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EX-32.1 - VERDE SCIENCE, INC.ex32-1.txt
EX-31.1 - VERDE SCIENCE, INC.ex31-1.txt

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange
    Act of 1934

                For the quarterly period ended September 30, 2011

[ ] Transition report under Section 13 or 15(d) of the Exchange Act

            For the transition period from ___________ to ___________

                       Commission File Number: 333-1416686

                                AVRO ENERGY INC.
             (Exact name of Registrant as specified in its charter)

             Nevada                                               20-8387017
  (State or other jurisdiction                                 (I.R.S.Employer
of incorporation or organization)                            Identification No.)

                    213 E Arkansas Ave Vivian, LA 71082, USA
                    (Address of principal executive offices)

                                  318-734-4737
              (Registrant's telephone number, including area code)

       Former Name, Address and Fiscal Year, If Changed Since Last Report

Check whether the issuer: (1) 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), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] 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 (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). YES [X] NO [ ]

We had a total of 54, 427,160 shares of common stock issued and outstanding at
November 21, 2011.

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

Transitional Small Business Disclosure Format: Yes [ ] No [X]

PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The interim financial statements included herein are unaudited but reflect, in management's opinion, all adjustments, consisting only of normal recurring adjustments that are necessary for a fair presentation of our financial position and the results of our operations for the interim periods presented. Because of the nature of our business, the results of operations for the quarterly period and the nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the full fiscal year. 2
AVRO ENERGY INC. (An Exploration Stage Company) BALANCE SHEETS (Stated in US Dollars) (Unaudited) September 30, December 31, 2010 2010 ---------- ---------- ASSETS CURRENT Cash $ 203,076 $ 1,994 Accounts Receivable 15,288 3,789 ---------- ---------- TOTAL ASSETS $ 218,364 $ 5,783 ========== ========== LIABILITIES CURRENT LIABILITIES Related Party Loan $ 5,957 $ 4,157 Loan Payable 815 815 Accounts payable and accrued liabilities 145,462 64,434 ---------- ---------- TOTAL CURRENT LIABILITIES 152,234 69,406 ---------- ---------- LONG TERM LIABILITIES ARO Obligation 235,000 235,000 ---------- ---------- TOTAL LONG TERM LIABILITIES 235,000 235,000 ---------- ---------- TOTAL LIABILITIES 387,234 304,406 ---------- ---------- STOCKHOLDERS' DEFICIT Common Stock, 100,000,000 authorized $0.001 par value shares 54,427,160 issued and outstanding (40,457,160 as at December 31, 2010) 54,427 40,578 Additional Paid in Capital 1,146,198 1,085,047 Accumulated comprehensive income 2,803 2,803 Deficit accumulated during exploration stage (1,372,298) (1,427,051) ---------- ---------- TOTAL STOCKHOLDERS' DEFICIT (168,870) (298,623) ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 218,364 $ 5,783 ========== ========== The Accompanying notes are integral part of these financial statements. 3
AVRO ENERGY INC. (An Exploration Stage Company) INTERIM STATEMENTS OF OPERATIONS (Stated in US Dollars) (Unaudited) January 31, 2007 Date of Nine Months Ended Three Months Ended Inception to September 30, September 30, September 30, September 30, September 30, 2011 2010 2011 2010 2011 ------------ ------------ ------------ ------------ ------------ REVENUES Oil Revenues $ 150,559 $ 143,395 $ 50,242 $ 51,109 $ 364,651 ------------ ------------ ------------ ------------ ------------ TOTAL REVENUES 150,559 143,395 50,242 51,109 364,651 ------------ ------------ ------------ ------------ ------------ EXPENSES Recognition of an Impairment Loss -- -- -- -- 616,388 Operations Expense 329,621 241,576 171,562 34,830 618,330 Accretion Expense -- -- -- -- 235,000 Accounting and Professional Fees -- 21,512 -- 13,408 239,846 Office and Administration 16,685 1,961 6,149 1,690 127,308 ------------ ------------ ------------ ------------ ------------ TOTAL EXPENSES 346,306 265,049 177,711 49,928 1,526,887 ------------ ------------ ------------ ------------ ------------ NET INCOME (LOSS) FROM OPERATIONS (195,747) (121,654) (127,469) 1,181 (1,162,236) OTHER INCOME AND EXPENSES Gain on sale of lease properties -- 60,000 -- -- 60,000 Loss on conversion of debt -- (260,032) -- (260,032) (260,032) Gain on sale of working interest 250,500 -- 200,000 -- 250,500 Interest Expense -- (20,441) -- (6,412) (25,530) ------------ ------------ ------------ ------------ ------------ TOTAL OTHER INCOME AND EXPENSES 250,500 (220,473) 200,000 (266,444) 24,938 NET INCOME (LOSS) 54,753 (342,127) 72,531 (265,263) (1,372,298) ============ ============ ============ ============ ============ Other comprehensive income (loss) -- -- -- -- (2,803) ------------ ------------ ------------ ------------ ------------ Total Comprehensive income (loss) $ 54,753 $ (342,127) $ 72,431 $ (265,263) $ (1,375,101) ============ ============ ============ ============ ============ BASIC AND DILUTED INCOME (LOSS) PER SHARE $ 0.00 $ (0.01) $ 0.00 $ (0.01) ============ ============ ============ ============ WEIGHTED AVERAGE # OF SHARES OUTSTANDING 41,769,431 27,126,484 45,622,812 29,021,212 ============ ============ ============ ============ The Accompanying notes are integral part of these financial statements. 4
AVRO ENERGY INC. (An Exploration Stage Company) INTERIM STATEMENTS OF CASH FLOW (Stated in US Dollars) (Unaudited) January 31, 2007 Date of Nine Months Ended Inception to September 30, September 30, September 30, 2011 2010 2011 ------------ ------------ ------------ OPERATING ACTIVITIES Net income (loss) for the period $ 54,753 $ (342,127) $ (1,372,298) Adjustment to reconcile net income (loss) to net cash used in operating activities: Management fees paid with shares 75,000 -- 75,000 Impairment Loss -- -- 605,840 Foreign currency income (loss) -- -- 2,803 Imputed interest -- 20,442 25,529 Accretion Expense -- -- 235,000 Loss on conversion of debt -- 260,032 260,032 Change in: Accounts Receivable (11,499) 7,730 (15,287) Accounts payable and accrued liabilities 81,028 (328,430) 118,853 ------------ ------------ ------------ CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 199,282 (382,353) (64,529) ------------ ------------ ------------ INVESTING ACTIVITIES Purchase of Mineral Claim -- -- (575,000) ------------ ------------ ------------ CASH USED IN INVESTING ACTIVITIES -- -- (575,000) ------------ ------------ ------------ FINANCING ACTIVITIES Capital Stock issued -- 251,125 420,334 Founder Shares -- -- 25,451 Loan Payable - Related Party 1,800 -- 5,957 Loan Payable -- 121,649 390,863 ------------ ------------ ------------ CASH FROM FINANCING ACTIVITIES 1,800 372,774 842,6055 ------------ ------------ ------------ INCREASE (DECREASE) IN CASH FOR PERIOD 201,082 (9,579) 203,076 Cash, beginning of period 1,994 14,046 -- ------------ ------------ ------------ CASH, END OF PERIOD $ 203,076 $ 4,467 $ 203,076 ============ ============ ============ Management fees paid with shares $ 75,000 $ -- $ 75,000 ============ ============ ============ Cash paid for interest $ -- $ -- $ -- ============ ============ ============ Cash paid for income tax $ -- $ -- $ -- ============ ============ ============ The Accompanying notes are integral part of these financial statements. 5
AVRO ENERGY INC. (An Exploration Stage Company) NOTES TO THE INTERIM FINANCIAL STATEMENTS September 30, 2010 (Stated in US Dollars) (Unaudited) NOTE 1. DESCRIPTION OF BUSINESS DESCRIPTION OF BUSINESS AND HISTORY - Avro Energy, Inc. (hereinafter referred to as the "Company") was incorporated on January 31, 2007 by filing Articles of Incorporation under the Nevada Secretary of State. The Company was formed to engage in the exploration of resource properties. The Company is currently engaged in the acquisition, exploration and development of oil and natural gas properties in the United States ArkLaTex region. The Company seeks to develop low risk opportunities by itself or with joint venture partners in the oil and natural gas sectors. GOING CONCERN - The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. However, the Company has accumulated a loss and is new. This raises substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from this uncertainty. As shown in the accompanying financial statements, the Company has incurred an accumulated net loss of $1,372,298 for the period from January 31, 2007 (inception) to September 30, 2011 and has generated revenues of $364,651 over the same period. The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the development of acquisitions. Management has plans to seek additional capital through a private placement and public offering of its common stock. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence. EXPLORATION STAGE - The Company complies with Accounting Codification Standard 915-10 for its characterization of the Company as exploration stage. The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at September 30, 2011, and for all periods presented herein, have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2010 audited financial statements. The results of operations for the period ended September 30, 2011 is not necessarily indicative of the operating results for the full year. YEAR END - The Company's fiscal year end is December 31. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 6
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH AND CASH EQUIVALENT - The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. As at September 30, 2011 and December 31, 2010, the Company had no cash equivalents. REVENUE RECOGNITION - The Company recognizes revenue from oil in the period of delivery. Revenue will be recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service has been provided, and collectability is assured. The Company is not exposed to any credit risks as amounts are prepaid prior to performance of services. BASIC AND DILUTED NET LOSS PER SHARE - The Company computes net loss per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share ("EPS") on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive. As at September 30, 2011, the Company had no potentially dilutive shares. FINANCIAL INSTRUMENTS - Pursuant to ASC 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 and 825 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 and 825 prioritizes the inputs into three levels that may be used to measure fair value: LEVEL 1 Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. LEVEL 2 Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. LEVEL 3 Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. The Company's financial instruments consist principally of cash, accounts payable, accrued liabilities, and amounts due to related parties. Pursuant to ASC 820 and 825, the fair value of our cash is determined based on "Level 1" inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations. RESOURCE PROPERTIES - Company follows the successful efforts method of accounting for its oil and gas properties. Unproved oil and gas properties are periodically assessed and any impairment in value is charged to exploration expense. The costs of unproved properties, which are determined to be productive are transferred to proved resource properties and amortized on an equivalent unit-of-production basis. Exploratory expenses, including geological and geophysical expenses and delay rentals for unevaluated resource properties, are charged to expense as incurred. Exploratory drilling costs are initially capitalized as unproved property but charged to expense if and when the well is determined not to have found proved oil and gas reserves. 7
INCOME TAXES - Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740 "Accounting for Income Taxes" as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in this financial statement because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS - In February 2010, the FASB Accounting Standards Update 2010-10 (ASU 2010-10), "Consolidation (Topic 810): Amendments for Certain Investment Funds." The amendments in this Update are effective as of the beginning of a reporting entity's first annual period that begins after November 15, 2009 and for interim periods within that first reporting period. Early application is not permitted. The Company's adoption of provisions of ASU 2010-10 did not have a material effect on the financial position, results of operations or cash flows. In February 2010, the FASB issued ASU No. 2010-09 "Subsequent Events (ASC Topic 855) "Amendments to Certain Recognition and Disclosure Requirements" ("ASU No. 2010-09"). ASU No. 2010-09 requires an entity that is an SEC filer to evaluate subsequent events through the date that the financial statements are issued and removes the requirement for an SEC filer to disclose a date, in both issued and revised financial statements, through which the filer had evaluated subsequent events. The adoption did not have an impact on the Company's financial position and results of operations. In January 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2010-06, "Improving Disclosures about Fair Value Measurements." ASU No. 2010-06 amends FASB Accounting Standards Codification ("ASC") 820 and clarifies and provides additional disclosure requirements related to recurring and non-recurring fair value measurements and employers' disclosures about postretirement benefit plan assets. This ASU is effective for interim and annual reporting periods beginning after December 15, 2009. The adoption of ASU 2010-06 did not have a material impact on the Company's financial statements. In January 2010, the FASB issued an amendment to ASC 505, Equity, where entities that declare dividends to shareholders that may be paid in cash or shares at the election of the shareholders are considered to be a share issuance that is reflected prospectively in EPS, and is not accounted for as a stock dividend. This standard is effective for interim and annual periods ending on or after December 15, 2009 and is to be applied on a retrospective basis. The adoption of this standard did not have a significant impact on the Company's financial statements. In January 2010, the FASB issued an amendment to ASC 820, Fair Value Measurements and Disclosure, to require reporting entities to separately disclose the amounts and business rationale for significant transfers in and out of Level 1 and Level 2 fair value measurements and separately present information regarding purchase, sale, issuance, and settlement of Level 3 fair value measures on a gross basis. This standard, for which the Company is currently assessing the impact, is effective for interim and annual reporting periods beginning after December 15, 2009 with the exception of disclosures regarding the purchase, sale, issuance, and settlement of Level 3 fair value measures which are effective for fiscal years beginning after December 15, 2010. The adoption of this standard is not expected to have a significant impact on the Company's financial statements. In October 2009, FASB issued an amendment to the accounting standards related to the accounting for revenue in arrangements with multiple deliverables including how the arrangement consideration is allocated among delivered and undelivered items of the arrangement. Among the amendments, this standard eliminated the use of the residual method for allocating arrangement considerations and requires an entity to allocate the overall consideration to each deliverable based on an estimated selling price of each individual deliverable in the arrangement in the absence of having vendor-specific objective evidence or other third party evidence of fair value of the undelivered items. This standard also provides further guidance on how to determine a separate unit of accounting in a multiple-deliverable revenue arrangement and expands the disclosure requirements about the judgments made in applying the estimated selling price method and how those judgments affect the timing or amount of revenue recognition. This standard, for which the Company is currently assessing the impact, will become effective on January 1, 2011. 8
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations. NOTE 3. OIL AND GAS PROPERTIES JOINT VENTURE On May 24, 2011 the Company entered into a Farm-Out Agreement with First Pacific Oil and Gas Ltd. ("First Pacific"). Under this Agreement First Pacific has acquired the right to earn 50% of the Company's working interest in its existing 12 hydrocarbon wells located in Southern Arkansas. Under this Agreement First Pacific paid the Company $50,000 within 21 days of the Agreement date; will pay $200,000 within 45 days of the Agreement date; and will pay $800,000 on or before 6 months of the Agreement date. As of September 30, 2011 the Company has collected $250,500 and recorded as gain on sale of working interest under other income. HOSS HOLMES LEASE On August 26, 2009, Avro entered into an agreement to acquire for $100,000 the Hoss Holmes Lease located near Hosston, Louisiana, from Fredco LLC, a Louisiana private oil and gas operator. The company closed the acquisition of the property on September 30, 2009. This purchase was charged as an exploration expense. On February 23, 2010 the company divested a non core assets being the Hoss Holmes, near Hosston Louisiana for $60,000. The sale of the resulted in an gain on sale of $60,000 recorded as other income. HERRINGS LEASE On August 10, 2009, Avro Energy, Inc. entered into an agreement to acquire various oil leases near Hosston, Louisiana, from S.A.M., a Louisiana private partnership, and private oil and gas operator. Under the terms of the agreement, the Company has agreed to pay a total of ten dollars ($10) plus a one-fifth royalty interest in exchange for the exclusive grant, lease, and let of the following oil and gas leases: One, Two, Three and Four (1-4) inclusive, Block One (1) Town of Hosston, together with all abandoned alleyways and streets insofar as it covers and affects the surface of the earth and the base of the Nacatosh Formation together with wells being Herring No. 1, Serial No 184124, and Herring No. 2, Serial No. 184735. MUSLOW LEASE On September 9, 2009, Avro Energy, Inc. entered into an agreement to acquire four oil and gas leases in Caddo Parish, Louisiana, from a private oil and gas operator. The first three leases are the Muslow A, B, and C Leases, which in total comprise of 8 wells and equipment, of which 2 are currently producing. The fourth lease is the Caddo Levee Board Lease, comprising of 13 wells and equipment, of which 4 are currently producing. ARKANSAS LEASE On October 24, 2009 Avro Energy, Inc. signed a letter agreement to acquire eleven producible deep oil wells north of Hosston, Louisiana, and in Southern Arkansas. Seven of these wells are in production. The deepest of these wells produce from the Smackover formation at 7800 feet. Four other wells are capable of production after work over operation has been completed. Also included with the agreement are three disposal wells. The terms of this agreement allowed the Company to pay $385,000, over a seven month period, with the first payment of $50,000 paid on November 24, 2009. The terms of the agreement allow Avro to receive production starting from November 1, 2009. On September 30, 2010 the last payment to complete the purchase for this property was made. 9
NOTE 4. LOANS PAYABLE As of September 30, 2011 the company owed Mike P. Kurtanjek, company's previous president, the amount of $4,157. The loan had no interest and no fixed repayment date. As of September 30 2011, the Company owed a shareholder who owns 264,000 (approximately 1.037% of issued and outstanding) shares a total of $815. The loan is unsecured, is payable in five years from August 13, 2009 and bears interest at 3% per annum. On September 13, 2010, the company entered agreements to convert various outstanding loans into restricted shares of the Company. The total amount owing to its creditors was $390,048, and each agreed to the issuance of restricted shares of the Company to settle this outstanding debt. As a result, the Company agreed to issue a total of 13,001,600 shares in settlement of this debt, or at a price of $0.03 per share. The total fair value of the shares was $650,080 based on the closing price resulting in a loss of settlement of debt of $260,032. NOTE 5. COMMON STOCK On January 31, 2007 (inception), the Company issued 25,000,000 founders' shares for $86,250. On September 1, 2007, the Company issued 264,000 shares for $66,000. On October 1, 2007, the Company issued 186,560 shares for $46,640. On May 31, 2010, the Company issued 1,000,000 Units at a price of $0.25 per Unit for total proceeds of $250,000. Each Unit issued consisted of one restricted common share and one half share purchase warrant. Two half warrants entitles a Subscriber to acquire one restricted common share at a purchase price of $0.50 per Share for a period of 18 months from the date of issue. There relative fair market value of the warrants is $4,851. On July 8, 2010 the company issued 1,125,000 restricted shares at par for total proceeds of $1,125. On September 13, 2010, the company entered agreements to convert various outstanding loans into restricted shares of the Company. The total amount owing to its creditors was $390,048, and each agreed to the issuance of restricted shares of the Company to settle this outstanding debt. As a result, the Company agreed to issue a total of 13,001,600 shares in settlement of this debt, or at a price of $0.03 per share. The total fair value of the shares was $650,080 based on the closing price resulting in a loss of settlement of debt of $260,032. On May 15, 2011, the Company cancelled 1,150,840 common shares previously issued. On August 23, 2011, the Company issued 15,000,000 common shares at a deemed price of $0.005 per share to its president and direct, Donald Fitzgerald. The total fair value of the shares was $75,000 based on the closing price on date of grant and expensed as management fees. NOTE 6. RELATED PARTY TRANSACTIONS As of September 30, 2011 the company owed Mike P. Kurtanjek, the company's previous president, the amount of $4,157. The loan had no interest and no fixed repayment date. NOTE 7. IMPAIRMENT LOSS The company's accumulated impairment loss as per the income statement is $616,388 from January 31, 2007 (inception) through December 31, 2010. This consists of all expenses related to the company's oil and gas properties which have been expensed in accordance with Generally Accepted Accounting Principles for the industry. The company performed an impairment analysis at the end of 2009 and determines that the properties were not economically viable, at that point the company impaired the properties. 10
NOTE 8. ASSET RETIREMENT OBLIGATION The Company accounts for asset retirement obligations as required by the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 410--Asset Retirement and Environmental Obligations. Under these standards, the fair value of a liability for an asset retirement obligation is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. If a reasonable estimate of fair value cannot be made in the period the asset retirement obligation is incurred, the liability is recognized when a reasonable estimate of fair value can be made. If a tangible long-lived asset with an existing asset retirement obligation is acquired, a liability for that obligation shall be recognized at the asset's acquisition date as if that obligation were incurred on that date. In addition, a liability for the fair value of a conditional asset retirement obligation is recorded if the fair value of the liability can be reasonably estimated. The company incurred an accretion expense of $235,000 for the year ending December 31, 2010 for the net present value cost of plugging all its oil wells upon the ending of the useful life of the wells. 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION FORWARD-LOOKING STATEMENTS The information set forth in this section contains certain "forward-looking statements," including, among other things, (i) expected changes in our revenues and profitability, (ii) prospective business opportunities, and (iii) our strategy for financing our business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as "believes," "anticipates," "intends," or "expects." These forward-looking statements relate to our plans, objectives and expectations for future operations. Although we believe that our expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of our knowledge of our business and operations, in light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this report should not be regarded as a representation by us or any other person that our objectives or plans will be achieved. PLAN OF OPERATION Avro Energy Inc. is an independent energy company engaged in the acquisition, exploration and development of oil and natural gas properties in North America, with current operations in the ArkLaTex region. Avro's objective is to seek out and develop opportunities in the oil and natural gas sectors that represent low risk opportunities for the Company and its shareholders. In addition, Avro aims to seek larger projects that can be developed and produced with Joint Venture partners. The ArkLaTex is a U.S. socio-economic region where Arkansas, Louisiana, Texas, and Oklahoma intersect. The region is centered on the Shreveport/Bossier metropolitan area in Northwest Louisiana. The region's history is heavily linked with the oil industry. The geology associated with the deposition of sediments from the Mississippi River, in particular, makes this area an abundant source for the oil and gas industries, which leads to the high levels of oil production within the region. RESULTS OF OPERATIONS Avro Energy Inc. has acquired oil and natural gas properties in the ArkLaTex region. Specifically the company has acquired the Hoss Holmes Lease and the Herrings Lease and has begun work on these properties. Since the date of our inception, January 31, 2007, we have generated $364,651 in oil revenues, $250,500 on the sale of properties for farm in purposes and $60,000 in the sale of a non-core property. Over the three months ending September 30, 2011 and September 30, 2010 we have generated $50,242 and $51,109, respectively, in oil and gas revenue. Also during the quarter we received the second tranche on the sale of working interests generating $200,000 this quarter. Over the same period of time we incurred $177,711 and $49,928 respectively in expenses giving the company a net income (loss) for the three months ended 2011 and 2010 of $72,531 and ($265,263) respectively. The bulk of our operating expenses were incurred in connection with the improvement, expenses, and maintenance of our oil producing properties. $75,000 of these expenses are attributed to management fees paid by shares to management. Over the nine months ending September 30, 2011 and September 30, 2010 we have generated $150,559 and $143,395, respectively in oil and gas revenue. Over the same period of time we incurred $346,306 and $265,049 in expenses, and $250,500 and $0 in sales of working interests, giving the company a net income (loss) of $54,769 and ($342,127) respectively. The bulk of our operating expenses were incurred in connection with the improvement, expenses, and maintenance of our oil producing properties. SELECTED FINANCIAL INFORMATION 30-Sep-11 31-Dec-10 --------- --------- Current Assets $218,365 $ 5,783 Total Assets $218,365 $ 5,783 Current Liabilities $152,234 $ 69,406 12
LIQUIDITY AND CAPITAL RESOURCES At September 30, 2011, we had cash in the bank of approximately $203,076. We are contemplating raising additional capital to finance our exploration programs. No final decisions regarding the program or financing have been made at this time. We issued 15,000,000 shares on August 28, 2011 in order to pay management fees due. OFF-BALANCE SHEET ARRANGEMENTS We have no off-balance sheet arrangements. CRITICAL ACCOUNTING POLICIES We have not changed our accounting policies since December 31, 2007. ITEM 4. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 , as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our president (also our principal executive officer) and our secretary, treasurer and chief financial officer (also our principal financial and accounting officer) to allow for timely decisions regarding required disclosure. As of September 30, 2011, we carried out an evaluation, under the supervision and with the participation of our president (also our principal executive officer), and our chief financial officer (also our principal financial and accounting officer) of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our President and Chief Financial Officer concluded that our disclosure controls and procedures were not effective in providing reasonable assurance in the reliability of our corporate reporting as of the end of the period covered by this Quarterly Report due to certain deficiencies that existed in the design or operation of our internal controls over financial reporting as disclosed below and that may be considered to be material weaknesses. CHANGES IN INTERNAL CONTROLS. There was no change in our internal controls or in other factors that could affect these controls during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We are not a party to any material legal proceedings and to our knowledge, no such proceedings are threatened or contemplated. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. 13
ITEM 4. REMOVED AND RESERVED ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibit Number Description of Exhibit -------------- ---------------------- 3.1 Articles of Incorporation - Filed by Form SB-1 on March 30, 2007 3.2 Bylaws - - Filed by Form SB-1 on March 30, 2007 10.1 Lease Acquisition Agreement between the Company and Fredco LLC filed on August 26, 2009, and has been incorporated herein by reference. 10-2 Lease Acquisition Agreement filed on September 9, 2009 and has been incorporated herein by reference. 10-3 Farmout and Acquisition Agreement filed on May 17, 2011 and has been incorporated herein by reference. 31.1 Certification by Chief Executive Officer and Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act, promulgated pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. 32.1 Certification by Chief Executive Officer and Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Cod of the Sarbanes-Oxley Act of 2002 filed herewith. 101 Interactive data files pursuant to Rule 405 of Regulation S-T. 14
SIGNATURES In accordance with the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: November 16, 2011 Signature Title Date --------- ----- ---- By: /s/ Donald Fitzgerald Chief Executive Officer, November 21, 2011 --------------------------- Chief Financial Officer, Donald Fitzgerald President, Secretary, Treasurer and Director (Principal Executive Officer and Principal Accounting Officer) 1