the Company's
principal auditor for 2007 and 2007.



                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                           AUSTRALIAN-CANADIAN OIL
                                           ROYALTIES LTD.

Dated:    April 10, 2008                   /S/    ANDRE SAKHAI
                                           ----------------------------------
                                           Andre Sakhai, President & CEO


Dated:    April 10, 2008                   /S/   BERNARD LIPTON
                                           ----------------------------------
                                            Bernard Lipton CFO

                                      -23-



<PAGE>






                     Australian-Canadian Oil Royalties Ltd.



                          INDEX TO FINANCIAL STATEMENTS





Report of Independent Registered Public Accounting Firm ..................   F-2

Balance Sheets -- December 31, 2007 and 2006 .............................   F-3

Statements of Operations and Comprehensive Loss for
     the Years Ended December 31, 2007 and 2006 ..........................   F-4

Statements of Stockholders' Equity for the Years Ended
     December 31, 2007 and 2006 ..........................................   F-5

Statements of Cash Flows for the Years Ended
     December 31, 2007 and 2006 ..........................................   F-6

Notes to Financial Statements ............................................   F-7








                                       F-1

<PAGE>




             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Board of Directors
Australian-Canadian Oil Royalties Ltd.
Cisco, Texas

We have audited the accompanying balance sheets of Australian-Canadian Oil
Royalties Ltd. as of December 31, 2007 and 2006, and the related statements of
operations, stockholders' equity, comprehensive income and cash flows for the
years then ended. 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 audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Australian-Canadian Oil
Royalties Ltd. as of December 31, 2007, and 2006, and the results of its
operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11 to the
financial statements, the Company has suffered recurring losses from operations
and its limited capital resources raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also discussed in Note 11. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.




/S/ KILLMAN, MURRELL & COMPANY, P.C.
------------------------------------
Killman, Murrell & Company, P.C.
Odessa, Texas

March 7, 2008

                                       F-2

<PAGE>


<TABLE>
<CAPTION>

                     AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
                                 BALANCE SHEETS
                           December 31, 2007 and 2006


                                                                                  2007           2006
                                                                              -----------    -----------
                                                      ASSETS
CURRENT ASSETS
<S>                                                                           <C>            <C>
     Cash                                                                     $    71,777    $     2,956
     Accounts receivable                                                           23,651         11,225
     Prepaid expenses and other                                                     1,630           --
                                                                              -----------    -----------
         Total Current Assets                                                      97,058         14,181
                                                                              -----------    -----------

PROPERTY AND EQUIPMENT
     Oil and gas properties-being amortized                                       122,009        122,009
     Oil and gas properties-not being amortized                                   872,595        994,058
     Office equipment and software                                                 23,671         18,421
     Accumulated depletion and depreciation                                       (83,642)       (63,757)
                                                                              -----------    -----------
         Net Property and Equipment                                               934,633      1,070,731
                                                                              -----------    -----------

OTHER ASSETS                                                                        1,084          1,084
                                                                              -----------    -----------


     TOTAL ASSETS                                                             $ 1,032,775    $ 1,085,996
                                                                              ===========    ===========


                                       LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Accounts payable                                                         $     1,234    $     1,757
     Accrued expenses                                                             246,982        166,818
     Loans from officers                                                          214,786        177,194
                                                                              -----------    -----------
         Total Current Liabilities                                                463,002        345,769
                                                                              -----------    -----------

STOCKHOLDERS' EQUITY
     Preferred stock no par (50,000,000 shares
          authorized, none outstanding)                                              --             --
     Common stock, no par (50,000,000 shares
          authorized, 13,741,912 and 13,264,269 shares
          respectively outstanding)                                             2,842,343      2,686,550
     Additional paid in capital                                                   163,951        160,751
     Accumulated deficit                                                       (2,436,525)    (2,107,078)
     Other comprehensive income:
        Foreign currency translation adjustment                                         4              4
                                                                              -----------    -----------
         Total Stockholders' Equity                                               569,773        740,227
                                                                              -----------    -----------

     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                               $ 1,032,775    $ 1,085,996
                                                                              ===========    ===========





                 The accompanying notes are an integral part of these financial statements.
</TABLE>


                                                        F-3

<PAGE>

<TABLE>
<CAPTION>


                     AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
                STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                 For the Years Ended December 31, 2007 and 2006


                                                        2007            2006
                                                   ------------    ------------
<S>                                              <C>                <C>
OPERATING REVENUES
     Oil and gas revenues                          $     70,798    $     42,145

COST OF REVENUES
     Lease operating expenses                              --            11,130
     Production taxes                                        18              17
     Depletion                                           12,506           7,218
                                                   ------------    ------------

         GROSS PROFIT                                    58,274          23,780
                                                   ------------    ------------

OPERATING EXPENSES
     Personnel costs                                    213,638          92,681
     Professional fees                                   82,948          55,716
     Promotion and advertising                          (22,169)        287,824
     Office expenses                                     11,495          15,634
     Depreciation and amortization                        7,379           6,141
     Directors' fees and other                           65,560         161,412
                                                   ------------    ------------

         Total Operating Expenses                       358,851         619,408
                                                   ------------    ------------

(LOSS) FROM OPERATIONS                                 (300,577)       (595,628)

OTHER INCOME
     Interest income                                       --            10,645
     Interest expense                                    (9,006)        (25,493)
                                                   ------------    ------------

(LOSS) BEFORE INCOME TAXES                             (309,583)       (610,476)

Australian income taxes                                  19,987           9,878
                                                   ------------    ------------

         NET LOSS                                      (329,570)       (620,354)


OTHER COMPREHENSIVE INCOME:
     Foreign currency translation adjustment                123            --
                                                   ------------    ------------

         TOTAL COMPREHENSIVE LOSS                  $   (329,447)   $   (620,354)
                                                   ============    ============

Net loss per weighted average share outstanding    $      (0.02)   $      (0.05)
                                                   ============    ============

Weighted average shares outstanding                  13,648,421      12,648,703
                                                   ============    ============



   The accompanying notes are an integral part of these financial statements.
</TABLE>


                                       F-4

<PAGE>

<TABLE>
<CAPTION>


                     AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                 For the Years Ended December 31, 2007 and 2006



                                                                                             ACCUMULATED
                                                                ADDITIONAL    ACCUMULATED        OTHER
                                         COMMON STOCK              PAID IN     EARNINGS/     COMPREHENSIVE
                                     SHARES         AMOUNT         CAPITAL     (DEFICIT)        INCOME        TOTALS
                                     ------         ------         -------     ---------        ------        ------

<S>                              <C>           <C>            <C>           <C>            <C>           <C>
BALANCES, December 31, 2005        11,135,042    $ 1,995,287    $   153,247   $(1,486,724)   $         4   $   661,814

Non-cash stock issuances:
     Services                         600,000        262,000           --            --             --         262,000
     Oil and gas properties           100,000         45,000           --            --             --          45,000
     Notes payable to directors       574,679        155,163           --            --             --         155,163
     Director's fees                   30,000         29,100           --            --             --          29,100
Cash stock sales                      922,222        200,000           --            --             --         200,000
Contributed expenses                     --             --            7,504          --             --           7,504
Shares returned                       (97,674)          --             --            --             --            --
Net loss                                 --             --             --        (620,354)          --        (620,354)
                                  -----------    -----------    -----------   -----------    -----------   -----------

BALANCES, December 31, 2006        13,264,269      2,686,550        160,751    (2,107,078)             4       740,227

Non-cash stock issuances:
     Services                         487,643        157,793           --            --             --         157,793
     Oil and gas properties           100,000         25,000           --            --             --          25,000
     Director's fees                   40,000         12,000           --            --             --          12,000
Contributed expenses                     --             --            3,200          --             --           3,200
Shares returned                      (150,000)       (39,000)          --            --             --
                                                                                                               (39,000)
Net loss                                 --             --             --        (329,447)          --        (329,447)
                                  -----------    -----------    -----------   -----------    -----------   -----------

BALANCES, December 31, 2007        13,741,912    $ 2,842,343    $   163,951   $(2,436,525)   $         4   $   569,773
                                  ===========    ===========    ===========   ===========    ===========   ===========







                    The accompanying notes are an integral part of these financial statements.
</TABLE>



                                                        F-5

<PAGE>

<TABLE>
<CAPTION>


                                      AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
                                              STATEMENTS OF CASH FLOWS
                                  For the Years Ended December 31, 2007 and 2006

                                                                    2007           2006
                                                                -----------    -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                             <C>            <C>
Net loss                                                        $  (329,447)   $  (620,354)
Adjustments to reconcile net (loss) to net cash
   provided by operations:
     Depreciation, depletion and amortization                        19,884         13,359
     Value of expenses contributed by officers                        3,200          7,504
     Stock issued for services                                      143,793        262,000
     Stock issued for directors' fees                                12,000         29,100

Changes in:
     Receivables                                                    (12,426)        (2,496)
     Prepaid expenses                                                (1,630)          --
     Interest payable                                                  --            2,325
     Other accrued expenses                                          80,165        159,193
     Accounts payable                                                  (523)        (8,262)
                                                                -----------    -----------

NET CASH (USED) BY OPERATING ACTIVITIES                             (84,984)      (160,631)
                                                                -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Acquisition of office equipment                                 (5,250)          --
     Acquisition of oil & gas properties                            (35,872)      (104,390)
     Proceeds from sale of oil and gas properties                   157,335           --
                                                                -----------    -----------
NET CASH USED IN INVESTING ACTIVITIES                               116,213       (104,390)
                                                                -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Reduction in notes payable to officers                         (47,408)          --
     Proceeds from notes payable to officers                         85,000         64,186
     Sale of common stock                                              --          200,000
     Restricted certificates of deposit                                --        1,000,000
     Bank notes                                                        --       (1,000,000)
                                                                -----------    -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                            37,592        264,186
                                                                -----------    -----------


     Decrease in cash for year                                      (68,821)          (835)

         Cash and cash equivalents, beginning of year                 2,956          3,791
                                                                -----------    -----------

         Cash and cash equivalents, end of year                 $    71,777    $     2,956
                                                                ===========    ===========


SUPPLEMENTAL DISCLOSURES:
Cash payments for:
         Interest                                               $     3,010    $    18,864
         Australian income taxes                                     19,987          9,878
     Noncash Investing and Financing Activities:,
         Stock issued for oil and gas properties and drilling        25,000         45,000
         Stock issue for related party notes and interest              --          155,163


              The accompanying notes are an integral part of these financial statements.
</TABLE>


                                            F-6

<PAGE>



                     AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2007 and 2006


NOTE 1: DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Australian-Canadian Oil Royalties Ltd. (the Company) was incorporated April 28,
1997 in Vancouver, British Columbia, Canada. Its primary business plan is the
purchase of overriding royalty interests for long-term passive income and
capital gains, with sales of these interests as deemed in the best interest of
the Company. Current primary income sources are royalties earned on overriding
royalty interests held by the Company. The Company also engages related entities
and third parties for leasing operations in Australia. The primary producing
properties held by the Company are located in Australia's main onshore oil and
gas producing basin. These financial statements are prepared in U.S. dollars for
use in U.S. securities filings.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FOREIGN CURRENCY TRANSACTIONS

These financial statements are prepared in U.S. dollars for use in U.S.
securities filings. However, the Company incurs transactions in Canadian,
Australian and U.S. dollars. Transactions denominated in Canadian or Australian
dollars are translated to equivalent U.S. dollars for recording in the financial
records based on currency exchange rates existing at the dates of the
transactions. Ending balances of accounts that are denominated in Canadian
dollars are translated to U.S. dollars based on the currency exchange rates
existing at December 31. The exchange gains and losses that result from
translating these amounts to U.S. dollars are accumulated and reported as Other
Comprehensive Income, a separate component of the Company's stockholders'
equity.

STOCK BASED COMPENSATION

The Company accounts for services acquired (and other expenses paid) using stock
as compensation (or payment) based on the fair value of the shares issued. Fair
value is determined based on the closing price of the stock on the date the
Company becomes obligated to issue the shares.

OIL AND GAS PROPERTIES

The Company follows the full cost method of accounting for oil and gas producing
activities and, accordingly, capitalizes all costs incurred in the acquisition,
exploration, and development of proved oil and gas properties, including the
costs of abandoned properties, dry holes, geophysical costs, and annual rentals.
All general corporate costs are treated as expenses as incurred. In general,
sale or other dispositions of oil and gas properties are accounted for as
adjustments to capitalized costs with no gain or loss recorded. Capitalized
costs are recorded in cost centers on a country-by-country basis. Most of the
Company's oil and gas properties consist of overriding royalty interests that
are located in Australia. The Company had not participated in the exploration
and development of proved oil and gas properties until 2002. Capitalized costs
are subject to a "ceiling test," which basically limits such costs to the
aggregate of the "estimated present value," discounted at a 10% interest rate of
future net revenues from proved reserves, based on current economic and
operating conditions, plus the lower of cost or fair market value of unproved
properties. Costs in excess of the ceiling test are adjusted against income.

                                   (Continued)




                                       F-7

<PAGE>


                     AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2007 and 2006

NOTE 1: DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

OIL AND GAS PROPERTIES (CONTINUED)

Costs of producing royalty interests acquired in 1997 are being amortized over
the estimated reserves reported by the Queensland, Australia government at June
30, 2007; as revised by subsequent reports for discoveries, changes in
estimates, etc.; based on actual quantities sold. (These reports are generally
released one year after the end of the reporting period.) Costs of non-producing
interests are not being amortized pending development or production and sale of
oil or gas, but they are assessed for impairment on an aggregate
country-by-country basis.

OFFICE EQUIPMENT AND SOFTWARE

Office equipment and software are carried at depreciated cost. Acquisitions are
recorded at cost. Expenditures for major renewals and betterments that extend
the useful lives are capitalized. Expenditures for maintenance and repairs are
charged to expense as incurred. The cost of software and equipment is
depreciated over the estimated useful lives of the related asset. Depreciation
is computed on the straight-line method for financial reporting purposes.

INCOME TAXES

Deferred tax liabilities and assets result from temporary differences between
the financial statement and income tax bases of assets and liabilities. The
company records and adjusts any deferred tax asset valuations based on judgment
as to future realization of the deferred tax benefits supported by demonstrated
trends in the Company's operating results.

As a Canadian corporation, the Company is liable for income taxes under the laws
of Canada. Under Canadian laws the Company's Canadian-source income is subject
to a 46% tax (denominated in Canadian dollars). Operating losses can be carried
forward for seven years. The Company has unused operating loss carry-forwards at
December 31, 2007 that may be applied against future Canadian taxable income.
These expire as presented below. Because the timing of realization of the tax
benefit from these loss carry-forwards cannot be currently projected, a
valuation allowance has been established to completely offset this asset.

               AMOUNT OF UNUSED OPERATING             EXPIRING DURING YEAR ENDED
                    LOSS CARRYFORWARD                         DECEMBER 31,
                    -----------------                         ------------

                      $   163,410                                 2008
                           65,277                                 2009
                          104,895                                 2010
                          158,320                                 2011
                          614,874                                 2012
                          620,354                                 2013
                          329,446                                 2014
                      -----------
                      $ 2,056,576
                      ===========



                                   (Continued)


                                       F-8
<PAGE>





                     AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2007 and 2006

NOTE 1: DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


INCOME TAXES (CONTINUED)

The difference between taxable income and net income for financial reporting is
the write-down of the oil and gas properties due to the ceiling test that is not
deductible for tax purposes.

The potential tax benefit from these operating loss carry-forwards is $945,983
and $818,800 in 2007 and 2006, respectively. The Company has recognized a
valuation allowance against these deferred tax assets due the inability to
foresee when such benefits will be realized.

The Company is subject to a 30% Australian income tax on Australian source
royalty income. This tax is withheld by the payer. The Company incurred
Australian income taxes on its oil and gas production totaling $19,987 and
$9,878 in 2007 and 2006, respectively.

LOSS PER SHARE

U.S. accounting rules provide for the calculation of "Basic" and "Diluted"
earnings per share. Basic earnings per common share are computed by dividing net
income available to common stockholders by the weighted

Weighted average shares outstanding were 13,648,421 and 12,648,703 for 2007 and
2006, respectively. Outstanding common stock equivalents have been excluded from
the calculation of diluted losses per share because their effect would be
antidilutive.

CASH FLOWS

The Company considers unrestricted cash and cash investments with initial
maturity or marketability of three months or less to be cash equivalents for
purposes of presenting its Statement of Cash Flows. Cash investments whose use
is limited through collateral restrictions are not considered to be cash for
cash flows.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles required management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimated.

FINANCIAL INSTRUMENTS

Unless otherwise specified, management believes the carrying value of its
financial instruments approximates their fair value due to the short term to
maturity.

RECLASSIFICATIONS

Certain 2006 amounts have been reclassified in order to conform to the 2007
financial statement presentation.

                                   (Continued)

                                       F-9


<PAGE>


                     AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2007 and 2006




NOTE 1: DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECENT ACCOUNTING PRONOUNCEMENTS

Statement No. 158, "Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans"-an amendment of FASB Statements No. 87, 88, 106, and 123R.
This Statement improves financial reporting by requiring an employer to
recognize the over funded or under funded status of a defined benefit
postretirement plan (other than a multiemployer plan) as an asset or liability
in its statement of financial position and to recognize changes in that funded
status in the year in which the changes occur through comprehensive income of a
business entity or changes in unrestricted net assets of a not-for-profit
organization.

Statement No. 157, "Fair Value Measurements". This Statement defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles (GAAP), and expands disclosures about fair value
measurements. This Statement applies under other accounting pronouncements that
require or permit fair value measurements.

Statement No. 156, "Accounting for Servicing of Financial Assets"-an amendment
of FASB Statement No. 140. This Statement amends FASB Statement No. 140,
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS
OF LIABILITIES, with respect to the accounting for separately recognized
servicing assets and servicing liabilities.

Statement No. 155, Accounting for Certain Hybrid Financial Instruments-an
amendment of FASB Statement No. 133 and 140. This Statement amends FASB
Statements No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES, and No. 140, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL
ASSETS AND EXTINGUISHMENTS OF LIABILITIES.

In the opinion of management, these Statements will have no material effect on
the financial statements of the Company.



NOTE 2:   ACCOUNTS RECEIVABLE


At December 31, 2007 and 2006 the Company has accrued receivables for oil and
gas production from its Australian overriding royalty interests totaling $23,651
and $11,225, respectively. Collection of the accrued Australian production
generally occurs during the quarter following the quarter of production.

The cost bases of the receivables are believed to approximate their fair values.
No allowance for bad debts has been established because the Company has not
experienced any significant inability to collect is receivables.







                                      F-10

<PAGE>


                     AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2007 and 2006

NOTE 3:   PROPERTIES AND EQUIPMENT

The following table presents costs of property and equipment at December 31,
2007 and 2006.

                                                     2007               2006
                                                 -----------        -----------
Oil and gas properties                           $   994,604        $ 1,116,067
Office equipment                                       8,120              2,870
Seismic analysis software                             15,551             15,551
                                                 -----------        -----------

    Total costs                                    1,018,275          1,134,488

    Accumulated depletion                            (63,470)           (50,964)
    Accumulated depreciation                         (20,172)           (12,793)
                                                 -----------        -----------

Net Property and Equipment                       $   934,633        $ 1,070,731
                                                 ===========        ===========

Depreciation expense was $7,379 and $6,141 for 2007 and 2006. The office
equipment and the software are being depreciated on a straight-line basis over
three years.

NOTE 4:  OIL AND GAS PROPERTIES

Following is a summary of capitalized costs related to oil and gas properties:

<TABLE>
<CAPTION>

                                                  2007                         2006
                                      --------------------------    --------------------------
                                        AUSTRALIA        U.S.        AUSTRALIA         U.S.
                                      -----------    -----------    -----------    -----------
<S>                                   <C>            <C>            <C>            <C>
Acquisition cost                      $   516,586    $     4,378    $   480,714    $     4,378
Exploration cost                          503,016           --          503,015           --
Assignments, transfers, and rentals         4,688           --          162,023           --
Less allowance for excess costs           (34,064)          --          (34,064)          --
                                                                                   -----------

     Total                                990,226          4,378      1,111,688          4,378
Less accumulated depletion                (61,272)        (2,198)       (48,848)        (2,116)
                                      -----------    -----------    -----------    -----------

     Net Oil and Gas Properties       $   928,954    $     2,180    $ 1,062,840    $     2,262
                                      ===========    ===========    ===========    ===========

                             Costs Excluded from Amortization as of December 31, 2007
</TABLE>


Excluded acquisition costs incurred during 2007                       $  35,000
Sale of interest in excluded acquisition costs during 2007             (157,335)
Excluded acquisition costs incurred during 2006                          75,000
Excluded exploration costs incurred during 2006                          63,854
Excluded acquisition costs incurred during 2005                          31,076
Excluded exploration costs incurred during 2005                         439,161
Sale of interest in excluded exploration costs during 2005             (338,500)
Excluded acquisition costs incurred during 2004                         247,875
Excluded exploration costs incurred during 2004                          10,280
Excluded acquisition costs incurred during 2003                          27,000
Excluded costs incurred prior to 2003                                   437,306
                                                                      ---------
Total costs excluded from amortization                                $ 870,717
                                                                      =========

                                   (Continued)
                                      F-11


<PAGE>


                     AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2007 and 2006

NOTE 4:  OIL AND GAS PROPERTIES (CONTINUED)

The costs producing properties are being amortized over reserve estimates
reported by the Queensland, Australia government for June 30, 2007, as adjusted
for subsequently reported information, based on quantities produced. These
producing properties are ATP 267, ATP 299, ATP 543, and ATP 560. Other interests
have not produced marketable oil or gas from which the Company has received
revenues. The costs associated with these properties are not being amortized
pending determination of reserve quantities and commencement of production.
Depletion expense totaled $12,506 and $7,218 for 2007 and 2006.

In addition to depletion, these costs are subjected to a "ceiling" test based on
reported reserves. It has been determined that book values exceed the ceiling
test at December 31, 2007 and 2006. Adjustments to reduce the carrying values
based on the ceiling tests were $0 in 2007 and $0 in 2006. Additionally, as
discussed below, the U.S. investment was determined to be impaired.

Australia

During 2007, the Company acquired a 1/30th of 1% Overriding Royalty Interest
under WA272 and WA372 for $35,000 (this purchase was paid for by issuing stock).
Other lease maintenance costs, which included license fees on PEL's 108, 109 and
112 totaled $872. The Company sold their working interest in VIC/P60 for a total
of $152,886, but retained a 2.125% overriding royalty interest. The Company
received a refund of overpayment of seismic costs in the amount of $4,449.

During 2006, seismic work was performed on PEL 112 which amounted to $3,600. On
PEL 100 the Company paid $60,254 for their portion of the drilling costs of the
Fairbridge well which was a dry hole. The Company purchased a 0.025% Overriding
Royalty Interest under VIC/P45 for $45,000 and a 1/10th of 1% Overriding Royalty
Interest Under VIC/P53 for $30,000. Other lease maintenance costs, which
included variation fees and rentals on PEL's 108, 109 and 112 totaled $10,536.

NOTE 5:   LOANS FROM SHAREHOLDERS AND NOTES PAYABLE

During 2007, the Company borrowed additional funds from its previous president
in the amount of $85,000. The Company repaid a portion of the loans to its
current secretary in the amount of $47,408. Loans from current and previous
officers totaled $214,786 as of December 31, 2007.

During 2006, the Company borrowed additional funds from its previous president
and current secretary in the amount of $64,186. The Company repaid a portion of
the loans to its previous president during 2006 in the amount of $155,163. Loans
from officers totaled $177,194 as of December 31, 2006.

The Company had outstanding loans of $1,000,000 from the American State Bank of
Cisco, as of December 31, 2005. These notes were six month notes and were
renewed in April and December each year since the Company started borrowing in
2001. The balances outstanding at December 31, 2005 bear interest at 4.88% and
were due and paid in total in June, 2006. These notes were secured by
certificates of deposit shown as restricted cash on the balance sheet. Total
interest incurred on these bank notes during 2006 was $18,864.



                                      F-12

<PAGE>


                     AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2007 and 2006


NOTE 6:   TRANSACTIONS WITH RELATED PARTIES

An officer provided office space and services, with no cash costs to the
Company. These contributed costs had estimated unpaid values of $3,200 for both
2007 and 2006. These amounts have been recorded as operating expenses and as
additional paid-in capital in their respective years.

During 2007 and 2006, the Company reimbursed commonly-controlled entities for
personnel and office expenses totaling $36,912 and $52,192, respectively. These
entities, Tensleep Oil & Production, Inc., and Secretarial Services, Inc., are
within the control of the Company's Secretary. Additionally, the Company repaid
Australian Grazing & Pastoral Co., Pty. Ltd., also controlled by the Company's
Secretary for filing fees during 2007, which totaled $5,913.

The Company borrowed $85,000 and $64,186 from two of its current and previous
officers during 2007 and 2006. These funds were used to pay for administrative
costs and efforts to promote the Company's name and availability.

At December 31, 2007 and 2006, the Company's accounts payable was $1,028 and
$1,606, respectively payable to related parties.

Common Shares to Directors - The Compensation Committee approved 40,000 shares
of restricted stock per director for the year 2007, valued at $0.30 per shares,
being the market value on June 22, 2007. The Compensation Committee approved
30,000 shares of restricted stock per director for the year of 2006, valued at
$0.97 per share, being the market value on June 28, 2006. This recommendation by
the Compensation Committee was voted on and approved by the Board of Directors
and has been recorded as an expense in these financial statements in the amounts
of $60,000 and $145,500, respectively for 2007 and 2006. This stock will be
issued to each director at the director's discretion. Howard Siegel is the only
director whose stock was issued in 2007 and 2006 in the amount of 40,000 shares
and 30,000 shares.

NOTE 7:   FOREIGN OPERATIONS

As noted above, the Company was incorporated in Canada. Additionally, the
Company operates primarily in Australia where most of its properties are
presently located. Approximately 90% of all operating revenues reported by the
Company during 2007 and 2006 were received from Australian oil and gas royalty
interests. Depletion expense and Australian income taxes reported by the Company
during 2007 and 2006 are also related to the revenue received from the
Australian royalties. Australian revenues were $70,409 and $41,008 in 2007 and
2006.

Essentially all of the Company's administrative costs are incurred in the United
States. Leasing operating expenses and taxes have been incurred in the U.S. and
taxes have been paid to Australia.

NOTE 8:   STOCK TRANSACTIONS

During 2007, the Company issued 627,643 shares. A total of 100,000 shares were
issued for officer and director compensation, valued at $33,000; 225,000 shares
were issued for public relations, valued at $63,000; 100,000 shares were issued
for an interest in an Australian property, valued at $25,000; and 202,643 shares
were issued for services valued at $73,793. A total of 150,000 shares were
returned to the Company for public relations valued at $39,000.

                                   (Continued)

                                      F-13
<PAGE>

                     AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2007 and 2006

During 2006, the Company issued a total of 2,129,227 shares. A total of 574,679
shares were issued for loan repayment to its previous president valued at
$155,163; 922,222 shares were sold for cash in the amount of $200,000; 30,000
shares were issued for Director's Fees valued at $29,100; 100,000 shares were
issued for an interest in an Australian Property valued at $45,000; 97,674
shares were returned to the company from previous issue for oil and gas interest
in Kentucky; and 600,000 shares were issued for services valued at $262,000.

The Company has also approved the issuance of 132,643 shares of its common stock
in payment of services performed in 2006. This expense has been recorded in the
amount of $39,793 or $.30 per share at December 31, 2006.

NOTE 9:   CONTINGENCIES

The original package of Australian overriding royalty interests acquired by the
Company in 1997 included a 1/8 of 1% interest in all production from the
Patchawarra Southwest Block of PEL's 5 & 6. This overriding royalty comprises
approximately 5,348 net royalty acres under 1,069,717 surface acres. The
Patchawarra Southwest Block became productive in June 1989 and has produced
approximately $A67,119,716 in revenues from oil, gas and LPG since that time.
This overriding royalty was first created in June 1971 as a 1/4 of 1% interest
out of a 10% working interest. Since that time, this interest has been assigned
to six different companies with the last assignee being Australian-Canadian Oil
Royalties Ltd. During 1997, the Company determined that, due to the extensive
time elapsing between assignments and the failure of some intermediate assignees
to properly assign title, it will be necessary to engage in litigation in order
to collect both past and future royalty payments. In addition to the legal costs
incurred in this litigation, the Company will be required to pay the stamp duty
(transfer tax), charged by the Australian government, for each previously
unrecorded assignment.

The Company is considering the appropriate timing and costs which will be
required to undertake the necessary litigation to perfect its title in this
royalty interest. As of December 31, 2006, no litigation has been undertaken.
Legal counsel has advised the Company that the expected cost of the litigation
process will be in the range of $A30,000 plus any stamp duty that may be
required. The required stamp duty will be based on the state's determination of
value and will be required to be paid for each unregistered transfer in the
chain of title. At this time no estimate of this cost can be made. Upon
successfully clearing title to the property, the Company expects to collect
approximately $A42,000 in royalties on previous production. A six-year statute
of limitations runs on unpaid royalty revenue.

The Company has extensive commitments on its working interest properties in
Australia. The following summarizes these commitments.

ATP 582 - The Company has annual rentals of $20,000 per year on the 6,716,000
acre concession which the Company owns 100%.

PEL's 108, 109 & 112 - The Company has annual rentals which are approximately
$10,000 per year on these concessions and the Company owns a 13.8325% Carried
Working Interest.

PEL 100 - The Company owns a 2% working interest in PEL 100 and will be required
to pay its share of the completion of the Fairbridge well which is estimated to
be $25,000 for its share plus will be required to pay for its 2% working
interest of any future drilling and completions.

VIC/P60 - The Company's portion of the current commitment on seismic to be
conducted is $500,000. Management is currently negotiating with a Canadian Firm
to pay us our cash investment back of $120,000 and the Company will keep an
overriding royalty interest.

In the event the Company cannot fund the above commitments or farm-out these
areas to partners for funding, then the concessions will be subject to being
cancelled.


                                      F-14


<PAGE>


                     AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2007 and 2006

NOTE 10:   CONCENTRATION OF RISK

The producing oil and gas assets of the Company are all located in Australia.
These continue to be the primary source of operating revenues for the Company.

Accounts at the bank are insured by the Federal Deposit Insurance Corporation
(FDIC) up to $100,000 per depositor. Combined balances at December 31, 2007 at
the Company's primary bank did not exceeded federally insured limits.

NOTE 11:   GOING CONCERN CONSIDERATIONS

As of December 31, 2007, the Company has limited disposable cash and its
revenues are not sufficient to, and cannot be projected to, cover operating
expenses and expansion by the Company. These factors raise substantial doubt as
to the ability of the Company to continue as a going concern. Management's plans
include attempting to find a drilling company to farm out the working interest
it holds in Australia, raising funds from the public through a stock offering,
and attempting to acquire additional producing interests in exchange for stock.
Management intends to make every effort to identify and develop sources of
funds. There is no assurance that Management's will be successful. The Company
is effectively debt free and could continue to operate at subsistence levels
pending development of funding sources, unless required to fulfill its
obligation in Australia.

NOTE 12:   SUPPLEMENTARY DATA - RESERVES OF OIL AND GAS (UNAUDITED)

The following schedules set out available information about the Company's oil
and gas activities at December 31, 2007.

                   RESERVES OF OIL AND GAS - ROYALTY INTERESTS

The current quantities of proved reserves of oil and gas relating to royalty
interests are not presented because the necessary information is not available
or the Company's interests are not large enough to economically and reasonably
obtain this information. The Company's share of oil and gas produced from the
producing interests is presented in the following schedule. No estimates of
reserves have been reported to or filed with any Federal authority or agency
during the year presented. All of these royalty interests are in Australia. The
gas wells on ATP 543 were shut in all of 2006.

                                                         GAS (MCF)    OIL (BBLS)
                                                         ---------    ----------
Reserves reported by the Queensland
     Government as of June 30, 2007                          123         21,030
Additions or adjustments after 1997                       15,272          2,350
  Discoveries                                               --             --
  Cumulative previous production                          (4,232)        (3,990)
  Current year production                                   --           (1,211)
                                                         -------        -------

   Unrecovered reserves                                   11,163         18,179
                                                         =======        =======





                                   (Continued)



                                      F-15

<PAGE>


                     AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2007 and 2006

NOTE 12:   SUPPLEMENTARY DATA - RESERVES OF OIL AND GAS (UNAUDITED) (CONTINUED)

               RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES (1)
                      For the Year Ended December 31, 2007

                                             AUSTRALIA       U.S.       TOTAL
                                             ---------    ---------   ---------
Sales of oil and gas                         $  70,408    $     390   $  70,798

Production costs (including taxes)                --           --          --
Acquisition, exploration
     and development                            31,423         --        31,423
Sale of non-producing interest                (152,886)        --      (152,886)
Depletion                                       12,506         --        12,506
                                             ---------    ---------   ---------
Results of operations from
     producing activities (excluding
     corporate overhead)                     $ (38,549)   $     390   $ (38,159)
                                             =========    =========   =========


All sales were to unaffiliated entities.

       CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES (1)
                              At December 31, 2007

                                                   AUSTRALIA              U.S.
                                                   ---------          ---------
Unproved properties
     (not being amortized)                         $ 870,717          $   1,878
Proved properties
     (being amortized)                               119,509              2,500
                                                   ---------          ---------

   Total Capitalized Costs                           990,226              4,378

Allowance for excess costs                           (34,064)              --
Accumulated depletion                                (61,272)            (2,198)
                                                   ---------          ---------

Net Capitalized Costs                              $ 894,890          $   2,180
                                                   =========          =========

                                   (Continued)


                                      F-16

<PAGE>


                     AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2007 and 2006


  NOTE 12: SUPPLEMENTARY DATA - RESERVES OF OIL AND GAS (UNAUDITED) (CONTINUED)


 COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT
                      For the Year Ended December 31, 2007

                                               AUSTRALIA            U.S.
                                              ----------       ------------
Property acquisition costs:
     Proved                                   $   --           $       --
     Unproved                                   35,000                 --
     Exploration costs                          (3,577)                --
     Development costs                            --                   --
                                              --------         ------------

Total                                         $ 31,423         $       --
                                              ========         ============

(1)      As mentioned at Note 4, the Company acquired a working interest in the
         Park City Gas Field in the U.S. that has been drilled but is not in
         production, except for a small amount of oil. The operator's petroleum
         engineer has performed a volumetric calculation of estimated gas in
         place. However, reliable reserve information (and value) for this
         property is highly subjective at the time of preparation of these
         financial statements because the field has opened a previously
         unexplored area in Kentucky and there has been no way to predict
         production rates or decline curves. Producible reserves are relatively
         shallow and there has not been a substantive test of the production
         rates and rate of decline of the estimated reserves. Because of these
         facts, a reliable estimate of the timing of production and future cash
         flows has not been determined. Since reliable information is not
         available at the time of preparation of these financial statements, the
         Company has not presented the disclosures of reserve information that
         are normally required for working interests based on information that
         management believes could prove to be unreliable or unsupportable.

         Additionally, because of the high nitrogen content in the gas found in
         the field, the gas is not marketable without being processed to remove
         excess nitrogen. Finding a funding source for the gas plant has proven
         to be problematic and, at present, causes projections of the potential
         to recover the Company's investment to be highly questionable. Based on
         this analysis, the Company has recorded an impairment for the full
         carrying value of its U.S. investment.



NOTE 14 - SUBSEQUENT EVENTS


Subsequent to the end of the 2007 fiscal year, Holloman drilled the Pecos #1
well on PEL 112 being the first of the three well program. The Pecos #1 was
completed as a dry hole. Due to inconsistencies between the original seismic
interpretation and drilling data, Holloman tendered a request for an extension
of the work program to determine future drilling prospects, already identified,
so as to maximize the potential of the program. No assurance can be made that an
extension of time will be granted by the South Australian Government and if
granted that additional wells will be drilled on PEL 112.


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