UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
____________
FORM
10-Q
____________
☒
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended June 30, 2015
Or
☐
TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from ___________ to ___________
Commission
File Number: 1-12850
AVALON
OIL & GAS, INC.
(Exact
Name of Small Business Issuer as specified in its charter)
Nevada |
|
84-1168832 |
(State or other jurisdiction of incorporation
or organization) |
|
(I.R.S. employer identification no.) |
310
Fourth Avenue South, Suite 7000
Minneapolis,
MN 55415
(Address
of principal executive offices) (Zip Code)
Registrant's
telephone number, including area code:
(952)
746-9652
Indicate
by check mark whether the Issuer:
(1)
Has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports): Yes ☒ No
☐
(2) Has
been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting
company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer |
☐ |
Accelerated Filer |
☐ |
|
|
|
|
Non-Accelerated Filer |
☐ |
Smaller Reporting Company |
☒ |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
☒
17,498,062 shares
of our common stock were issued and outstanding as of August 25, 2015.
Table
of Contents
|
Page |
PART I FINANCIAL INFORMATION |
|
|
|
|
Item 1. |
Financial Statements |
2 |
|
Consolidated Balance Sheets as of June 30, 2015 (Unaudited) and
March 31, 2015 |
2 |
|
Consolidated Statements of Operations for the Three months ended
June 30, 2015 and 2014 (Unaudited) |
4 |
|
Consolidated Statements of Cash Flows for the Three Months Ended
June 30, 2015 and 2014 (Unaudited) |
5 |
|
Notes to Consolidated Financial Statements (Unaudited) |
7 |
|
|
|
Item 2. |
Management's Discussion and Analysis of Financial Condition and
Results of Operation |
19 |
Item 3. |
Qualitative and Quantitative Disclosures About Market Risk |
24 |
Item 4. |
Controls and Procedures |
24 |
|
|
|
PART II OTHER INFORMATION |
Item 1. |
Legal Proceedings |
25 |
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
25 |
Item 3. |
Defaults upon Senior Securities |
25 |
Item 4. |
Mine Safety Disclosures |
25 |
Item 5. |
Other Information |
25 |
Item 6. |
Exhibits and Reports on Form 8-K |
26 |
Signatures |
27 |
ITEM 1. FINANCIAL STATEMENTS
Avalon Oil & Gas, Inc. |
Consolidated Balance Sheets |
| |
| | | |
| | |
| |
| | | |
| | |
| |
| | | |
| | |
| |
| June 30, | | |
| March 31, | |
| |
| 2015
(Unaudited) | | |
| 2015 | |
| |
| | | |
| | |
Assets | |
| | | |
| | |
| |
| | | |
| | |
Current Assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 128,818 | | |
$ | 135,713 | |
Accounts receivable, net of allowance for doubtful | |
| | | |
| | |
accounts of $0 and $0 | |
| 28,958 | | |
| 33,344 | |
Notes receivable | |
| 10,714 | | |
| 11,429 | |
Deposits and prepaid expenses | |
| 360,613 | | |
| 368,946 | |
Receivables from joint interests, net of allowance | |
| | | |
| | |
for doubtful accounts of $132,811 and $131,236 | |
| 20,000 | | |
| 20,000 | |
| |
| | | |
| | |
Total current assets | |
| 549,103 | | |
| 569,432 | |
| |
| | | |
| | |
Property and equipment, net | |
| 16,992 | | |
| 18,125 | |
Unproven oil & gas properties | |
| 1,867,183 | | |
| 1,867,183 | |
Producing oil & gas properties, net | |
| 235,770 | | |
| 239,283 | |
Intellectual property rights, net | |
| 42,588 | | |
| 53,234 | |
| |
| | | |
| | |
Total Assets | |
$ | 2,711,636 | | |
$ | 2,747,257 | |
| |
| | | |
| | |
| |
| | | |
| | |
| |
| | | |
| | |
The accompanying notes are an integral part of these financial statements. |
Avalon Oil & Gas, Inc. |
Consolidated Balance Sheets (Continued) |
| |
| | | |
| | |
| |
| | | |
| | |
| |
| June 30, | | |
| March 31, | |
| |
| 2015 | | |
| 2015 | |
| |
| (Unaudited) | | |
| | |
Liabilities and Stockholders' Equity | |
| | | |
| | |
| |
| | | |
| | |
Current Liabilities: | |
| | | |
| | |
Accounts payable and accrued liabilities | |
| 136,825 | | |
| 433,751 | |
Accrued payroll - related parties | |
| 201,435 | | |
| 211,317 | |
Dividends payable | |
| 67,700 | | |
| 32,950 | |
Accrued liabilities to joint interest | |
| 10,196 | | |
| 10,567 | |
Notes payable - related party | |
| 20,000 | | |
| 20,000 | |
Notes payable | |
| 204,300 | | |
| 224,300 | |
| |
| | | |
| | |
Total current liabilities | |
| 640,456 | | |
| 932,885 | |
| |
| | | |
| | |
Accrued asset retirement obligation (ARO) liability | |
| 127,326 | | |
| 124,220 | |
| |
| | | |
| | |
Total Liabilities | |
| 767,782 | | |
| 1,057,105 | |
| |
| | | |
| | |
Stockholders' Equity | |
| | | |
| | |
| |
| | | |
| | |
Preferred stock, 1,000,000 authorized | |
| | | |
| | |
Preferred stock, Series A, $.10 par value, 100 shares authorized; 100 shares issued and outstanding as of June 30, 2015
and March 31, 2015, respectively liquidation preference of $529,450 and $ 532,950 as of June 30, 2015 and March 31, 2015, respectively. | |
| 10 | | |
| 10 | |
Preferred stock, Series B, $.10 par value, 2,000 shares authorized; 1,750 and 1,625 shares
issued and outstanding liquidation preference of $1,788,250 and $1,625,000 as of June 30, 2015 and March 31, 2015, respectively. | |
| 177 | | |
| 164 | |
Common stock, $.001 par value: 200,000,000 shares authorized 17,498,062 and 16,548,062 shares issued and outstanding at June 30, 2015 and March 31, 2015, respectively. | |
| 17,499 | | |
| 16,549 | |
Additional paid in capital | |
| 32,734,339 | | |
| 32,572,302 | |
Accumulated deficit | |
| (30,808,171 | ) | |
| (30,898,873 | ) |
| |
| | | |
| | |
Total Stockholders' Equity | |
| 1,943,854 | | |
| 1,690,152 | |
| |
| | | |
| | |
Total Liabilities and Stockholders' Equity | |
$ | 2,711,636 | | |
$ | 2,747,257 | |
| |
| | | |
| | |
| |
| | | |
| | |
| |
| | | |
| | |
The accompanying notes are an integral part of these financial statements. |
Avalon Oil & Gas, Inc. |
Consolidated Statements of Operations |
| |
| |
|
| |
| For
the three | | |
| For
the three | |
| |
| Months
ended | | |
| Months
ended | |
| |
| June
30, 2015 | | |
| June
30, 2014 | |
| |
| (Unaudited) | | |
| (Unaudited) | |
| |
| | | |
| | |
Oil & Gas Sales | |
$ | 8,531 | | |
$ | 24,501 | |
| |
| | | |
| | |
Operating expenses: | |
| | | |
| | |
Lease operating
expense, severance taxes and ARO accretion | |
| 10,547 | | |
| 19,547 | |
Selling, general and administrative expenses | |
| 74,053 | | |
| 73,436 | |
Stock based compensation | |
| 20,333 | | |
| 14,000 | |
Depreciation, depletion, and amortization | |
| 14,568 | | |
| 19,632 | |
| |
| | | |
| | |
Total operating expenses | |
| 119,501 | | |
| 126,615 | |
| |
| | | |
| | |
Operating loss | |
| (110,970 | ) | |
| (102,114 | ) |
| |
| | | |
| | |
Other income (expense): | |
| | | |
| | |
| |
| | | |
| | |
Other miscellaneous income | |
| — | | |
| 10,100 | |
Gain on settlement of trade payables | |
| 244,972 | | |
| — | |
Interest income (expense), net | |
| 4,950 | | |
| (10,604 | ) |
| |
| | | |
| | |
Total other income (expense) | |
| 249,922 | | |
| (504 | ) |
| |
| | | |
| | |
Income (loss) before income tax | |
| 138,952 | | |
| (102,618 | ) |
| |
| | | |
| | |
Provision for income taxes | |
| — | | |
| — | |
| |
| | | |
| | |
Net income (loss) | |
$ | 138,952 | | |
$ | (102,618 | ) |
| |
| | | |
| | |
Preferred stock dividends | |
$ | (48,250 | ) | |
$ | (40,377 | ) |
| |
| | | |
| | |
Net income (loss) attributable to common
shareholders | |
$ | 90,702 | | |
$ | (142,995 | ) |
| |
| | | |
| | |
Net income (loss) per share - basic | |
| 0.005 | | |
| (0.012 | ) |
Net income (loss) per share - diluted | |
| 0.003 | | |
| (0.012 | ) |
| |
| | | |
| | |
Weighted average shares outstanding - basic | |
| 16,877,183 | | |
| 11,805,315 | |
Weighted average shares outstanding - diluted | |
| 28,542,558 | | |
| 11,805,315 | |
| |
| | | |
| | |
| |
| | | |
| | |
| |
| | | |
| | |
The accompanying notes are an integral
part of these financial statements. |
Avalon Oil & Gas, Inc. |
Consolidated Statement of Cash Flows |
| |
| |
|
| |
| | | |
| | |
| |
| For
the three | | |
| For
the three | |
| |
| Months
ended | | |
| Months
ended | |
| |
| June
30, 2015
(Unaudited) | | |
| June
30, 2014
(Unaudited) | |
| |
| | | |
| | |
Cash flows from operating activities: | |
| | | |
| | |
Net income (loss) | |
$ | 138,952 | | |
$ | (102,618 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Stock issued for services | |
| 12,000 | | |
| 14,000 | |
Non-cash consulting services | |
| 8,333 | | |
| — | |
(Gain) on forgiveness of debt | |
| (244,972 | ) | |
| — | |
(Gain) on forgiveness of interest payable | |
| (11,375 | ) | |
| — | |
Depreciation | |
| 1,133 | | |
| 1,133 | |
Depletion | |
| 2,789 | | |
| 7,850 | |
Depreciation and ARO liability | |
| 724 | | |
| 724 | |
Amortization of intangible assets | |
| 10,646 | | |
| 10,649 | |
Net change in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| 4,386 | | |
| (1,868 | ) |
Accounts payable and other accrued expenses | |
| (19,831 | ) | |
| 7,431 | |
Asset retirement obligation | |
| 3,106 | | |
| 2,824 | |
| |
| | | |
| | |
Net cash (used) in operating activities | |
| (94,109 | ) | |
| (59,875 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Principal payments received on notes receivable | |
| 714 | | |
| 4,999 | |
| |
| | | |
| | |
Net cash provided by investing activities | |
| 714 | | |
| 4,999 | |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Series B Preferred Stock issued for cash | |
| 100,000 | | |
| — | |
Dividends paid | |
| (13,500 | ) | |
| (35,000 | ) |
| |
| | | |
| | |
Net cash provided by (used in) financing activities | |
| 86,500 | | |
| (35,000 | ) |
| |
| | | |
| | |
| |
| | | |
| | |
| |
| | | |
| | |
The accompanying notes are an integral part of these financial statements. |
Avalon Oil & Gas, Inc. |
Consolidated Statement of Cash Flows (Continued) |
| |
| |
|
| |
| | | |
| | |
| |
| For
the three | | |
| For
the three | |
| |
| Months
ended | | |
| Months
ended | |
| |
| June
30, 2015
(Unaudited) | | |
| June
30, 2014
(Unaudited) | |
| |
| | | |
| | |
Net (decrease) in cash and cash equivalents | |
| (6,895 | ) | |
| (89,876 | ) |
| |
| | | |
| | |
Cash and cash equivalents at beginning of period | |
| 135,713 | | |
| 223,914 | |
| |
| | | |
| | |
Cash and cash equivalents at end of period | |
$ | 128,818 | | |
$ | 134,038 | |
| |
| | | |
| | |
Supplemental disclosures of cash flow information: | |
| | | |
| | |
Cash paid during the period for: | |
| | | |
| | |
Interest | |
$ | — | | |
$ | — | |
Taxes | |
$ | — | | |
$ | — | |
Common stock issued in exchange for consulting | |
| | | |
| | |
services | |
$ | 12,000 | | |
$ | 14,000 | |
Common stock issued for payment of accounts payable | |
$ | 26,000 | | |
$ | — | |
Note payable issued for payment of accounts payable | |
$ | 5,000 | | |
$ | — | |
| |
| | | |
| | |
Preferred stock issued for extinguishment of note payable, accrued interest, and assumption of debt | |
$ | 25,000 | | |
$ | 50,000 | |
| |
| | | |
| | |
| |
| | | |
| | |
| |
| | | |
| | |
The accompanying notes are an integral part of these financial statements. |
AVALON
OIL & GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2015
(Unaudited)
NOTE
1: DESCRIPTION OF BUSINESS AND 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
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.
On
March 19, 2014, the Company formed Weyer Partners, LLC, (“Weyer”) a one hundred percent (100%) wholly owned Minnesota
Corporation. Weyer Partners, LLC, was formed to operate oil and gas properties in Oklahoma and Texas. Weyer is consolidated in
these financial statements.
On
May 9, 2014, the Company formed AFS Holdings, Inc., (“AFS”) a one hundred percent (100%) wholly owned Nevada Corporation.
AFS Holding, Inc., was formed to leverage the Company’s relationship with IP TechEx, and market technology licensed from
IP TechEx. AFS is consolidated in these financial statements.
On
June 5, 2015 the Company entered into an agreement with AFS for $10,000 and the right of AFS to market the intellectual property
Avalon acquired from Ronald Knight.
AVALON
OIL & GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2015
(Unaudited)
Principles
of consolidation
The
consolidated financial statements include the accounts of the Company and the Company’s subsidiary’s Oiltek, Inc.,
AFS Holdings, Inc., and Weyer Partners, LLC. All significant inter-company items have been eliminated in consolidation.
Basis of
Preparation of Financial Statements
The
accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form 10-Q. They do not include all of the
information and footnotes required by Accounting Principles generally accepted accounting principles in United States America
(“US GAAP”) for complete financial statements and related notes. The accompanying unaudited consolidated financial
statements and related notes should be read in conjunction with the audited consolidated financial statements of the Company and
notes thereto for the year ended March 31, 2015.
In
the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (which include
only normal recurring adjustments) necessary to present fairly the balance sheets of Avalon Oil and Gas Inc. and subsidiaries
as of June 30, 2015 and the results of their operations and cash flows for the three months ended June 30, 2015 and 2014, and
are not necessarily indicative of the results to be expected for the entire year.
Going Concern
The
June 30, 2015, consolidated financial statements have been prepared assuming the Company will continue as a going concern. However,
the Company has incurred a loss of $30,808,171 from inception through June 30, 2015, and has a working capital deficiency of
$91,353 and stockholders’ equity of $1,943,854 as of June 30, 2015. These conditions raise substantial doubt about
the ability of the Company to continue as a going concern. 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 to 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
June
30, 2015
(Unaudited)
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 and Receivables from the Joint Interest
Management
periodically assesses the collectability of the Company's accounts receivable and receivables from the Joint Interest. Accounts
determined to be uncollectible are charged to operations when that determination is made. The Company had an allowance for receivables
from the Joint Interest of $132,811 and $131,236 as of June 30, 2015 and March 31, 2015.
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 three month period ended June 30, 2015, 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 June 30, 2015 and March 31, 2015, the Company had not identified any such impairment.
AVALON
OIL & GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2015
(Unaudited)
Property
and Equipment, net
Property
and equipment is reviewed for recoverability when events or changes in circumstances indicate that its carrying value may exceed
future undiscounted cash inflows. As of June 30, 2015 and March 31, 2015, the Company had not identified any such impairment.
Repairs and maintenance are charged to operations when incurred and improvements and renewals are capitalized.
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 |
|
Vehicles |
5 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.
Intellectual
Property Rights, net
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 was
not any impairment loss for the three months ended June 30, 2015 and 2014.
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:
March 31, |
|
|
|
|
|
|
|
2016 |
|
$ |
31,938 |
|
2017 |
|
|
10,650 |
|
|
|
|
|
|
|
|
$ |
42,588 |
|
|
|
|
|
|
AVALON
OIL & GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2015
(Unaudited)
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.
Earnings
(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.
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.
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.
AVALON
OIL & GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2015
(Unaudited)
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.
Recently
Issued Accounting Pronouncements
As
of September 10, 2015, The FASB has issued up to ASU 2015 - 15, which are not expected to have a material impact on the
consolidated financial statements upon adoption.
AVALON
OIL & GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2015
(Unaudited)
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 an operating
agreement (the “Operating 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 June 30, 2015 and March 31, 2015, the amount of these receivables is $152,811 and $151,236, respectively. As
of June 30, 2015 and March 31, 2015, the Company deemed the collectability of the receivable from joint interests in the amount
of $132,811 and 131,236, respectively as unlikely.
NOTE
3: DEPOSITS AND PREPAID EXPENSES
The
Company previously advanced $279,400 toward the purchase of properties.
In 2014 the
Company had prepaid consulting fees in the amount of $100,000 which is being amortized over 36 months. Amortization through June
30, 2015 and March 31, 2015 was $18,787 and $10,454, respectively.
|
|
June
30, 2015 |
|
|
March
31, 2015 |
|
Deposits on wells |
|
$ |
279,400 |
|
|
$ |
279,400 |
|
Prepaid consulting fees |
|
|
100,000 |
|
|
|
100,000 |
|
|
|
|
379,400 |
|
|
|
379,400 |
|
Less: Accumulated amortization on
prepaid fees |
|
|
(18,787 |
) |
|
|
(10,454) |
|
Total |
|
$ |
360,613 |
|
|
$ |
368,946 |
|
NOTE
4: PROPERTY AND EQUIPMENT, NET
A
summary of property and equipment at June 30, 2015 and March 31, 2015 is as follows:
|
|
June
30, 2015 |
|
|
March
31, 2015 |
|
Office Equipment |
|
$ |
41,778 |
|
|
$ |
41,778 |
|
Vehicles |
|
|
22,657 |
|
|
|
22,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
64,435 |
|
|
|
64,435 |
|
Less: Accumulated depreciation |
|
|
(47,443 |
) |
|
|
(46,310 |
) |
Total |
|
$ |
16,992 |
|
|
$ |
18,125 |
|
Depreciation
expense for the three month periods ended June 30, 2015 and 2014 was $1,133 and $1,333, respectively.
NOTE
5: INTELLECTUAL PROPERTY RIGHTS, NET
A summary
of the intellectual property rights at June 30, 2015 and March 31, 2015, are as follows:
|
|
June
30,
2015 |
|
March
31,
2015 |
|
|
(Unaudited) |
|
|
Ultrasonic Mitigation Technology |
|
$ |
425,850 |
|
|
$ |
425,850 |
|
Less: accumulated amortization |
|
|
(383,262 |
) |
|
|
(372,616 |
) |
Total |
|
$ |
42,588 |
|
|
$ |
53,234 |
|
Amortization
expense for the three months period ended June 30, 2015 and 2014 was $10,646.
NOTE 6:
OIL AND GAS PROPERTY ACTIVITY
The
table below shows the Company’s working interests in the Grace Wells as of June 30, 2015. There were not any
additional acquisitions during the three months period ended June 30, 2015.
Well |
|
Working
Interest |
|
Grace #1 |
|
|
65.25 |
% |
Grace #2 |
|
|
55.75 |
% |
Grace #3 |
|
|
64.00 |
% |
Grace #5A |
|
|
52.00 |
% |
Grace #6 |
|
|
58.00 |
% |
AVALON
OIL & GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2015
(Unaudited)
NOTE 6:
OIL AND GAS PROPERTY ACTIVITY (Continued)
Producing
oil and gas properties consist of the following at June 30, 2015 and March 31, 2015:
|
|
June 30, |
|
March 31, |
|
|
2015 |
2015 |
|
|
|
|
(Unaudited) |
|
|
|
|
Lincoln County, Oklahoma |
|
$ |
111,402 |
|
|
$ |
111,402 |
|
|
|
|
|
Lipscomb County, Texas |
|
|
250,082 |
|
|
|
250,082 |
|
|
|
Miller County, Arkansas |
|
|
132,909 |
|
|
|
132,909 |
|
|
|
Ward Petroleum Assets |
|
|
290,500 |
|
|
|
290,500 |
|
|
|
Kensington Energy Assets |
|
|
120,000 |
|
|
|
120,000 |
|
|
|
Other Properties |
|
|
332,185 |
|
|
|
332,185 |
|
|
|
Total Properties |
|
|
1,237,078 |
|
|
|
1,237,078 |
|
|
|
|
Asset retirement cost, net |
|
|
36,952 |
|
|
|
37,676 |
|
|
|
Property impairments |
|
|
(481,072) |
|
|
|
(481,072) |
|
|
|
Less: Depletion |
|
|
(557,188) |
|
|
|
(554,399) |
|
|
|
Net |
|
$ |
235,770 |
|
|
$ |
239,283 |
|
|
|
For the three month period ended June 30, 2015 and 2014, depletion per Bbl was $6.85 and $5.12.
NOTE
7: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities consisted of the following:
|
|
June
30,
2015 |
|
March
31,
2015 |
|
|
(Unaudited) |
|
|
Accounts payable |
|
$ |
79,674 |
|
|
$ |
371,722 |
|
Accrued interest |
|
|
57,151 |
|
|
|
62,030 |
|
Total |
|
$ |
136,825 |
|
|
$ |
433,752 |
|
NOTE
8: NOTES PAYABLE
Notes Payable
are summarized as follows:
|
|
Note |
|
|
|
Amount |
|
March 31, 2015: |
|
|
|
|
Notes payable – long-term portion |
|
$ |
-0- |
|
Notes payable – current portion |
|
|
224,300 |
|
Total |
|
$ |
224,300 |
|
AVALON
OIL & GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2015
(Unaudited)
|
|
Note |
|
|
|
Amount |
|
June 30, 2015 (Unaudited): |
|
|
|
Notes payable –
long-term portion |
|
$ |
-0- |
|
Notes payable
– current portion |
|
|
204,300 |
|
Total |
|
$ |
204,300 |
|
NOTE 9:
RELATED PARTY TRANSACTIONS
Notes Payable
On April 21, 2011, Mr. Rodriguez advanced the Company $35,000. As
of June 30, 2015 and March 31, 2015, amount outstanding is $20,000. This note does not accrue interest and is due on demand.
Preferred Stock
The 100 shares of Series A Preferred Stock were issued on June 3,
2002 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 holder of these shares of Series A Preferred Stock
is our President, Kent Rodriguez. 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.
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.
During
the three months ended June 30, 2015 and 2014, the Company incurred $10,000 in Series A preferred stock dividends, and paid
$13,500 and $19,000 for the three months ended June 30, 2015 and 2014. As of June 30, 2015 and March 31, 2015, the accrued balance
due Mr. Rodriguez was $29,450 and $32,950 respectively. The liquidation preference as of June 30, 2015 and March 31, 2015 was
$529,450 and $532,950 or $52,945 and $53,295 per share.
AVALON
OIL & GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2015
(Unaudited)
Employment
Agreements
In
2009, Mr. Rodriguez, our President, was under an employment agreement dated April 1, 2008 that expires on March 31, 2016, pursuant
to which he was compensated at an annual rate of $120,000. On April 1, 2011 Mr. Rodriguez voluntarily reduced his compensation
to an annual rate of $48,000, subject to an increase by the Company’s Board of Directors. The Company charged
to operations the amount of $12,000 for the three month periods ended June 30, 2015 and 2014, of which $21,882 and $11,500 was
paid to him during the three month periods ending June 30, 2015 and 2014, respectively. As of June 30, 2015, and March
31, 2015, the balances of accrued and unpaid salaries were $201,435 and $211,317.
NOTE
10: 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 carry-forwards for income
tax purposes with a valuation allowance against the carry-forwards for book purposes.
In
assessing the value 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 carry forwards
of $30,808,171, 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 June 30, 2015, we have provided a valuation allowance reducing
the net realizable benefits of these deductible differences to $0 at June 30, 2015. 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.
NOTE
11: STOCKHOLDERS' EQUITY
Preferred
Stock
The Company
is authorized to issue 1,000,000 shares of preferred stock, par value $0.10 per share.
Series A
Preferred Stock
In
June, 2002, our Board of Directors authorized the issuance of 100 shares of Series A 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 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.
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 forty 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, warrants, or convertible securities.
As
of June 30, 2015, the Company has 100 shares of Series A preferred stock issued and outstanding.
During
the three months ended June 30, 2015 and 2014, the Company incurred $10,000 in Series A preferred stock dividends, and paid
$13,500 and $19,000 for the three months ended June 30, 2015 and 2014. As of June 30, 2015 and March 31, 2015, the accrued balance
due Mr. Rodriguez was $29,450 and $32,950 respectively. The liquidation preference as of June 30, 2015 and March 31, 2015 was
$529,450 and $532,950 or $52,945 and $53,295 per share.
Series B Preferred
Stock
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. As of June 30, 2015 and
March 31, 2015, the Company has 1,750 and 1,625 shares of Series B preferred stock respectively issued and outstanding.
AVALON
OIL & GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2015
(Unaudited)
NOTE
11: STOCKHOLDERS' EQUITY (continued)
The
Series B Preferred Stock accrues dividends at the rate of 9% per annum on the original purchase price for the shares. 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.
During
the three month period ended June 30, 2015, the Company issued 125 shares of Series B Preferred Stock, 25 shares in exchange for
a $25,000 promissory note and 100 shares for an investment of $100,000.
During the three month periods ended June 30,
2015 and 2014, the Company incurred $38,250 and $30,377 in dividends on Series B preferred stock. The Company did not
pay any dividends for the three month period ended June 30, 2015 and paid $16,000 for the period ended June 30, 2014. The liquidation
preference as of June 30, 2015 and March 31, 2015 was $1,788,250 and $1,625,000 or $1,788.25 or $1,625.00 per share, respectively.
Total dividends payable from both A and B preferred shares at June 30, 2015 and March 31, 2015 were $67,700
and $32,950 respectively
Common Stock
During
the three month period ended June 30, 2015 the Company issued the following shares:
On
April 2, 2015 we issued 300,000 shares of our Common Stock to our directors for their services. The shares were valued at $12,000
or $0.04 per share and were valued based on the midpoint between the closing bid and offer price of the Company's common stock
on the date the shares were issued.
On
June 25, 2015, the company issued 650,000 shares of Common Stock, paid $5,000 in cash and issued a $5,000 promissory note for
settlement of an account payable of $280,972.06. The shares were valued at $26,000 or $0.04 per share. The value of the shares
was based on the closing bid price of the Company's common stock on the date the Agreement was executed by the Company. $244,972
was treated as a gain from this transaction.
AVALON
OIL & GAS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2015
(Unaudited)
Warrants
There
are no warrants outstanding as of June 30, 2015 and March 31, 2015.
NOTE
12: TECHNOLOGY LICENSE AGREEMENTS
On
December 1, 2014, the Company entered into an exclusive license agreement for anti-corrosion technology from Ronald Knight in
exchange for three hundred thousand (300,000) shares of our common stock. This license calls for an earned royalty of three percent
(3.00%) on sales of licensed products and services as they may relate to corrosion prevention and maintenance of sump pumps at
gasoline and diesel dispensing locations, including, but not limited to gas stations, convenience stores, trucking companies,
bus companies, and any other locations where gasoline and/or diesel is dispensed. We did not have any revenue for the period from
December 1, 2014 through June 30, 2015.
NOTE
13: EARNINGS (LOSS) PER SHARE
ASC
260-10-45 requires a reconciliation of the numerator and denominator of the basic and diluted earnings per share (EPS) computations.
We have included the basic and diluted earnings per share (EPS) computation for the three month period ended June 30, 2015.
Basic and diluted earnings per share for each of the periods presented is calculated as follows: |
| |
| |
|
| |
| |
|
| |
| |
|
| |
| For the three months ended June 30, | | |
| For the three months ended June 30, | |
| |
| 2015 | | |
| 2014 | |
| |
| (Unaudited) | | |
| (Unaudited) | |
Net income (loss) attributable to Avalon Oil & Gas, Inc. | |
$ | 138,952 | | |
$ | (102,618 | ) |
Preferred stock dividends | |
| (48,250 | ) | |
| (40,377 | ) |
Net income (loss) attributable to common shareholders of Avalon Oil & Gas, Inc. (numerator for basic earnings per share) | |
| 90,702 | | |
| (142,995 | ) |
Dividend for Series A convertible preferred stock | |
| 10,000 | | |
| — | |
Net income (loss) attributable to common shareholders of Avalon Oil & Gas, Inc. (numerator for diluted earnings per share) | |
| 100,702 | | |
| (142,995 | ) |
| |
| | | |
| | |
Weighted average number of common shares outstanding - Basic | |
| 16,877,183 | | |
| 11,805,315 | |
Effect of diluted securities: | |
| | | |
| | |
Convertible amount of Common Shares | |
| 11,665,375 | | |
| — | |
Weighted average number of common shares outstanding - Diluted | |
| 28,542,558 | | |
| 11,805,315 | |
| |
| | | |
| | |
Earnings (loss) per share- Basic | |
$ | 0.005 | | |
$ | (0.012 | ) |
Earnings (loss) per share- Diluted | |
$ | 0.004 | | |
$ | (0.012 | ) |
For the three
months end June 30, 2015, convertible note payable with the principal amount of $164,300 was not included in the calculation of
the diluted earnings per share because the effect is anti-dilutive.
For the three
months end June 30, 2014, convertible note payable with the principal amount of $489,750 was not included in the calculation of
the diluted earnings per share because the effect is anti-dilutive.
NOTE
14: 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
15: SUBSEQUENT EVENTS
The Company
has evaluated subsequent events through the issuance of the consolidated financial statements and no subsequent event is identified.
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis should be read in conjunction with our financial statements and the 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.
Business
Development
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
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.
On
March 19, 2014, the Company formed Weyer Partners, LLC, (“Weyer”) a one hundred percent (100%) wholly owned Minnesota
Corporation. Weyer Partners, LLC, was formed to operate oil and gas properties in Oklahoma and Texas. Weyer is consolidated in
these financial statements.
On
May 9, 2014, the Company formed AFS Holdings, Inc., (“AFS”) a one hundred percent (100%) wholly owned Nevada Corporation.
AFS Holding, Inc., was formed to leverage the Company’s relationship with IP TechEx, and market technology licensed from
IP TechEx. AFS is consolidated in these financial statements.
Acquisition
Strategy
Our
strategy is to acquire oil and gas producing properties that have proven reserves and established in-field drilling locations
with a combination of cash, debt, and equity. We believe that acquisition of such properties minimizes our risk, allows us to
generate immediate cash flow, and provides in-field drilling locations to expand production within the proven oil and gas fields.
We will aggressively develop these low cost/low risk properties in order to enhance shareholder value. In addition, Avalon's technology
group acquires oil production enhancing technologies.
In furtherance
of the foregoing strategy, we have engaged in the following transactions during the last three years:
During
the year ended March 31, 2013, we advanced $160,000 for the purchase of oil and gas producing properties in Western Oklahoma,
pending the completion of due diligence by the Company, if the Seller is not able to deliver clear title to these properties these
funds will be returned to us.
On
July 1, 2013, the Company acquired a fifty percent (50%) working interest in the Moody and West Lease, Duval County, Texas.
On
October 10, 2013, the Company entered into a Technology Scouting Agreement with IP Technology Exchange, Inc. ("IP TechEx"),
to identify potential technology acquisition and licensing opportunities. Our alliance with IP TechEx will enable us
to develop a portfolio of new technologies within the oil and gas industry.
On
March 19, 2014, the Company formed Weyer Partners, LLC, a one hundred percent (100%) wholly owned Minnesota Corporation. Weyer
Partners, LLC, was formed to operate oil and gas properties in Oklahoma and Texas.
On
May 9, 2014, the Company formed AFS Holdings, Inc., a one hundred percent (100%) wholly owned Nevada Corporation. AFS Holding,
Inc., was formed to leverage the Company’s relationship with IP TechEx, and market technology licensed from IP TechEx.
On
September 29, 2014 the Company acquired the assets of Kensington Energy Limited Partnership – 1985, Kensington Energy Limited
Partnership – 1986, Kensington Energy Limited Partnership – 1987, Kensington Energy Company, Kensington Group Venture
Kensington Group Venture I, Kensington Group Venture II, and Kensington Group Venture III for a combination of cash and debt.
On
December 1, 2014, the Company acquired a license for proprietary products and solutions to prevent corrosion on new sump equipment
and sump equipment currently in use. These proprietary products can be used on new or used sump equipment and will substantially
minimize corrosion.
On
December 15, 2014, the Company renewed its Technology Scouting Agreement with IP TechEx for an additional three (3) years.
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
We
plan to raise additional capital during the coming fiscal year, but currently have not identified additional funding sources.
Our ability to continue operations is highly dependent upon our ability to obtain additional financing, or generate revenues from
our acquired oil and gas leasehold interests, none of which can be guaranteed.
Ultimately,
our success is dependent upon our ability to generate revenues from our acquired oil and gas leasehold interests, and to achieve
profitability, which is dependent upon a number of factors, including general economic conditions and the sustained profitability
resulting from the operation of the acquired oil and gas leaseholds. There is no assurance that even with adequate financing or
combined operations, we will generate revenues and be profitable.
.
PATENTS,
TRADEMARKS, AND PROPRIETARY RIGHTS
On
May 17, 2006, The Company signed a strategic alliance agreement with Innovaro Corporation, a technology transfer company to develop
a portfolio of new technologies for the oil and gas industry.
On
March 29, 2007, The Company acquired Leak Location Technologies, Inc., ("LLT"). LLT owns an exclusive license to a system
for determining the presence and location of leaks in underground pipes.
On
May 17, 2007, The Company renewed its strategic alliance agreement with Innovaro Corporation, a technology transfer company to
develop a portfolio of new technologies for the oil and gas industry.
On
August 16, 2007, Kent Rodriguez, the Company's President and CEO, presented a proposal to the Board of Directors to spin-off Oiltek
Inc. ("Oiltek"), which specializes in oil and gas recovery technology to Avalon's shareholders. The oil and gas technology
include, but are not limited, to the Patent; a system to detect hazardous gas leaks including small leaks in natural gas pipelines;
and a system for intelligent drilling and completion sensors to provide real-time oil reservoir monitoring of subsurface information.
On
September 22, 2007 the Company entered into an agreement with respect to its purchase of a 75.6% interest in Oiltek for $50,000
and the right of Oiltek to promote Avalon's intellectual property. We are working with IP Technology Exchange, Inc. to market
this intellectual property.
On
October 10, 2013, the Company entered into a Technology Scouting Agreement with IP Technology Exchange, Inc. ("IP TechEx"),
to identify potential technology acquisition and licensing opportunities. Our alliance with IP TechEx will enable us
to develop a portfolio of new technologies within the oil and gas industry.
On
December 1, 2014, the Company acquired a license for proprietary products and solutions to prevent corrosion on new sump equipment
and sump equipment currently in use. These proprietary products can be used on new or used sump equipment and will substantially
minimize corrosion.
On
December 15, 2014, the Company renewed its Technology Scouting Agreement with IP TechEx for an additional three (3) years.
GOING CONCERN
The June 30, 2015, financial statements have
been prepared assuming the Company will continue as a going concern. However, the Company has incurred a loss of $30,808,171 from
inception through June 30, 2015, and has a working capital deficiency of $91,353 and stockholders’ equity of $1,943,854
as of June 30, 2015. 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 to 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.
Financing
Activities
We
have been funding our obligations through the issuance of our Common Stock for services rendered and for notes payable owed
or for cash in private placements. The Company may seek additional funds in the private or public equity or debt markets
in order to execute its plan of operation and business strategy. There can be no assurance that we will be able to attract
capital or obtain such financing when needed or on acceptable terms in which case the Company's ability to execute its business strategy
will be impaired.
Results
of Operations
Results
of Operations
Three month
periods ended June 30, 2015 compared to the three month period ended June 30, 2014:
Revenues
Revenues
for the three months ended June 30, 2015 were $8,531, a decrease of $15,970 or approximately 65% compared to revenue of $24,501
for the three months ended June 30, 2014. Revenues decreased as a result of the lower market price of oil and natural
gas.
Lease Operating
Expenses
During
the three months ended June 30, 2015, our lease operating expenses were $10,547, a decrease of $9,000 or approximately 46% compared
to $19,547 for the three months ended June 30, 2014. The decrease was due to the completion of workover expense on the Company's
properties in Miller County, Arkansas.
Selling,
General, and Administrative Expenses
Selling,
general and administrative expenses for the three months ended June 30, 2015 were $74,053, an increase of $617 or approximately
1% compared to selling, general and administrative expenses of $73,436 during the three months ended June 30, 2014. Selling,
general and administrative expenses for the three months ended June 30, 2014 consisted primarily of payroll and related costs
of $12,000, legal and accounting fees in the amount of $16,400, travel and entertainment expenses of $28,176, facilities costs
in the amount of $3,000, and office and miscellaneous expenses of $14,477.
Stock Based
Compensation
Non-cash
compensation for the three months ended June 30, 2015 was $20,333, compared to non-cash compensation of $14,000 for the three
months ended June 30, 2014, or an increase of 6,333 or 45%. The incense was the result of a the amortization of shares
issued to Consultants for services rendered,
Depreciation,
Depletion, and Amortization
Depreciation,
Depletion, and Amortization was $14,568 for the three months ended June 30, 2015, a decrease of $5,064 or approximately 26% compared
to $19,632 for the three months ended June 30, 2014. The decrease was due to lower depletion costs during the three months
ended June 30, 2015.
Interest
Income, net of Interest Expense
Interest
income was $4,950 for the three months ended June 30, 2015 compared to interest expense of $10,604 for the three months ended
June 30, 2014. The interest income was due to the forgiveness of interest on a $25,000 promissory note that was exchanged for
25 shares of the Company’s Series B Preferred Stock.
Net Income
(Loss)
Our
net income for the three months ended June 30, 2015, was $138,952 an increase of $241,750 or approximately 235% compared to a
net loss of $102,618, during the three months ended June 30, 2014. The increase in net income was due to a gain on the settlement
of an account payable of $280,972.06 for $5,000 in cash, a $5,000 promissory note and 650,000 shares of the Company’s common
stock.
LIQUIDITY
AND CAPITAL RESOURCES
The
June 30, 2015, financial statements have been prepared assuming the Company will continue as a going concern. However, the Company
has incurred a loss of $30,808,171 from inception through June 30, 2015, and has a working capital deficiency of $91,353
and stockholders’ equity of $1,943,854 as of June 30, 2015. 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 to 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.
Our
cash and cash equivalents were $128,818 on June 30, 2015, compared to $135,713 on March 31, 2015. We met our liquidity needs through
the issuance of our common and preferred stock for cash and the revenue derived from our 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 obtained, 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.
Investing
activities
During
the three months ended June 30, 2015, we invested $714 a decrease of $4,285 compared $4,999 or 85% during the three months ended
June 30, 2014.
Financing
Activities
During
three months ended June 30, 2015, we received $100,000 from the sale of preferred stock and paid dividends on preferred stock
of $13,500. During the three months ended June 30, 2014, we received did not receive any cash from the sale of common stock
or preferred stock and paid dividends on preferred stock of $35,000.
Operating
activities
Our
net income for the three months ended June 30, 2015, was $138,952 an increase of $241,570 or approximately 235% compared to a
net loss of $102,618, during the three months ended June 30, 2014. The increase in net income was due to a gain on the settlement
of an account payable of 280,972.06, for $5,000 in cash, the issuance of a $5,000 promissory note and the issuance of 650,000
shares of the Company’s common stock. The common stock was valued at $.04 per share, and was based on the closing bid price.
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
Issued Accounting Pronouncements
Management
does not believe that any recently issued, but not yet effective, accounting standards or pronouncements, if currently adopted,
would have a material effect on the Company’s condensed consolidated 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.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information
has been omitted, as the Company qualifies as a smaller reporting company.
ITEM
4. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Our
principal executive and financial officer, 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 the end of the period covered
by this report (the "Evaluation Date"), has concluded that as of the Evaluation Date, 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
has been no change in our internal control over financial reporting identified during the period covered by this report which
have materially affected or is likely to materially affect.
PART
II
ITEM
1. LEGAL PROCEEDINGS
None.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During
the three month period ended June 30, 2015, The Company issued 125 shares of Series B Preferred Stock, 100 shares to an accredited
investor for $100,000 for cash and 25 shares to an accredited investor in exchange of a $25,000 promissory note.
During
the three month period ended June 30, 2015, The Company issued 950,000 shares of Common Stock, as follows: .
We issued 650,000 shares of our
common stock, paid $5,000 in cash and issued a $5,000 promissory note to settle an account payable of $280,972.06. The common
stock was valued at $.04 per share, and was based on the closing bid price.
We
issued 300,000 shares of our common stock to our Director’s for services rendered. The 300,000 shares were valued at $0.04
shares or $12,000. The price was based on the closing bid price of the Company’s Common Stock on the date that shares were
granted to the Directors.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. MINE SAFETY DISCLOSURES
N/A
ITEM
5. OTHER INFORMATION
None.
ITEM
6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Form
8-K
NONE
(b) Exhibits
Exhibit
Number |
|
Description |
|
|
|
3.1 |
|
Restated Articles of Incorporation
(Incorporated by reference to Exhibit 3.1 to Registration Statement on Form SB-2, Registration No. 33-74240C).* |
3.2 |
|
Restated Bylaws (Incorporated by reference
to Exhibit 3.2 to Registration Statement on Form SB-2, Registration No. 33-74240C). * |
3.3 |
|
Articles of Incorporation for the State
of Nevada. (Incorporated by reference to Exhibit 2.2 to Form 10-KSB filed February 2000) * |
3.4 |
|
Articles of Merger for the Colorado
Corporation and the Nevada Corporation (Incorporated by reference to Exhibit 3.4 to Form 10-KSB filed February 2000) * |
3.5 |
|
Bylaws of the Nevada Corporation (Incorporated
by reference to Exhibit 3.5 to Form 10-KSB filed February 2000) * |
4.1 |
|
Specimen of Common Stock (Incorporated
by reference to Exhibit to Registration Statement on Form SB-2, Registration No. 33-74240C). * |
10.1 |
|
Employment Agreement between the Company and Kent Rodriguez dated
April 1, 2011 * |
10.2 |
|
Promissory Note between the Company
and Peter Messerli dated January 6, 2011, in the amount of $200.000 * |
10.3 |
|
Promissory Note between the Company
and Maerki Baumann & Company AG dated January 11, 2011, in the amount of $250,000 * |
10.4 |
|
Promissory Note between the Company
and Maerki Baumann & Company AG dated January 27, 2012, in the amount of $200,000 * |
10.5 |
|
Certificate of Designation Series B Preferred Stock* |
31.1 |
|
Certification |
32.1 |
|
Certification |
____________
* Incorporated
by reference to a previously filed exhibit or report.
SIGNATURES
In accordance
with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
Avalon Oil & Gas, Inc. |
|
|
|
|
|
Date: September 10, 2015 |
By: |
/s/ Kent Rodriguez
|
|
|
|
Kent Rodriguez |
|
|
|
Chief Executive Officer |
|
|
|
Chief Financial and Accounting Officer |
|
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Kent Rodriguez, certify that:
1. |
I have reviewed this Form 10-Q of Avalon Oil & Gas, Inc.; |
|
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
c. |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
d. |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
|
|
5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
|
|
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
|
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
|
|
|
Date: September 10, 2015 |
By: |
/s/ Kent Rodriguez |
|
|
|
Kent Rodriguez |
|
|
|
Chief Executive Officer, President,
Secretary and Principal Financial Officer |
|
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION
1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of
Avalon Oil & Gas, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2015 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Kent Rodriguez, Chief Executive Officer
and Chief Accounting Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
|
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
Date: September 10, 2015 |
By: |
/s/ Kent Rodriguez |
|
|
|
Kent Rodriguez |
|
|
|
Chief Executive Officer, President,
Secretary and Principal Financial Officer |
|
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