PART II
(a) Principal Market or Markets
Effective with the close of business on June 19, 1997, our Common Stock was delisted from the NASDAQ Small Cap Market. In June of 1997, our Common Stock began trading on the NASD Over-the-Counter Bulletin Board ("OTCBB"). Since April 2010 our Common Stock has traded and continues to trade on the electronic OTCQB and OTCBB market. Market makers and other dealers provided bid and ask quotations of our Common Stock. We trade under the symbol "AOGN".
The table below represents the range of high and low bid quotations of our Common Stock as reported during the reporting period herein. The following bid price market quotations represent prices between dealers and do not include retail markup, markdown, or commissions; hence, they may not represent actual transactions.
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Per Share Common Stock Bid Prices by Quarter For the Two Most Recent Fiscal Years
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High
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Low
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|
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Quarter Ended March 31, 2013
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$
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0.19
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$
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0.09
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|
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Quarter Ended December 31, 2012
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$
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0.25
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$
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0.09
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Quarter Ended September 30, 2012
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$
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0.10
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$
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005
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Quarter Ended June 30, 2012
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$
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0.12
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$
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0.05
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Quarter Ended March 31, 2012
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$
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0.87
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$
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0.12
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Quarter Ended December 31, 2011
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$
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1.95
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$
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1.05
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Quarter Ended September 30, 2011
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$
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2.70
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$
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1.95
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Quarter Ended June 30, 2011
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$
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0.39
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|
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$
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0.195
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As of August 7, 2013, 10,208,062 shares of our Common Stock were outstanding and the number of holders of record of our Common Stock at that date was approximately 686. However, we estimate that there are a significantly greater number of shareholders because a substantial number of our shares are held in nominee names by brokerage firms.
(b) Dividends
No dividends on the Common Stock were paid by us during the fiscal year ended March 31, 2013, or the fiscal year ended 2012, nor do we anticipate paying dividends on Common Stock in the foreseeable future. Holders of Common Stock are entitled to receive such dividends as may be declared by our Board of Directors.
(c) Securities Authorized for Issuance Under Equity Compensation Plans.
We have not established an Equity Compensation Plan and have not authorized the issuance of any securities under such plan.
(d) Preferred Stock.
Our Articles of Incorporation authorize us to issue up to 1,000,000 shares of $0.10 par value preferred stock, with such classes, series and preferences as our Board of Directors may determine from time to time. In June 2002, our Board of Directors authorized the issuance of 100 shares of Series A Convertible Preferred Stock (the "Series A Preferred Stock"). Our Board further agreed to issue all of the Series A Preferred Stock to our Chairman and President, Kent Rodriguez, in satisfaction of $500,000 in loans made by Mr. Rodriguez
The Series A Preferred Stock accrues dividends at the rate of 8% per annum on the original purchase price for the shares. If declared by the Board of Directors, these dividends are payable quarterly, beginning in September 2002. We are prohibited from paying any dividends on our Common Stock until all accrued dividends are paid on our Series A Preferred Stock.
If we liquidate or dissolve, and after payment of our debts, the holders of the Series A Preferred Stock are entitled to a preference payment before we make any distributions to our Common Stockholders. The preference amount is equal to the original purchase price for the Series A Preferred shares plus accrued, but unpaid dividends.
The Series A Preferred Stock is convertible at anytime into 40% of the then outstanding shares of Common Stock and securities convertible into Common Stock on a fully diluted basis. However, conversion is limited to the number of shares of Common Stock available for issuance under our articles of incorporation.
Regardless of whether or not the Series A Preferred Stock has been converted to our Common Stock, the Series A Preferred Stockholder is entitled to vote, at all times, on an as-if converted basis. The Preferred Stockholder, Mr. Rodriguez, has the right to vote the Series A Preferred Stock together with his other holdings in the Company.
In March, 2013, our Board of Directors authorized the issuance of 2,000 shares of Series B Preferred Stock (the "Series B Preferred Stock") The face amount of share of the Series B Preferred Stock is $1,000.
The Series B Preferred Stock accrues dividends at the rate of 8% per annum on the original purchase price for the shares. If declared by the Board of Directors, these dividends are payable annually, beginning in January 2014. We are prohibited from paying any dividends on our Common Stock until all accrued dividends are paid on our Series B Preferred Stock. The Series B Preferred Stock ranks junior to the Series A Preferred Stock owned by our President and Chief Exeutive Officer, as to Dividends and to a distribution of assets in the event of a liquidation of assets.
The Holders of Series B Preferred Stock do not have any voting rights and their consent is not required to take any sort of corporate action.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The Company does not have any securities authorized for issuance under equity compensation plans.
RECENT SALES OF UNREGISTERED SECURITIES
The Company sold the following unregistered securities between January 1, 2013 and March 31, 2013:
The Company sold 1,500,000 shares to six accredited investors for $150,000, and was based on the quoted market value at the date of issuance.
The Company issued 300,000 shares as compensation for the placement of these shares, The value of these shares in the amount of $27,000 or $0.09 per share was charged to operations, and was based on the quoted market value at the date of issuance.
The Company issued 200,000 shares of common stock to consultants for services provided, pursuant to consulting agreements. The value of these shares in the amount of $22,000 or $0.11 per share was charged to operations, and was based on the quoted market value at the date of issuance.
The Company issued 300,000 shares of common stock to consultants for services provided, pursuant to consulting agreements. The value of these shares in the amount of $36,000 or $0.12 per share was charged to operations, and was based on the quoted market value at the date of issuance.
The Company issued 250,000 shares of common stock to consultants for services provided, pursuant to consulting agreements. The value of these shares in the amount of $25,000 or $0.10 per share was charged to operations, and was based on the quoted market value at the date of issuance..
The Company issued 400,000 shares of common stock for the conversion of notes payable. The value of these shares in the amount of $62,000 has been credited to the notes payable. The value of a note payable was reduced and $61,250 was charged to loss on extinguishment of debt.
We sold 150 Shares of Series B Preferred Stock to an accredited investor for $150,000.
All other unregistered securities sold by the Company during the past three years, but prior to January 1, 2013, have been included in the Company's 10-Q filings.
All of the unregistered securities sold were issued directly by the Company, and no commissions or fees were paid in connection with any of these transactions. The transactions were private, and the Company endeavored to comply both with Regulation D, and also Section 4(2) of the Securities Act of 1933, as amended, as exemption(s) from registration. The Company exercised reasonable care to assure that the purchasers of the securities are not underwriters and were "accredited investors" under Regulation D and/or sophisticated investors.
Not applicable.
RESULTS OF OPERATIONS AND PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with our financial statements and notes related thereto. The discussion of results, causes and trends should not be construed to infer conclusions that such results, causes or trends necessarily will continue in the future.
For the year ended March 31, 2013 compared to the year ended March 31, 2012
Revenues
Revenues for the year ended March 31, 2013 were $163,574, a decrease of $90,308 or approximately 36% compared to revenue of $253,882 for the year ended March 31, 2012. Revenue from the sale of oil and gas decreased as a result of the decrease in gas production from the wells in the Grace Field, a decrease in oil production from the wells in Miller County, Arkansas, and a decrease in the market price of natural gas.
Lease Operating Expenses
During the year ending March 31, 2013, our lease operating expenses were $124,902, a decrease of $3,969 or approximately 3% compared to $128,871 for the year ended March 31, 2012.
Selling, General, and Administrative Expenses
Selling, general and administrative expenses for the year ended March 31, 2013 were $339,502 a decrease of $153,336 or approximately 31% compared to selling, general and administrative expenses of $492,838 during the year ended March 31, 2012. Selling, general and administrative expenses for 2013 consisted primarily of payroll and related costs of $66,464; legal and accounting fees in the amount of $46,444; facilities costs in the amount of 34,701; investor relations costs of $12,425; travel and entertainment expenses of $21,757; office expenses of $14,285 and consulting fees in the amount of $17,496. . The decrease was due to lower facilities expense, office rent decreased from $3,600 per month to $1,000 per month and a reduction in consulting expense
Stock-based Compensation
Stock-based compensation for the year ended March 31, 2013 was $197,500, an increase of $151,554 or approximately 320% compared to non-cash compensation of $45,946 for the year ended March 31, 2012. This increase was the result of more common stock issuances to outside consultants as payment for services rendered.
Depreciation, Depletion, and Amortization
Depreciation, Depletion, and Amortization were $76,133 for the year ended March 31, 2013 an increase of $6,154 or approximately 9% compared to $69,979 for the year ended March 31, 2012, due to a slight increase in the depletion allowance.
Gain on Sale of Property
During the year ended March 31, 2013, the Company did not sell any oil and gas properties.
Loss on Settlement of Debt
During the year ended March 31, 2013, the Company had a net loss on the settlement of debt in the amount of $48,711.
Interest Expense, net of Interest Income
Interest expense, net of interest income of $126,140 for the year ended March 31, 2013, a decrease of $163,621 or approximately 56% compared to interest expense, net of $289,761 for the year ended March 31, 2012. This decrease is due to a decrease in the amortization of the discount on the promissory notes issued by the Company.
Net Loss
For the reasons stated above, our net loss for the year ended March 31, 2013, was $749,314 an increase of $12,160 or approximately 2% compared to a net loss of $737,154 during the year ended March 31, 2012.
Liquidity and Capital Resources
Going Concern
The March 31, 2013, financial statements have been prepared assuming the Company will continue as a going concern. However, the Company has incurred a loss of $29,972,830 from inception through March 31, 2013, and has a working capital deficiency of $781,776 and stockholders’ equity of $442,088, respectively, at March 31, 2013. The Company currently has minimal revenue generating operations and expects to incur substantial operating expenses in order to expand its business. As a result, the Company expects to incur operating losses for the foreseeable future. The accompanying consolidated financial statements do not include any adjustments that might become necessary should the Company be unable to continue as a going concern.
Our cash and cash equivalents were $129,931 on March 31, 2013, compared to $114,533 on March 31, 2013. We met our liquidity needs through the issuance of our common stock, preferred stock, and convertible notes payable for cash and the revenue derived from oil and gas operations.
We need to raise additional capital during the fiscal year, but currently have not acquired sufficient additional funding. Our ability to continue operations as a going concern is highly dependent upon our ability to obtain immediate additional financing, or generate revenues from our acquired oil and gas leasehold interest, and to achieve profitability, none of which can be guaranteed. Unless additional funding is located, it is highly unlikely that we can continue to operate. There is no assurance that even with adequate financing or combined operations, we will generate revenues and be profitable.
Ultimately, our success is dependent upon our ability to generate revenues from our acquired oil and gas leasehold interests.
Operating activities
Net cash used by operating activities for the year ended March 31, 2013 was $333,833, compared to $430,338 used in the year ended March 31, 2012.
The Company had a net loss of $749,314 for the year ended March 31, 2013, compared to a net loss of $737,154 for the year ended March 31, 2012. Net accounts receivable for the year ended March 31, 2013 were $52,667 compared to $33,958 for the year ended March 31, 2012.
Investing activities
For the year ended March 31, 2013 we had did not have any significant investing activities. During the year ended March 31, 2010 we made a deposit of $160,000 for the purchase of oil and gas producing properties in Western Oklahoma, we expect to close this transaction on or before September 30, 2013 or have our deposit returned.
Financing activities
Our financing activities for the year ended March 31, 2013 provided cash of $345,000 as compared to $385,212 for the year ended March 31, 2012. We plan to raise additional capital during the coming fiscal year. Cash generated by financing activities primarily consisted of $45,000 from the issuance of convertible promissory notes, $150,000 from the issuance of 1,500,000 shares of Common Stock and $150,000 from the issuance of 150 shares of Series B Preferred Stock.
Critical Accounting Policies
The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based on information available. These estimates and assumptions affect the reporting amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. A summary of the significant accounting policies is described in Note 1 to the financial statements.
Recently enacted accounting standards
During the year, The Financial Accounting Standards Board (“FASB”) has issued various pronouncements, none of which apply to the current financial statements.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Material Commitments
We have no material commitments during the next twelve (12) months.
Purchase of Significant Equipment
During the twelve months ended March 31, 2013 and March 31, 2012, we used $0 for the purchase of equipment.
Our audited Financial Statements begin on page F-1.
None.
Our principal executive and financial officers, after evaluating the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of March 31, 2012, have concluded that as of March 31, 2013, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate to allow timely decisions regarding required disclosure, and (ii) is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms.
There have been no changes in our internal controls or in other factors that could affect these controls during or subsequent to the end of the period covered by this report.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed to provide reasonable assurance with respect to the reliability of financial reporting and the preparation and fair presentation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures which:
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Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
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Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
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Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2013 based upon the criteria set forth in the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
This Annual Report does not include an attestation report of our registered public accounting firm with respect to internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission which permit us to provide only our management’s report in this Annual Report.
We believe that our internal controls are effective.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting identified during our year ended March 31, 2013, which have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
None.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2012 AND 2011
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Avalon Oil & Gas, Inc. (the "Company") was originally incorporated in Colorado in April 1991 under the name Snow Runner (USA), Inc. The Company was the general partner of Snow Runner (USA) Ltd.; a Colorado limited partnership to sell proprietary snow skates under the name "Sled Dogs" which was dissolved in August 1992. In late 1993, the Company relocated its operations to Minnesota and in January 1994 changed our name to Snow Runner, Inc. In November 1994 we changed our name to the Sled Dogs Company. On November 5, 1997, we filed for protection under Chapter 11 of the U.S. Bankruptcy Code. In September 1998, we emerged from protection of Chapter 11 of the U.S. Bankruptcy Code. In May, 1999, we changed our state of domicile to Nevada and our name to XDOGS.COM, Inc. On July 22, 2005, the Board of Directors and a majority of the Company's shareholders approved an amendment to our Articles of Incorporation to change the Company's name to Avalon Oil & Gas, Inc., and to increase the authorized number of shares of our common stock from 200,000,000 shares to 1,000,000,000 shares par value of $0.001, and engage in the acquisition of producing oil and gas properties. On November 16, 2011, a majority of the Company's shareholders approved an amendment to our Articles of Incorporation to increase the authorized number of shares of our common stock from 1,000,000,000 shares to 3,000,000,000 shares par value of $0.001.
On June 4, 2012 the Board of Directors approved an amendment to our Articles of Incorporation to a reverse split of the issued and outstanding shares of Common Stock of the Corporation (“Shares”) such that each holder of Shares as of the record date of June 4, 2012 shall receive one (1) post-split Share on the effective date of June 4, 2012 for each three hundred (300) Shares owned. The reverse split was effective on July 23, 2012. On September 28, 2012, we held a special meeting of Avalon’s shareholders and approved an amendment to the Company’s Articles of Incorporation such that the Company would be authorized to issue up to 200,000,000 shares of common stock. We filed an amendment with the Nevada Secretary of State on April 10, 2013, to increase our authorized shares to 200,000,000.
The Company is currently in the process of raising funds to acquire oil and gas properties and related oilfield technologies, which the Company plans to develop into commercial applications.
On July 17, 2006, the Company purchased all the outstanding shares of Ultrasonic Mitigation Technologies, Inc. (UMTI) from Innovaro Corporation for 16,250,000 shares of the Company's Common Stock valued at $695,500. The shares were valued at the average sales price received in private placements for sales of restricted common stock for cash. UMTI became a wholly owned subsidiary of the Company as of the date of acquisition. UMTI once held the technology license of a patented process for paraffin wax mitigation from crude oil using ultrasonic waves developed by the University of Wyoming.
On November 9, 2006, the Company purchased all the outstanding shares of Intelli-Well Technologies, Inc. (IWTI) from Innovaro Corporation for 20,000,000 shares of the Company's common stock valued at $594,000. The shares were valued at the average sales price received in private placements for sales of restricted common stock for cash. ITWI became a wholly owned subsidiary of the Company as of the date of acquisition. IWTI holds a non-exclusive license in the United States for a borehole casing technology developed by the Regents of the University of California (the "Regents") through its researchers at Lawrence Livermore National Laboratory.
On March 28, 2007, the Company purchased all the outstanding shares of Leak Location Technologies, Inc. (LLTI) from Innovaro Corporation for 36,710,526 shares of the Company's common stock valued at $1,090,303. The shares were valued at the average sales price received in private placements for sales of restricted common stock for cash. LLTI became a wholly owned subsidiary of the Company as of the date of acquisition. LLTI held a non-exclusive license in the United States for a leak detection and location technology developed by the Rensselaer Polytechnic Institute ("Rensselaer") through its researcher Michael Savic.
On September 22, 2007 the Company entered into an agreement with respect to its purchase of a 75.6% interest in Oiltek, Inc. (Oiltek) for $50,000 and the right of Oiltek to market Avalon's intellectual property. Oiltek is consolidated in these financial statements with a minority interest shown.
AVALON OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2013 AND 2011
Principles of consolidation
The consolidated financial statements include the accounts of the Company and The Company’s subsidiary Oiltek, Inc. All significant inter-company items have been eliminated in consolidation.
Going Concern
The March 31, 2013, financial statements have been prepared assuming the Company will continue as a going concern. However, the Company has incurred a loss of $29,972,830 from inception through March 31, 2013, and has a working capital deficiency of $781,776 and stockholders’ equity of $442,088 as of March 31, 2013. The Company currently has minimal revenue generating operations and expects to incur substantial operating expenses in order to expand its business. As a result, the Company expects to incur operating losses for the foreseeable future. The Company will continue so seek equity and debt financing to meet our operating losses. The accompanying consolidated financial statements do not include any adjustments that might become necessary should the Company be unable to continue as a going concern.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates and assumptions.
Basis of Accounting
The Company's financial statements are prepared using the accrual method of accounting. Revenues are recognized when earned and expenses when incurred.
AVALON OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2013 AND 2012
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of cash on deposit, certificates of deposit, money market accounts, and investment grade commercial paper that are readily convertible into cash and purchased with original maturities of three months or less. The Company maintains its cash balances at several financial institutions. Accounts at the institutions are insured by the Federal Deposit Insurance Corporation up to $250,000.
Fair Value of Financial Instruments
The Company's financial instruments are cash and cash equivalents, accounts receivable, accounts payable, notes payable, notes receivable and long-term debt. The recorded values of cash and cash equivalents, accounts receivable, and accounts payable approximate their fair values based on their short-term nature. The recorded values of notes payable, notes receivable and long-term debt approximate their fair values, as interest approximates market rates.
Accounts Receivable
Management periodically assesses the collectability of the Company's accounts receivable. Accounts determined to be uncollectible are charged to operations when that determination is made. The Company had an allowance for accounts receivable of $140,227 and $135,708 for the years ended March 31, 2013 and 2012.
Oil and Natural Gas Properties
The Company follows the full cost method of accounting for natural gas and oil properties. Under the full cost concept, all costs incurred in acquiring, exploring, and developing properties cost center are capitalized when incurred and are amortized as mineral reserves in the cost center are produced, subject to a limitation that the capitalized costs not exceed the value of those reserves. The unamortized costs relating to a property that is surrendered, abandoned, or otherwise disposed of are accounted for as an adjustment of accumulated amortization, rather than as a gain or loss that enters into the determination of net income, until all of the properties constituting the amortization base are disposed of, at which point gain or loss is recognized. all acquisition, exploration, and development costs are capitalized. The Company capitalizes all internal costs, including: salaries and related fringe benefits of employees directly engaged in the acquisition, exploration and development of natural gas and oil properties, as well as other identifiable general and administrative costs associated with such activities. During the years ended March 31, 2013 and 2012, no acquisition costs were capitalized. Oil and natural gas properties are reviewed for recoverability at least annually or when events or changes in circumstances indicate that its carrying value may exceed future undiscounted cash inflows. As of March 31, 2013 and 2012, the Company had not identified any such impairment.
AVALON OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2013 AND 2012
Other Property and Equipment
Other property and equipment is reviewed on an annual basis for impairment and as of March 31, 2013, the Company had not identified any such impairment. Repairs and maintenance are charged to operations when incurred and improvements and renewals are capitalized.
Other property and equipment are stated at cost. Depreciation is calculated using the straight-line method for financial reporting purposes and accelerated methods for tax purposes.
Their estimated useful lives are as follows:
Office Equipment: 5-7 Years
Asset Retirement Obligations
In accordance with the provisions of Financial Accounting Standards Board “FASB” Accounting Standard Codification “ASC” 410-20-15, “Accounting for Asset Retirement Obligations”, the Company records the fair value of its liability for asset retirement obligations in the period in which it is incurred and a corresponding increase in the carrying amount of the related long live assets. Over time, the liability is accreted to its present value at the end of each reporting period, and the capitalized cost is depreciated over the useful life of the related assets. Upon settlement of the liability, the Company will either settle the obligation for its recorded amount or incur a gain or loss upon settlement. The Company's asset retirement obligations relate to the plugging and abandonment of its oil properties.
Intangible Assets
The cost of licensed technologies acquired is capitalized and will be amortized over the shorter of the term of the licensing agreement or the remaining life of the underlying patents.
The Company evaluates recoverability of identifiable intangible assets whenever events or changes in circumstances indicate that intangible assets carrying amount may not be recoverable. Such circumstances include, but are not limited to: (1) a significant decrease in the market value of an asset, (2) a significant adverse change in the extent or manner in which an asset is used, or (3) an accumulation of cost significantly in excess of the amount originally expected for the acquisition of an asset. The Company measures the carrying amount of the assets against the estimated undiscounted future cash flows associated with it.
There were not any impairment losses for the fiscal years ended March 31, 2013 and 2012.
Should the sum of the expected cash flows be less than the carrying amount of assets being evaluated, an impairment loss would be recognized. The impairment loss would be calculated as the amount by which the carrying amount of the assets, exceed fair value. Estimated amortization of intangible assets over the next five years is as follows:
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March 31,
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|
|
|
|
|
|
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2014
|
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$
|
42,585
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|
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2015
|
|
|
42,585
|
|
|
2016
|
|
|
42,585
|
|
|
2017
|
|
|
10,647
|
|
|
|
|
$
|
138,402
|
|
AVALON OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2013 AND 2012
Stock Based Compensation
Share awards granted to employees and independent directors are accounted for under ASC 718, "Share-Based Payment".
ASC 718-10 eliminates accounting for share-based compensation transaction using the intrinsic value method and requires instead that such transactions be accounted for using a fair-value-based method. The Company has elected to adopt the provisions of ASC 718-10 effective January 1, 2006, under the modified prospective transition method, in which compensation cost was recognized beginning with the effective date (a) based on the requirements of ASC 718-10 for all share-based payments granted after the effective date and (b) based on the requirements of ASC 718-10 for all awards granted to employees prior to the effective date of ASC 718-10 that remain unvested on the effective date.
The Company records share-based compensation expense for awards granted to non-employees in exchange for services at fair value in accordance with the provisions of ASC 505-50, "
Equity based
" payment to non-employees. For the awards granted to non-employees, the Company will record compensation expenses equal to the fair value of the share options at the measurement date, which is determined to be the earlier of the performance commitment date or the service completion date.
Warrants
The value of warrants issued is recorded at their fair values as determined by use of a Black Scholes Model at such time or over such periods as the warrants vest.
Loss per Common Share
ASC 260-10-45, “Earnings Per Share”, requires presentation of "basic" and "diluted" earnings per share on the face of the statements of operations for all entities with complex capital structures. Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted during the period. Dilutive securities having an anti-dilutive effect on diluted earnings per share are excluded from the calculation. In addition, the Company had a net loss during current period so dilutive securities would decrease negative EPS and have an anti-dilutive effect.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
ASC 740-10-25, “Accounting for Uncertainty in Income Taxes”, is intended to clarify the accounting for uncertainty in income taxes recognized in a company's financial statements and prescribes the recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740-10-25 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
Under ASC 740-10-25, evaluation of a tax position is a two-step process. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.
AVALON OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2013 AND 2012
Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met.
The adoption of ASC 740-10-25 at January 1, 2007 did not have a material effect on the Company's financial position.
Revenue Recognition
In accordance with the requirements ASC topic 605 "Revenue Recognition", revenues are recognized at such time as (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the seller's price to the buyer is fixed or determinable and (4) collectability is reasonably assured. Specifically, oil and gas sales are recognized as income at such time as the oil and gas are delivered to a viable third party purchaser at an agreed price. Interest income is recognized as it is earned.
Long-Lived Assets
Equipment is stated at acquired cost less accumulated depreciation. Office equipment is depreciated on the straight-line basis over the estimated useful lives (five to seven years).
Impairment of long-lived assets is recognized when events or changes in circumstances indicate that the carrying amount of the asset or related group of assets may not be recoverable. If the expected future undiscounted cash flows are less than the carrying amount of the asset, an impairment loss is recognized at that time. Measurement of impairment may be based upon appraisal, market value of similar assets or discounted cash flows. There was no impairment for the fiscal year ended March 31, 2013 and 2012.
AVALON OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2013 AND 2012
NOTE 2: RECEIVABLE FROM JOINT INTERESTS
The Company is the operator of certain wells acquired in the Expanded Bedford Agreement (see note 4). Pursuant to a joint interest operating agreement (the “Joint Interest Agreement”), the Company charges the other owners of the Grace Wells for their pro-rata share of operating and workover expenses. These receivables are carried on the Company’s balance sheet as Receivable from Joint Interests. At March 31, 2013 and 2012, the amount of these receivables is $160,227 and $155,708, respectively. During the year ended March 31, 2013, the Company deemed the collectability of the receivable from joint interests in the amount of $140,227 and 135,708 respectively as unlikely.
NOTE 3: PROPERTY AND EQUIPMENT
A summary of property and equipment at March 31, 2013 and 2012 is as follows:
|
|
|
March 31, 2013
|
|
|
March 31, 2012
|
|
|
Office Equipment
|
|
$
|
41,778
|
|
|
$
|
41,778
|
|
|
Leasehold improvements
|
|
|
-0-
|
|
|
|
7,989
|
|
|
|
|
|
41,778
|
|
|
|
49,767
|
|
|
Less: Accumulated depreciation
|
|
|
(41,778
|
)
|
|
|
(48,734
|
)
|
|
Total
|
|
$
|
-
|
|
|
$
|
1,033
|
|
Depreciation expense for the years ended March 31, 2013 and 2012 was $1,033 and $6,849.
AVALON OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2013 AND 2012
NOTE 4: INTELLECTUAL PROPERTY RIGHTS
A summary of the intellectual property rights at March 31, 2013 and 2012, are as follows:
|
|
|
March 31, 2013
|
|
|
March 31, 2012
|
|
|
Intelli-well
|
|
$
|
425,850
|
|
|
$
|
425,850
|
|
|
Ultrasonic Mitigation Technology
|
|
|
-
|
|
|
|
-
|
|
|
Leak Location Technology
|
|
|
-
|
|
|
|
-
|
|
|
BIO-CAT Well and pipeline
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
425,850
|
|
|
|
425,850
|
|
|
Less: accumulated amortization
|
|
|
(287,448
|
)
|
|
|
(244,864
|
)
|
|
Total
|
|
$
|
138,402
|
|
|
$
|
180,986
|
|
Amortization expense for the year ended March 31, 2013 and 2012 was $42,584 and $42,588, respectively.
AVALON OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2013 AND 2012
NOTE 5: OIL AND GAS PROPERTY ACTIVITY
The table below shows the Company’s working interests in the Grace Wells as of March 31, 2013 and 2012:
|
Well
|
|
March 31, 2012
Working Interest
|
|
|
Additional Acquisition
|
|
|
March 31, 2013 Working Interest
|
|
|
Grace #1
|
|
|
65.25
|
%
|
|
|
0
|
%
|
|
|
65.25
|
%
|
|
Grace #2
|
|
|
55.75
|
%
|
|
|
0
|
%
|
|
|
55.75
|
%
|
|
Grace #3
|
|
|
64.00
|
%
|
|
|
0
|
%
|
|
|
64.00
|
%
|
|
Grace #5A
|
|
|
52.00
|
%
|
|
|
0
|
%
|
|
|
52.00
|
%
|
|
Grace #6
|
|
|
58.00
|
%
|
|
|
0
|
%
|
|
|
58.00
|
%
|
Producing oil and gas properties consist of the following:
|
|
|
March 31, 2013
|
|
|
March 31, 2012
|
|
|
Lincoln County, Oklahoma
|
|
$
|
111,402
|
|
|
$
|
67,565
|
|
|
Other properties, net
|
|
|
1,005,676
|
|
|
|
1,049,514
|
|
|
Asset retirement cost
|
|
|
43,468
|
|
|
|
46,364
|
|
|
Property impairments
|
|
|
(481,072
|
)
|
|
|
(481,072
|
)
|
|
Less: Depletion
|
|
|
(506,641
|
)
|
|
|
(474,090
|
)
|
|
Net
|
|
$
|
172,833
|
|
|
$
|
208,281
|
|
AVALON OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2013 AND 2012
NOTE 6: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following:
|
|
|
March 31, 2013
|
|
|
March 31, 2012
|
|
|
Accounts payable
|
|
$
|
388,438
|
|
|
$
|
409,094
|
|
|
Accrued interest
|
|
|
242,236
|
|
|
|
172,286
|
|
|
Total
|
|
$
|
630,674
|
|
|
$
|
581,380
|
|
NOTE 7: NOTES PAYABLE
|
|
|
March 31, 2013
|
|
|
March 31, 2012
|
|
|
On May 8, 2006, the Company entered into a convertible note payable agreement with a shareholder in the amount of $100,000. The note carries an interest rate of 10% per annum and matures of November 8, 2006. The note holder has the right to convert the note and accrued interest at a rate of $0.01 per share. The value of this conversion feature was treated as a loan discount for the full $100,000 of the loan and was amortized to interest expense over the life of the loan. On May 8, 2007 the note was extended for one year. The conversion feature of the note was valued at $25,852 and was treated as a prepaid loan costs. The prepaid loan costs have been amortized over the life of the new note. On October 19, 2007, the note holder converted $30,000 of principal plus accrued interest of $16,152 for 1,350,000 shares of common stock. On November 30, 2007, the note holder converted $10,000 of principal for 950,000 shares of common stock. On January 31, 2008, the note holder converted $10,000 of principal and accrued interest of $600 for 1,250,000 shares of common stock. On February 29, 2008, the note holder converted $8,000 of principal for 1,250,000 shares of common stock. On March 31, 2008, the note holder converted $5,000 of principal for 1,250,000 shares of common stock. On March 31, 2008, the note holder converted $5,000 of principal for 1,250,000 shares of common stock. On June 6, 2008, the note holder converted $7,000 of principal and $1,372 of accrued interest for 1,550,000 shares of common stock. On June 23, 2008, the note holder converted $10,000 of principal and $395 of accrued interest for 1,500,000 shares of common stock. On October 15, 2008, the note holder converted $5,000 of principal and $10,000 of interest for 3,300,000 shares of common stock. On December 3, 2008, the note holder converted $3,000 of principal and $201 of interest for 2,000,000 shares of common stock. On February 24, 2009, the note holder converted $2,000 of principal and $167 of accrued interest into 4,000,000 shares of common stock During the three months ended September 30, 2009, the Company issued 33,000,000 shares for the conversion of $2,000 of principal and $367 of accrued interest on this note, and for other consideration. During the three months ended December 31, 2009, the Company issued 30,000,000 shares of common stock for the conversion of $1,000 principal and $361 of accrued interest on this note and for other considerations. During the period ended March 31, 2013, the Company issued 650,000 shares of common stock for the conversion of $2,250 principal and $409 of accrued interest. Interest in the amount of $410 and $339 was accrued on this note during the year ended March 31, 2013 and 2012, respectively. The maturity of this note has been extended until April 1, 2014.
|
|
$
|
2,250
|
|
|
$
|
4,500
|
|
AVALON OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2013 AND 2012
|
On November 11, 2008, the Company issued a convertible promissory note to an investor in the amount of $30,000. The note carries an interest rate of 10% per annum and a maturity date of October 1, 2009. The note holder has the right to convert the note and accrued interest into shares of the Company’s common stock at a rate of $3.00 per share. The discount is being amortized to interest expense over the life of the note via the effective interest method. Interest in the amount of $3,000 and $3,088 was accrued on this note during the year ended March 31, 2013 and 2013, respectively. Accrued interest was $8,876 and $5,876 respectively at March 31, 2013 and 2012 During the This note has been extended until April 1, 2014.
|
|
|
30,000
|
|
|
|
30,000
|
|
|
On December 22, 2008, the Company issued a promissory note to an investor in the amount of $150,000. This note carries an interest rate of 10% per annum and matures of December 15, 2009. In addition to the note payable, the Company issued 7,500,000 shares of common stock to the note holder. The shares are considered a discount to the note payable. At the time of the issuance of the shares to the note holder, the market price of the shares exceeded the fair value of the note payable; as a result the value of the discount was capped at the face value of the note, $150,000. The discount will be amortized to interest expense over the life of the note, 1 year, via the effective interest method. Interest in the amount of $15,000 and $15,042 was accrued on this note during the year ended March 31, 2013 and 2012, respectively. Accrued interest was $64,109 and $49,109 at March 31, 2013 and 2012 respectively. This note has been extended until April 1, 2014.
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
On December 31, 2008, the Company received a cash advance from an investor in the amount of $100,000. On January 1, 2009, the Company received an additional $50,000 and the Company entered into a note payable agreement in the amount of $150,000. The note bears interest at a rate of 10% per annum and matures on December 15, 2009. In additional to the note payable, the Company issued 7,500,000 shares of common stock to the note holder. The shares are considered a discount to the note payable. At the time of issuance of the shares to the note holders, the market price of the shares exceeded the fair value of the note payable; as a result the value of the discount was capped at the face value of the note, $150,000. The discount will be amortized over the life of the note via the effective interest method. Interest in the amount of $15,001 and $15,042 was accrued on this note during the year ended March 31, 2013 and 2012, respectively. Accrued interest was $63,123 and $48,123 at March 31, 2013 and 2012 respectively. This note has been extended until Apri1 1, 2014.
|
|
|
150,000
|
|
|
|
150,000
|
|
AVALON OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2013 AND 2012
|
On January 27, 2009, the Company issued a promissory note to an investor in the amount of $50,000. The note carries an interest rate of 10% per annum and matures on December 15, 2009. In addition to the note payable, the Company issued 1,000,000 shares of common stock to the note holder. The shares are considered a discount to the note payable. The shares are value using the closing market price on the date the note was signed and have a value of $25,000. The discount will be amortized over the life of the note via the effective interest method. Interest in the amount of $5,000 and $5,000 was accrued on this note during the year ended March 31, 2013 and 2012, respectively. . Accrued interest was $20,863 and $15,863 at March 31, 2013 and 2012 respectively. This note has been extended until Apri1 1, 2014
|
|
|
50,000
|
|
|
|
50,000
|
|
|
On November 28, 2006, Oiltek, of which the Company has a majority interest in, issued a convertible note payable in the amount of $2,500. This note bears interest at a rate of 8% per annum and matures on October 1, 2007. The principal amount of the note and accrued interest are convertible into shares of the Company’s common stock at a price of $0.01 per share. A beneficial conversion feature in the amount of $2,500 was recorded as a discount to the note and was amortized to interest expense during the period ended December 31, 2006. Interest in the amount of $200 and $200 was accrued on this note during the twelve months ended March 31, 2013 and 2012, respectively. This note was extended its maturity date until April 1, 2014.
|
|
|
2,500
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
On November 28, 2006, Oiltek, of which the Company has a majority interest in, issued a convertible note payable in the amount of $5,000. This note bears interest at a rate of 8% per annum and matured on October 1, 2007. The principal amount of the note and accrued interest are convertible into shares of the Company’s common stock at a price of $0.01 per share. A beneficial conversion feature in the amount of $5,000 was recorded as a discount to the note and was amortized to interest expense during the period ended December 31, 2006. Interest in the amount of $400 and $400 was accrued on this note during the twelve months ended March 31, 2013 and 2012, respectively. This note was extended its maturity date until April 1, 2014
|
|
|
5,000
|
|
|
|
5,000
|
|
AVALON OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2013 AND 2012
|
On January 1, 2011 the Company issued a convertible note payable in the amount of $250,000. This note bears interest at a rate of 8% per annum and will mature on January 15, 2014. The principal amount of the note and accrued interest are convertible into shares of the Company’s common stock at a price of $0.01 per share. A beneficial conversion feature in the amount of $95,000 was recorded as a discount to the note and is being amortized to interest expense. A discount of $-0- and $94,050 was deducted for the years ended March 31, 2013 and 2012 respectively. Interest in the amount of $20,000 and $20,054 was accrued on this note during the twelve months ended March 31, 2013 and 2012, respectively. Accrued interest was $24,384 and $24,384 at March 31, 2013 and 2012 respectively as interest in the amount of $20,000 was paid during the
Fiscal year ended March 31, 2013.
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
On January 1, 2011 the Company issued a convertible note payable in the amount of $200,000. This note bears interest at a rate of 8% per annum and will mature on January 15, 2014. The principal amount of the note and accrued interest are convertible into shares of the Company’s common stock at a price of $0.01 per share. A beneficial conversion feature in the amount of $60,000 was recorded as a discount to the note and is being amortized to interest expense. A discount of $-0- and $59,400 was deducted for the years ended March 31, 2013 and 2012 respectively. Interest in the amount of $16,000 and $16,044 was accrued on this note during the twelve months ended March 31, 2013 and 2012, respectively. Accrued interest was $35,507 and $19,507 at March 31, 2013 and 2012 respectively.
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
On January 27, 2012 the Company issued a convertible note payable in the amount of $200,000. This note bears interest at a rate of 8% per annum and will be matured on January 15, 2015. Interest in the amount of $$15,298 and $3,057 was accrued on this note during the twelve months ended March 31, 2013 and 2012 respectively. Accrued interest was $18,805 and $3,507 at March 31, 2013 and 2012 respectively.
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
On August 4, 2011 the Company issued a promissory note to an investor in the amount of $50,000. The note carries an interest rate of 8% per annum and matures on June 20, 2012. The discount of $21,000 will be amortized over the life of the note via the effective interest method. Interest in the amount of $68 and $2,159 was accrued on this note during the year ended March 31, 2013 and 2012 respectively. Accrued interest was $-0- and $2,159 at March 31, 2013 and 2012 respectively. In February 2012, the $10,000 of the note was paid with the issuance of 15,151,151 shares of common stock. In April 2012, was paid off with the issuance of 65,079,364 shares of common stock.
|
|
|
-0-
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
On March 6, 2012 the Company issued a promissory note to an investor in the amount of $42,500. The note carries an interest rate of 8% per annum and matures on June 20, 2012. The discount of $12,750 will be amortized over the life of the note via the effective interest method. Interest in the amount of $3, 065 and $233 was accrued on this note during the year ended March 31, 2013 and 2012 respectively. Accrued interest was $-0-and $233 at March 31, 2013 and 2012 respectively. In March of 2013the note was settled for $30,000 in cash. $12,500 in principal and $3,298 in interest was written off.
|
|
|
-0-
|
|
|
|
42,500
|
|
|
|
|
|
|
|
|
|
|
|
|
On June 21, 2012 the Company issued a promissory note to an investor in the amount of $37,500. The note carries an interest rate of 8% per annum and matures on March 13, 2013. Interest in the amount of $2,030 was accrued on this note during the year ended March 31, 2013. In March of 2013 the note was settled for $37,500 in cash. $2,030 in interest was written off.
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
On June 21, 2012 the Company issued a promissory note to an investor in the amount of $32,500. The note carries an interest rate of 8% per annum and matures on May 21, 2013. Interest in the amount of $1,353 was accrued on this note during the year ended March 31, 2013. In March of 2013 the note was settled for $32,500 in cash. $1,353 in interest was written off.
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
On December 3, 2012 the Company issued a promissory note to an investor in the amount of $75,000. The note carries an interest rate of 10% per annum and matures on January 15, 2015. Interest in the amount of $2,425 was accrued on this note during the year ended March 31, 2013. Accrued interest was $2,425 at March 31, 2013.
|
|
|
75,000
|
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total outstanding
|
|
$
|
1,114,750
|
|
|
$
|
1,124,500
|
|
AVALON OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2013 AND 2012
|
|
|
Note
|
|
|
Unamortized
|
|
|
Net of
|
|
|
March 31, 2013:
|
|
Amount
|
|
|
Discounts
|
|
|
Discount
|
|
|
Notes payable – long-term portion
|
|
$
|
864,750
|
|
|
$
|
(0
|
)
|
|
$
|
864,750
|
|
|
Notes payable – current portion
|
|
|
250,000
|
|
|
|
(0
|
)
|
|
|
250,000
|
|
|
Total
|
|
$
|
1,114,750
|
|
|
$
|
(0
|
)
|
|
$
|
1,114,750
|
|
|
|
|
Note
|
|
|
Unamortized
|
|
|
Net of
|
|
|
March 31, 2012:
|
|
Amount
|
|
|
Discounts
|
|
|
Discount
|
|
|
Notes payable – long-term portion
|
|
$
|
474,500
|
|
|
$
|
(0)
|
|
|
$
|
474,500
|
|
|
Notes payable – current portion
|
|
|
650,000
|
|
|
|
(29,069
|
)
|
|
|
620,931
|
|
|
Total
|
|
$
|
1,124,500
|
|
|
$
|
(29,069
|
)
|
|
$
|
1,095,431
|
|
|
|
|
Twelve months ended March 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
Discount on Notes Payable amortized to interest expense
|
|
$
|
29,069
|
|
|
$
|
203,969
|
|
Minimum future principal payments under the note payable are due as follows during the years ended March 31:
|
2014
|
|
$
|
250,000
|
|
|
2015
|
|
|
864,750
|
|
|
|
|
$
|
1,114,750
|
|
NOTE 8: RELATED PARTY TRANSACTIONS
During the fiscal year ended March 31, 2013 and 2012 the president advanced the Company $6,000 and $15,000 respectively. The balance at March 31, 2013 and March 31, 2012 was $21,000 and $15,000 respectively.
AVALON OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2013 AND 2012
Preferred Stock
The 100 shares of Series A Preferred Stock, issued to an officer/director as payment for $500,000 in promissory notes, are convertible into the number of shares of common stock sufficient to represent forty percent (40%) of the fully diluted shares outstanding after their issuance. The Series A Preferred Stock pays an eight percent (8%) dividend. The dividends are cumulative and payable quarterly. The Series A Preferred Stock carries liquidating preference, over all other classes of stock, equal to the amount paid for the stock plus any unpaid dividends. The Series A Preferred Stock provides for voting rights on an "as converted to common stock" basis.
During the years ended March 31, 2013 and 2012, the Company incurred $40,000 in preferred stock dividends.
The holders of the Series A Preferred Stock have the right to convert each share of preferred stock into a sufficient number of shares of common stock to equal 40% of the then fully-diluted shares outstanding. Fully diluted shares outstanding is computed as the sum of the number of shares of common stock outstanding plus the number of shares of common stock issuable upon exercise, conversion or exchange of outstanding options, and warrants. In the event that the Company does not have an adequate number of shares of Common Stock authorized, upon a conversion request, only the maximum allowable number of shares of Series A preferred stock shall convert into Common Stock and the remaining shares of Series A preferred Stock shall convert upon lapse of the applicable restrictions.
Employment Agreements
KENT RODRIGUEZ
During the years ended March 31, 2013 and March 2012, the Company charged to operations the amount of $48,000 in annual salary for Mr. Rodriguez, of which $46,750 and $37,233 was paid to him during the years ended March 31, 2013 and 2012, respectively. As of March 31, 2013 and 2012, the balances of accrued and unpaid salaries were $197,617 and $196,365.
NOTE 8: INCOME TAXES
Deferred income taxes result from the temporary difference arising from the use of accelerated depreciation methods for income tax purposes and the straight-line method for financial statement purposes, and an accumulation of Net Operating Loss carryforwards for income tax purposes with a valuation allowance against the carryforwards for book purposes.
AVALON OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2013 AND 2012
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Included in deferred tax assets are Federal and State net operating loss carryforwards of $29,972,830, which will expire beginning in 2028. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon our cumulative losses through March 31, 2013, we have provided a valuation allowance reducing the net realizable benefits of these deductible differences to $0 at March 31, 2013. The amount of the deferred tax asset considered realizable could change in the near term if projected future taxable income is realized. Due to significant changes in the Company's ownership, the Company's future use of its existing net operating losses may be limited.
A reconciliation between the actual income tax expense and income taxes computed by applying the statutory Federal and state income tax rates to income from continuing operations before income taxes is as follows:
|
|
|
Twelve Months
Ended
March 31,
2013
|
|
|
Twelve Months
Ended
March 31,
2012
|
|
|
Computed “expected” income tax expense at approximately 34%
|
|
$
|
(254,767
|
)
|
|
$
|
(238,000
|
)
|
|
Change in valuation allowance
|
|
|
(254,767
|
)
|
|
|
(238,000
|
)
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
NOTE 9: STOCKHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock, par value $0.10 per share. As of March 31, 2013, the Company has 100 shares of Series A preferred stock issued and outstanding and 150 shares of Series B preferred stock issued and outstanding.
The 100 shares of Series A Preferred Stock, issued to an officer/director as payment for $500,000 in promissory notes, are convertible into the number of shares of common stock sufficient to represent 40 percent (40%) of the fully diluted shares outstanding after their issuance. The Series A Preferred Stock pays an eight percent (8%) dividend. The dividends are cumulative and payable quarterly. The Series A Preferred Stock carries liquidating preference, over all other classes of stock, equal to the amount paid for the stock plus any unpaid dividends. The Series A Preferred Stock provides for voting rights on an "as converted to common stock" basis.
During the years ended March 31, 2013 and 2013, the Company incurred $40,000 in preferred stock dividends, respectively. As of March 31, 2013 and 2013, dividends in the amount of $40,750 and $35,450, respectively, had not been paid, and are carried on the Company’s balance sheet as Dividends Payable to Related Party.
The holders of the Series A Preferred Stock have the right to convert the preferred stock into shares of common stock such that if converted simultaneously, they shall represent 40 percent (40%) of the fully diluted shares outstanding after their issuance. Fully diluted shares outstanding is computed as the sum of the number of shares of common stock outstanding plus the number of shares of common stock issuable upon exercise, conversion or exchange of outstanding options, and warrants.
In March, 2013, our Board of Directors authorized the creation of 2,000 shares of Series B Preferred Stock (the "Series B Preferred Stock") The face amount of share of the Series B Preferred Stock is $1,000.
The Series B Preferred Stock accrues dividends at the rate of 8% per annum on the original purchase price for the shares. If declared by the Board of Directors, these dividends are payable annually, beginning in January 2014. We are prohibited from paying any dividends on our Common Stock until all accrued dividends are paid on our Series B Preferred Stock. The Series B Preferred Stock ranks junior to the Series A Preferred Stock owned by our President and Chief Executive Officer, as to Dividends and to a distribution of assets in the event of a liquidation of assets.
The Holders of Series B Preferred Stock do not have any voting rights and their consent is not required to take any sort of corporate action.
We sold 150 shares or Series B Preferred Stock to an accredited investor for $150,000.
AVALON OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2013 AND 2012
Common Stock
On June 4, 2012 the Board of Directors approved an amendment to our Articles of Incorporation to a reverse split of the issued and outstanding shares of Common Stock of the Corporation (“Shares”) such that each holder of Shares as of the record date of June 4, 2012 shall receive one (1) post-split Share on the effective date of June 4, 2012 for each three hundred (300) Shares owned. The reverse split was effective on July 23, 2012
The Company has authorized 200,000,000 shares of common stock with a par value of $0.001 per share. As of March 31, 2013 and 2012, the Company has 6,208,062 and 2,558,584 shares of common stock issued and outstanding.
Common stock issuances during the year ended March 31, 2012:
The Company issued 126,667 shares of common stock to consultants for services provided, pursuant to consulting agreements. The value of these shares in the amount of $45,946, or $0.36 per share was charged to operations.
The Company issued 833,397 shares of common stock for the conversion of a note payable and assumption of debt. The value of these shares in the amount of $185,923 has been credited to the note payable.
The Company recorded a beneficial conversion feature on a note payable in the amount of $46,350 that was credited to Additional Paid-in Capital.
Common stock issuances during the year ended March 31, 2013:
The Company issued 1,341,617 shares of common stock to consultants for services provided, pursuant to consulting agreements. The value of these shares in the amount of $197,500, or $0.15 per share was charged to operations, and was based on the quoted market value at the date the consulting agreements were executed.
The Company issued 891,195 shares of common stock for the conversion of a note payable and assumption of debt. The
carrying value of the debt was reclassed to stock.
The Company issued 1,500,000 shares of common stock for cash in the amount of $150,000, and was based on current market value at the date of issuance.
The Company cancelled 83,334 shares of common stock which had previously been issued in previous fiscal years, and credited the par value of $83 to par value.
Options
There are no stock options outstanding.
AVALON OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2013 AND 2012
Warrants
The following table summarizes the warrants outstanding and the related prices for the shares of the Company’s common stock issued to non-employees of the Company at March 31, 2013:
|
Warrants Outstanding
|
|
Warrants Exercisable
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Weighted Average
|
|
|
Exercise
|
|
|
Number
|
|
|
Remaining Contractual
|
|
Weighted Average
|
|
|
Number
|
|
Remaining Contractual
|
|
|
Prices
|
|
|
Outstanding
|
|
|
Life (years)
|
|
Exercise
Price
|
|
|
Exercisable
|
|
Life (years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600.00
|
|
|
|
167
|
|
|
|
1.25
|
|
|
600
|
|
|
|
167
|
|
1.25
|
|
|
|
|
|
|
|
167
|
|
|
|
1.25
|
|
|
|
|
|
|
167
|
|
1.25
|
|
Transactions involving warrants are summarized as follows:
|
|
|
Number of Shares
|
|
|
Weighted Average
Exercise Price Per Share
|
|
|
Outstanding at March 31, 2012
|
|
|
2,584
|
|
|
$
|
315.00
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Cancelled or expired
|
|
|
2,417
|
|
|
|
425.00
|
|
|
Outstanding at March 31, 2013
|
|
|
167
|
|
|
$
|
600.00
|
|
NOTE 10: TECHNOLOGY LICENSE AGREEMENTS
On July 12, 2006 UMTI entered into a technology license of a patented process for paraffin wax mitigation from crude oil using ultrasonic waves from the University of Wyoming. This license calls for an earned royalty of five percent on net sales of licensed technologies and services; twenty-five percent of all sublicense fees and revenues with an escalating minimum annual royalty which will be credited toward the total royalties due. During the year ended March 31, 2011, the Company determined that the UMTI license value was impaired, which resulted in the impairment expense of $534,711. As of March 31, 2013, the Company has valued this technology at $0.
(See note 3.)
AVALON OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2013 AND 2012
NOTE 11: EARNINGS PER SHARE
ASC 260-10-45 requires a reconciliation of the numerator and denominator of the basic and diluted earnings per share (EPS) computations. As the Company is in a loss position during the year ended March 31, 2013 and 2012, there is no dilutive effect included. The net loss per share was $0.227 and $0.647 for March 31, 2013 and 2012.
NOTE 12:
COMMITMENTS AND CONTINGENCIES
Commitments and contingencies through the date of these financial statements were issued have been considered by the Company and none were noted which were required to be disclosed.
NOTE 13: ASC 932-235-55 SUPPLEMENTAL DISCLOSURES
Net Capitalized Costs
The Company's aggregate capitalized costs related to natural gas and oil producing activities are summarized as follows:
|
|
|
March 31, 2013
|
|
|
March 31, 2012
|
|
|
|
|
|
|
|
|
|
|
Natural gas and oil properties and related equipment:
|
|
|
|
|
|
|
|
Proven
|
|
$
|
1,165,546
|
|
|
$
|
1,163,442
|
|
|
Unproven
|
|
|
1,867,183
|
|
|
|
1,867,183
|
|
|
Accumulated depreciation, depletion, and impairment
|
|
|
(987,713
|
)
|
|
|
(955,161
|
)
|
|
Net capitalized costs
|
|
$
|
2,040,016
|
|
|
$
|
2,075,464
|
|
Costs Incurred
Costs incurred in natural gas and oil property acquisition, exploration and development activities that have been capitalized are summarized as follows:
|
|
|
March 31, 2013
|
|
|
March 31, 2012
|
|
|
|
|
|
|
|
|
|
|
Acquisition of properties
|
|
$
|
- 0 -
|
|
|
$
|
- 0 -
|
|
|
Development costs
|
|
|
- 0 -
|
|
|
|
- 0 -
|
|
|
Total costs incurred
|
|
$
|
- 0 -
|
|
|
$
|
- 0 -
|
|
AVALON OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2013 AND 2012
Results of Operations for Natural Gas and Oil Producing Activities
The Company's results of operations from natural gas and oil producing activities are presented below for the fiscal years ended March 31, 2013 and 2012. The following table includes revenues and expenses associated directly with the Company's natural gas and oil producing activities. It does not include any interest costs and general and administrative costs and, therefore, is not necessarily indicative of the contribution to consolidated net operating results of the Company's natural gas and oil operations.
|
|
|
March 31, 2013
|
|
|
March 31, 2012
|
|
|
|
|
|
|
|
|
|
|
Production revenues
|
|
$
|
163,574
|
|
|
$
|
253,882
|
|
|
Production costs
|
|
|
(124,902
|
)
|
|
|
(128,871
|
)
|
|
Impairment of property
|
|
|
-
|
|
|
|
-
|
|
|
Depreciation and depletion expense
|
|
|
(76,133
|
)
|
|
|
(69,979
|
)
|
|
|
|
$
|
(37,461
|
)
|
|
$
|
55,032
|
|
|
Imputed income tax provision (1)
|
|
|
-
|
|
|
|
-
|
|
|
Results of operation for natural gas / oil producing activity
|
|
$
|
(37,461
|
)
|
|
$
|
55,032
|
|
(1) The imputed income tax provision is hypothetical (at the statutory rate) and determined without regard to the Company's deduction for general and administrative expenses, interest costs and other income tax credits and deductions, nor whether the hypothetical tax provision will be payable.
AVALON OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2013 AND 2012
Natural Gas and Oil Reserve Quantities
The following schedule contains estimates of proved natural gas and oil reserves attributable to the Company. Proved reserves are estimated quantities of natural gas and oil that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those which are expected to be recovered through existing wells with existing equipment and operating methods. Reserves are stated in thousand cubic feet (mcf) of natural gas and barrels (bbl) of oil. Geological and engineering estimates of proved natural gas and oil reserves at one point in time are highly interpretive, inherently imprecise and subject to ongoing revisions that may be substantial in amount. Although every reasonable effort is made to ensure that the reserve estimates are accurate, due to their nature reserve estimates are generally less precise than other estimates presented in connection with financial statement disclosures.
|
|
|
Oil - bbls
|
|
|
Proved reserves:
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2006
|
|
|
-
|
|
|
|
|
|
|
|
|
Purchase of reserves-in-place
|
|
|
29,815
|
|
|
Extensions and discoveries
|
|
|
-
|
|
|
Production
|
|
|
(1,043
|
)
|
|
Balance as of March 31, 2007
|
|
|
28,772
|
|
|
|
|
|
|
|
|
Purchase of reserves-in-place
|
|
|
11,560
|
|
|
Extensions and discoveries
|
|
|
4,216
|
|
|
Change in estimates
|
|
|
(11,911
|
)
|
|
Production
|
|
|
(3,504
|
)
|
|
Balance as of March 31, 2008
|
|
|
29,133
|
|
|
|
|
|
|
|
|
Purchase of reserves-in-place
|
|
|
22,282
|
|
|
Extensions and discoveries
|
|
|
-
|
|
|
Change in estimates
|
|
|
-
|
|
|
Production
|
|
|
(5,768
|
)
|
|
Balance as of March 31, 2009
|
|
|
45,647
|
|
|
|
|
|
|
|
|
Purchase of reserves-in-place
|
|
|
-
|
|
|
Extensions and discoveries
|
|
|
-
|
|
|
Change in estimates
|
|
|
-
|
|
|
Production
|
|
|
(22,514
|
)
|
|
Balance as of March 31, 2010
|
|
|
23,133
|
|
|
Purchase of reserves-in-place
|
|
|
4,823
|
|
|
Extensions and discoveries
|
|
|
-
|
|
|
Change in estimates
|
|
|
-
|
|
|
Production
|
|
|
(5,291
|
)
|
|
Balance as of March 31, 2011
|
|
|
22,665
|
|
|
Purchase of reserves-in-place
|
|
|
-
|
|
|
Extensions and discoveries
|
|
|
-
|
|
|
Change in estimates
|
|
|
4,506
|
|
|
Production
|
|
|
(2,439
|
)
|
|
Balance as of March 31, 2012
|
|
|
24,732
|
|
|
Purchase of reserves-in-place
|
|
|
-
|
|
|
Extensions and discoveries
|
|
|
-
|
|
|
Change in estimates
|
|
|
2,873
|
|
|
Production
|
|
|
(2,290)
|
|
|
Balance as of March 31, 2013
|
|
|
25,315
|
|
AVALON OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2013 AND 2012
Standardized Measure of Discounted Future Net Cash Flows
The following schedule presents the standardized measure of estimated discounted future net cash flows from the Company's proved reserves for the fiscal years ended March 31, 2013 and 2012. Estimated future cash flows are based on independent reserve data. Because the standardized measure of future net cash flows was prepared using the prevailing economic conditions existing at March 31, 2013 and 2012, it should be emphasized that such conditions continually change. Accordingly, such information should not serve as a basis in making any judgment on the potential value of the Company's recoverable reserves or in estimating future results of operations.
|
|
|
March 31, 2013
|
|
|
March 31, 2012
|
|
|
Future production revenue
|
|
$
|
1,223,951
|
|
|
$
|
1,206,434
|
|
|
Future production costs
|
|
|
(755,467
|
)
|
|
|
(665,734
|
)
|
|
Future development costs
|
|
|
-
|
|
|
|
-
|
|
|
Future cash flows before income taxes
|
|
|
468,484
|
|
|
|
540,700
|
|
|
Future income tax
|
|
|
-
|
|
|
|
-
|
|
|
Future net cash flows
|
|
|
468,484
|
|
|
|
540,700
|
|
|
Effect of discounting future annual cash flows at 10%
|
|
|
(180,083
|
)
|
|
|
(217,204
|
)
|
|
Standard measure of discounted net cash flows
|
|
$
|
288,401
|
|
|
$
|
323,496
|
|
(1) The weighted average oil wellhead price used in computing the Company's reserves were $94.99 per bbl and $103.08 per bbl at March 31, 2013 and 2012, respectively. The weighted average gas wellhead price used in computing the Company's reserves were $2.97 and $3.83/mmbtu at March 31, 2013 and 2012, respectively. The oil and gas pricing were calculated using the arithmetic average of the price on the first day of each month that was received for each property during the previous fiscal year. These prices were held constant throughout the economic life of the properties. Previous year run checks were used to determine the actual prices received.
The following schedule contains a comparison of the standardized measure of discounted future net cash flows to the net carrying value of proved natural gas and oil properties at March 31, 2013 and 2012:
|
|
|
March 31, 2013
|
|
|
March 31, 2012
|
|
|
Standardized measure of discount future net cash flows
|
|
$
|
288,401
|
|
|
$
|
323,496
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved natural oil and gas property, net of accumulated
|
|
|
|
|
|
|
|
|
|
depreciation, depletion, and amortization, including
|
|
|
|
|
|
|
|
|
|
impairment
|
|
|
186,167
|
|
|
|
208,281
|
|
|
|
|
|
|
|
|
|
|
|
|
Standardized measure of discount future net cash flows in
|
|
|
|
|
|
|
|
|
|
excess of net carrying value of proved natural oil and
|
|
|
|
|
|
|
|
|
|
gas properties
|
|
$
|
102,234
|
|
|
$
|
115,215
|
|
AVALON OIL & GAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2013 AND 2012
NOTE 14: SUBSEQUENT EVENTS
The Company has evaluated events subsequent to March 31, 2013 to assess the need for potential recognition or disclosure in the report. Such events were evaluated through the date of the financial statements were issued and has determined that the following events that are material to the financial statements, and all such material events have been fully disclosed.
On May 3, 2013, the Company issued 500,000 shares of Common Stock and 50 Shares of Series B Preferred Stock for $100,000.
On June 28, 2013, the Company issued 2,800,000 shares of Common Stock for $250,000.
On June 28, 2013, the Company issued 500,000 shares of Common Stock to a consultant.
On July 1, 2013, the Company acquired an undivided 50% working interest in the Moody and West Lease, Duval County, Texas for $118,700.