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EX-10.7 - EXHIBIT 10.7 - GROOVE BOTANICALS INC.ex10_7.htm
EX-10.6 - EXHIBIT 10.6 - GROOVE BOTANICALS INC.ex10_6.htm
EX-32 - EXHIBIT 32 - GROOVE BOTANICALS INC.ex32.htm
EX-31 - EXHIBIT 31 - GROOVE BOTANICALS INC.ex31.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the year ended March 31, 2016

 

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

 

GROOVE BOTANICALS 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

 

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

 

Securities registered pursuant to section 12(g) of the Act: None.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

☐ Yes  ☒ No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. ☐

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒ Yes  ☐ No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

 

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 (§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  ☐ 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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ☐ Accelerated filer ☐

Non-accelerated filer ☐

(Do not check if a smaller reporting company)

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

 

26,543,062 shares of our common stock were issued and outstanding as of August 24, 2018.

 

 1 

 

 

TABLE OF CONTENTS

    Page
PART I    
Item 1. Business 3
Item 1A. Risk Factors 5
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. (Removed and Reserved) 6
     
PART II    
Item 5. Market for Common Equity and Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities 6
Item 6. Selected Financial Data 8
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 8
Item 8. Consolidated Financial Statements 11
Item 9. Changes and Disagreements With Accountants on Accounting and Financial Disclosures 11
Item 9A. Controls and Procedures 11
Item 9B . Other Information 12
     
PART III    
Item 10. Directors, Executive Officers, Promoters, Control Persons and Corporate Governance 12
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 16
Item 13. Certain Relationships and Related Transactions, and Director Independence 17
Item 14. Principal Accountant Fees and Services 17
Item 15. Exhibits and Financial Statement Schedules 18
     
SIGNATURES   19

 

 2 

 

PART I

 

References in this document to "us," "we," the "Registrant," or the "Company" refer to Groove Botanicals, Inc. (formerly known as Avalon Oil & Gas, Inc.), and its predecessors.

 

Statements contained in this Form 10-K discuss future expectations and plans which are considered forward-looking statements as defined by Section 27 (a) of the Securities and Exchange Act of 1934, as amended. Sentences which incorporate words such as "believes," "intends," expects," "predicts," "may," "will," "should," "contemplates," "anticipates," or similar statements are based on our beliefs and expectations using the most current information available to us. In view of the fact that our discussions in the Form 10-K are based on upon estimates and beliefs concerning circumstances and events which have not yet occurred, the anticipated results are subject to changes and variations as future operations and events actually occur and could differ materially from those discussed in forward-looking statements. Moreover, although we reasonably expect, to the best of our knowledge and belief, that the results to be achieved by us will be as set forth in the following discussion, the following discussion is not a guarantee and there can be no assurance that any of the potential results which are described will occur. Furthermore, there will usually be differences between the forecasted and actual results because events and circumstances frequently do not occur as expected, and the difference may be material.

 

ITEM 1. BUSINESS

 

Corporate Structure

 

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.  This amendment was not filed with the Nevada Secretary of State.  

 

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.

 

On March 21, 2018 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 Groove Botanicals, Inc.  We filed an amendment to our Articles of Incorporation with the State of Nevada on May 18, 2018.

 

Corporate Strategy

 

Our Company’s new name reflects our new corporate direction as a consumer health products company dedicated to improving people’s health and well-being. We will assemble a portfolio of assets via royalty agreements, equity investments, and licensing agreements, as well as develop our own proprietary CB3 skin care products. Our products will contain premium hemp extracts with a broad range of cannabinoids, including cannabidiol (CBD). CBD is a cannabinoid compound naturally derived from the hemp plant. It is not a drug and has no intoxicating effects, but has a long history of natural uses. Recent breakthroughs in research have shown the powerful health benefits of CBD on the body. CBD is also rich in vitamins A, B, D, and E, antioxidants, and fatty acids, all of which dramatically improve skin health. When applied topically to the skin, CBD has been shown to reduce inflammation, retain skin moisture levels, reduce cellular damage, inhibit oil production leading to breakouts, and protect skin from free radicals that damage collagen and elastin.

 

We have partnered with top leaders in CBD research, cultivation, and extraction to create the world’s finest cannabis skincare product line. Our Groove Botanicals, Inc. proprietary CB3 launches with three foundational products: Revita Wash, a gentle yet effective daily wash that removes toxins and smooths skin; Phyto Lotion, a light-weight, long-lasting daily moisturizer that hydrates, softens, and protects; and Eye Matter, a powerfully effective eye cream that diminishes dark circles, puffiness, expression lines, and wrinkles. Together, these products offer a minimalist skincare routine designed to deliver immediate and transformative results to all skin types. We are also proud to say that our products are 100% American made and non-toxic, paraben free, sulfate free, artificial fragrance free, dye free, vegan, animal by-product free, and 100% pet friendly. We look forward to announcing further developments in the coming months as we expand and develop both our CBD skin care line and our other innovative new product lines.

 

 3 

 

 

In furtherance of the foregoing strategy, we have engaged in the following transactions during the last three years:

 

On June 14, 2017, the Company sold its interest in Lipscomb County, Texas.

 

On July 22, 2017, the Company abandoned its properties in Plaquemines Parish, Louisiana.  

 

On December 28, 2017, the Company sold its properties in Custer County, and Pittsburg County, Oklahoma.

 

We will continue to evaluate the market value of our oil and gas properties.

 

On March 21, 2018 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 Groove Botanicals, Inc. and an amendment to our Articles of Incorporation was filed with the State of Nevada on May 18, 2018 to change the name of our Company.  

 

On May 14, 2018, we changed our stock symbol to GRVE.

 

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 the sale of our CBD skincare products, none of which can be guaranteed.

 

Ultimately, our success is dependent upon our ability to generate revenues from the sale our CBD skincare products, and to achieve profitability, which is dependent upon a number of factors, including general economic conditions.  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 July 18, 2018 the Company filed five trademark applications with the United States Patent and Trademark Office for CB3SKINCARE: U.S. Trademark Application Serial No. 88/040,563, CB3: U.S. Trademark Application Serial No. 88/040,571, EYE MATTER: U.S. Trademark Application Serial No. 88/040,574, REVITA WASH: U.S. Trademark Application Serial No. 88/040,580, and TAKE YOUR SKIN HIGHER: U.S. Trademark Application Serial No. 88/040,584.  

 

ENVIRONMENTAL MATTERS

 

We are in compliance with environmental laws and regulations did not have a specific impact on the Company's operations. The Company does not anticipate that it will incur any material capital expenditures for environmental control facilities during the next fiscal year.

 

EMPLOYEES

 

We have one full time employee, our President, Kent Rodriguez and a part time administrative assistant. The Board retains consultants and advisors on as needed basis.  They are compensated with cash and also with the issuance of the Company’s common stock.

 

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RESEARCH AND DEVELOPMENT

 

We did not incur research and development expenses.

 

ITEM 1A.  RISK FACTORS

 

Any investment in our securities is highly speculative.  The Company's business and ownership of shares of our common stock are subject to numerous risks.  You should not purchase our shares if you cannot afford to lose your entire investment. You should consider the following risks before acquiring any of our shares.

 

We have never been, and may never be, profitable.

 

During the past several years, we have attempted, without success, to generate revenues and profits. For the year ended March 31, 2016, we incurred a net loss attributable to common shareholders of $2,711,972.  The net loss was primarily due to the impairment of our oil and gas assets. There can be no assurance that we will ever be profitable from our operations.

 

We need additional capital.

 

We need additional financing to continue operations. The amount required depends upon our business operations, and the capital needs to develop and market our CBD skincare products. We may be unable to secure this additional required financing on a timely basis, under terms acceptable to us, or at all. To obtain additional financing, we will likely sell additional equity securities, which will further dilute shareholders' ownership in us. Ultimately, if we do not raise the required capital, we may need to cease operations.

 

We are dependent upon our key personnel.

 

We are highly dependent upon the services of Kent A. Rodriguez, our President and Chief Executive Officer. If he terminated his services with us, our business would suffer.

 

There is only a limited trading market for our securities.

 

Our Common Stock is traded on the OTC Pink Sheets.  The prices quoted may not reflect the price at which you can resell your shares. Because of the low price of our stock, we are subject to particular rules of the U.S. Securities and Exchange Commission that make it difficult for stock brokers to solicit customers to purchase our stock. This reduces the number of potential buyers of our stock and may reduce the value of your shares. There can be no assurance that a trading market for our stock will continue or that you will ever be able to resell your shares at a profit, or at all.

 

 5 

 

 

Our management controls us.

 

Our current officers and directors own approximately 43% of our outstanding stock and are able to affect the election of the members of our Board of Directors and make corporate decisions. Mr. Rodriguez, by his ownership of Class A Preferred Stock, has the right to vote 40% of our voting securities. On January 12, 2018, our Board of Directors agreed to amend Designation of the Series A Convertible Preferred Stock be amended by changing the ratio for conversion, in Article IV, subparagraph (a), from .4% to .51% so that upon conversion the number of shares of common stock to be exchanged shall equal 51% of then issued and outstanding common stock.  Accordingly, even if we issue additional shares to third parties, Mr. Rodriguez will continue to control at least 40% of our voting securities. This voting concentration may also have the effect of delaying or preventing a change in our management or control or otherwise discourage potential acquirers from attempting to gain control of us. If potential acquirers are deterred, you may lose an opportunity to profit from a possible acquisition. See "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" and "Market for Common Equity and Related Stockholder Matters".

 

A significant number of shares are eligible for public sale, potentially depressing our stock price. Under the SEC's Rule 144, shares issued in issuances which are not registered with the SEC generally first become eligible for public resale after six months. Shareholders who are affiliates of us generally may resell only a limited number of their privately acquired shares after six months. After six months, stockholders who are not affiliated with us may resell any number of their privately acquired shares pursuant to Rule 144. The resale of the shares we have privately issued, or the potential for their future public resale, may depress our stock price.

 

Our governing documents and Nevada law may discourage the potential acquisitions of our business. Our Board of Directors may issue additional shares of capital stock and establish their rights, preferences and classes, in most cases without stockholder approval. In addition, we may become subject to anti-takeover provisions found in Section 89.378-78.379 of the Nevada Business Corporation Act which may deter changes in control of our management which have not been approved by our Board of Directors.

 

ITEM 2.  PROPERTIES

 

Our corporate office is located at 310 Fourth Avenue South, Suite 7000, Minneapolis, Minnesota 55415. This office space is leased from an unaffiliated third party on a month to month lease, for a monthly rental of $1,000.

 

ITEM 3.  LEGAL PROCEEDINGS

 

The Company is not a party to any legal proceedings that would have a material effect on the Company’s operations.

 

ITEM 4.   MINE SAFETY DISCLOSURES

 

(Not applicable)

 

PART II

 

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

(a) Principal Market or Markets

 

Effective with the close of business on June 19, 1997, our Common Stock was delisted from the NASDAQ Small Cap Market. In June of 1997, our Common Stock began trading on the NASD Over-the-Counter Bulletin Board ("OTCBB").  Beginning in April 2010 our Common Stock began trading on the electronic OTCQB and OTCBB market.  Since August 2016 our Common Stock has traded on the OTC Pink Sheets.  Market makers and other dealers provided bid and ask quotations of our Common Stock. We trade under the symbol "GRVE".

 

The table below represents the range of high and low bid quotations of our Common Stock as reported during the reporting period herein. The following bid price market quotations represent prices between dealers and do not include retail markup, markdown, or commissions; hence, they may not represent actual transactions.

 

Per Share Common Stock Bid Prices by Quarter For the Two Most Recent Fiscal Years   
   High  Low
Quarter Ended March 31, 2016  $0.04   $0.02 
Quarter Ended December 31, 2015  $0.07   $0.02 
Quarter Ended September 30, 2015  $0.10   $0.04 
Quarter Ended June 30, 2015  $0.06   $0.04 
Quarter Ended March 31, 2014  $0.08   $0.04 
Quarter Ended December 31, 2014  $0.10   $0.06 
Quarter Ended September 30, 2014  $0.10   $0.07 
Quarter Ended June 30, 2014  $0.10   $0.06 

 

As of July 10, 2018, 26,543,062 shares of our Common Stock were outstanding and the number of holders of record of our Common Stock at that date was approximately 985. However, we estimate that there are a significantly greater number of shareholders because a substantial number of our shares are held in nominee names by brokerage firms.

 

(b) Dividends

 

No dividends on the Common Stock were paid by us during the fiscal year ended March 31, 2016, or the fiscal year ended March 31, 2015, nor do we anticipate paying dividends on Common Stock in the foreseeable future. Holders of Common Stock are entitled to receive such dividends as may be declared by our Board of Directors.

 

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(c) Securities Authorized for Issuance Under Equity Compensation Plans.

 

We have not established an Equity Compensation Plan and have not authorized the issuance of any securities under such plan.

 

(d) Preferred Stock.

 

Our Articles of Incorporation authorize us to issue up to 1,000,000 shares of $0.10 par value preferred stock, with such classes, series and preferences as our Board of Directors may determine from time to time. In June 2002, our Board of Directors authorized the issuance of 100 shares of Series A Convertible Preferred Stock (the "Series A Preferred Stock"). Our Board further agreed to issue all of the Series A Preferred Stock to our Chairman and President, Kent Rodriguez, in satisfaction of $500,000 in loans made by Mr. Rodriguez.  On January 12, 2018,our Board of Directors agreed to amend Designation of the Series A Convertible Preferred Stock be amended by changing the ratio for conversion, in Article IV, subparagraph (a), from .4% to .51% so that upon conversion the number of shares of common stock to be exchanged shall equal 51% of then issued and outstanding common stock.

 

The Series A Preferred Stock accrues dividends at the rate of 8% per annum on the original purchase price for the shares. If declared by the Board of Directors, these dividends are payable quarterly, beginning in September 2002. We are prohibited from paying any dividends on our Common Stock until all accrued dividends are paid on our Series A Preferred Stock.

 

If we liquidate or dissolve, and after payment of our debts, the holders of the Series A Preferred Stock are entitled to a preference payment before we make any distributions to our Common Stockholders. The preference amount is equal to the original purchase price for the Series A Preferred shares plus accrued, but unpaid dividends.  As of March 31, 2016, the liquidation preference is $537,450, or $5,374.5 per share.

 

The Series A Preferred Stock is convertible at any time into 51% of the then outstanding shares of Common Stock and securities convertible into Common Stock on a fully diluted basis. However, conversion is limited to the number of shares of Common Stock available for issuance under our articles of incorporation.

 

Regardless of whether or not the Series A Preferred Stock has been converted to our Common Stock, the Series A Preferred Stockholder is entitled to vote, at all times, on an as-if converted basis. The Preferred Stockholder, Mr. Rodriguez, has the right to vote the Series A Preferred Stock together with his other holdings in the Company.

 

In March, 2013, our Board of Directors authorized the issuance of 2,000 shares of Series B Preferred Stock (the "Series B Preferred Stock").  The face amount of share of the Series B Preferred Stock is $1,000. There are currently 1,983 shares of Series B Preferred Stock outstanding. As of March 31, 2016, the liquidation preference is $1,983,000, or $1,000 per share.

 

On March 14, 2014, we filed an amendment with the Nevada Secretary of State increasing the interest rate on the Series B Preferred Shares to nine percent (9.00%), effective on April 1, 2014 and changing the payment date to from January 15th of each year to April 1st.  The next interest payment on the Series B Preferred Stock will be on April 1, 2018.

 

The Series B Preferred Stock accrues dividends at the rate of 9% per annum on the original purchase price for the shares. If declared by the Board of Directors, these dividends are payable annually, beginning in January 2014. We are prohibited from paying any dividends on our Common Stock until all accrued dividends are paid on our Series B Preferred Stock.  The Series B Preferred Stock ranks junior to the Series A Preferred Stock owned by our President and Chief Executive Officer, as to Dividends and to a distribution of assets in the event of a liquidation of assets.

 

The Holders of Series B Preferred Stock do not have any voting rights and their consent is not required to take any sort of corporate action.

 

AFS Holdings, Inc. Series A Preferred Stock  

 

On October 5, 2015, the Articles of Incorporation of AFS were amended to authorize the issuance of 5,000,000 shares of Preferred Stock, par value $0.001, of which 1,000 shares are designated as Series A Preferred Stock.

 

AFS Series A Preferred Stock accrues dividends at the rate of 12% per annum on the original purchase price for the shares. These dividends are payable annually in cash or the AFS Common Stock at the discretion of the Board of Directors, beginning in March 2016. AFS is prohibited from paying any dividends on AFS Common Stock until all accrued dividends are paid on our Series A preferred Stock. Upon liquidation, the Series A Preferred Stock shareholders shall be entitled to the stated value of each shares held, in addition to accrued and unpaid dividends, as long as AFS possesses the funds necessary to make payments. AFS may, at any time, redeem the shares of Series A Preferred Stock without the prior written consent of the Series A Preferred Stock shareholders. The Series A Preferred Stock ranks senior to AFS Common Stock in a distribution of assets in the event of a liquidation of assets.

 

As of March 31, 2016, the liquidation preference is $53,000, or $1,060 per share.

 

RECENT SALES OF UNREGISTERED SECURITIES

 

The Company sold the following unregistered securities between January 1, 2016 and March 31, 2016:

 

In March 2016 the Company issued 23 shares Series B Preferred Stock to an accredited investor for $23,000.

 

During the twelve months ended March 31, 2016 and 2015, the Company incurred $165,038 and $135,559 in dividends on Series B preferred stock.  

 

During the twelve months ended March 31, 2016 and 2015, the Company incurred $3,000 and –0– in dividends on AFS Series A Preferred Stock.

 

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All other unregistered securities sold by the Company during the past three years, but prior to January 1, 2016, have been included in the Company's 10-Q filings.

 

All of the unregistered securities sold were issued directly by the Company, and no commissions or fees were paid in connection with any of these transactions. The transactions were private, and the Company endeavored to comply both with Regulation D, and also Section 4(2) of the Securities Act of 1933, as amended, as exemption(s) from registration. The Company exercised reasonable care to assure that the purchasers of the securities are not underwriters and were "accredited investors" under Regulation D and/or sophisticated investors.

 

ITEM 6.  SELECTED FINANCIAL DATA

 

Not applicable.

 

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

RESULTS OF OPERATIONS AND PLAN OF OPERATION

 

The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes related thereto. The discussion of results, causes and trends should not be construed to infer conclusions that such results, causes or trends necessarily will continue in the future.

 

For the year ended March 31, 2016 compared to the year ended March 31, 2015

 

Revenues

 

Revenues for the year ended March 31, 2016 were $52,933, a decrease of $57,438 or approximately 52% compared to revenue of $110,371 for the year ended March 31, 2015. Revenue from the sale of oil and gas decreased as a result of the lower market price of oil and natural gas.

 

Concentration of customers

 

For the year ended March 31, 2016, three customers, KROG Partners, Scissortail Energy and Ward Petroleum, individually accounted for 28%, 20% and 16% of the Company’s revenues, respectively. Except for the aforementioned customers, there was no other single customer who accounted for more than 10% of the Company’s revenues for the year ended March 31, 2016.

 

Lease Operating Expenses

 

During the year ended March 31, 2016, our lease operating expenses were $66,081 a decrease of $33,979 or approximately 34% compared to $100,060 for the year ended March 31, 2015.  The decrease was due the completion of the workover costs on the Miller County Arkansas properties  

 

Selling, General, and Administrative Expenses

 

Selling, general and administrative expenses for the year ended March 31, 2016 were $788,836 an increase of $503,302 compared to selling, general and administrative expenses of $285,534 during the year ended March 31, 2015.   Selling, general and administrative expenses for 2016 consisted primarily non-cash consulting services of $154,546, the write off of $279,400 balance in deposits, payroll and related costs of $48,000; legal and accounting fees in the amount of $112,462; facilities costs in the amount of $11,000; travel and entertainment expenses of $68,970; investor relation expense of $4,176; office expenses of $64,014 and consulting fees in the amount of $46,268.  The increase was due primarily due to non-cash consulting services of $154,546, and write off of the $279,400 balance in deposits year for the ended March 31, 2016.

Bad Debt Expense

 

Bad debt expense for the year ended March 31, 2016 was 58,741.  We did not have any bad debt expense for the year ended March 31, 2015.  

 

Impairment Expense  

 

Impairment expense for the year ended March 31, 2016 was $1,839,941. We did not have any impairment expense for the year ended March 31, 2015.  The impairment expense was due to the reduction in the market price for oil and natural gas, the loss of economic value of the Company’s non-proven properties and the impairment of the Company’s intellectual properties.  

 

Stock-based Compensation

 

Stock-based compensation for the year ended March 31, 2016 was $0, a decrease of $24,454 compared to Stock-based compensation of $24,454 for the year ended March 31, 2015.

 

 8 

 

 

Depreciation, Depletion, and Amortization

 

Depreciation, Depletion, and Amortization were $69,579 for the year ended March 31, 2016 a decrease of $4,832 or approximately 6% compared to $74,441 for the year ended March 31, 2015, due to a slight decrease in depletion.  

 

Gain on Sale of Property

 

During the year ended March 31, 2016, the Company did not sell any oil and gas properties.

 

Gain on Settlement of Debt, Notes Payable and Accrued Interest and Dividends Payable.

 

During the year ended March 31, 2016, the Company had a net gain on the settlement of debt in the amount of $283,014, a decrease of $141,610 as compared with $424,624 for the year ended March 31, 2015.   

 

We did not have a gain on the conversion of dividends payable during the year ended March 31, 2016.  During the year ended March 31, 2015, we had a gain on the conversion of dividends payable of $82,779.

 

Interest Expense, net of Interest Income

 

Interest expense, net of interest expense of $16,703 for the year ended March 31, 2016, a decrease of $26,398  compared to interest expense, net of $43,101 for the year ended March 31, 2015. This decrease is due to a reduction in the outstanding principal balances of notes payable.  

 

Net Profit (Loss)

 

For the reasons stated above, our net loss for the year ended March 31, 2016, was $2,503,934, compared to a net profit of $100,314 during the year ended March 31, 2015.

 

Liquidity and Capital Resources

 

Going Concern

 

The Company has minimal revenues from our remaining oil and gas assets. We are in need of additional cash resources to maintain our operations. As of March 31, 2016, the Company had a working capital deficit of $676,586, had incurred losses since inception of $33,610,746, and have not yet received any revenue from the sale our CBD skincare products. These factors raise substantial doubt about its ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent on its ability to raise additional capital or obtain necessary debt financing. The Company is presently dependent on its controlling shareholder to provide us funding for its daily operation and expenses, including professional fees and fees charged by regulators, although he is under no obligation to do so.

  

The Company intends to meet the cash requirements for the next 12 months from the issuance date of this report through a combination of debt and equity financing by way of private placements, friends, family and business associates. The Company currently does not have any arrangements in place to complete any private placement financings and there is no assurance that the Company will be successful in completing any such financings on terms that will be acceptable to it.

 

If we do not have sufficient working capital to pay our operating costs for the next 12 months, we will require additional funds to pay our legal, accounting and other fees associated with our Company and our filing obligations under United States federal securities laws, as well as to pay our other accounts payable generated in the ordinary course of our business. Once these costs are accounted for, we will focus on the following the manufacture and sale of our CBD skincare products.

 

Any failure to raise money will have the effect of delaying the timeframes in the business plan as set forth above, and the Company may have to push back the dates of such activities.

 

The financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred losses and further losses are anticipated as a result of the development of business which raises substantial doubt about the Company’s ability to continue as a going concern within the next twelve months from the issuance date of this report.  The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining financing necessary to meet the Company’s obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand and loans from directors and/or private placement of the Company’s common stock.

 

 9 

 

 

Our cash and cash equivalents were $108,220 on March 31, 2016, compared to $135,713 on March 31, 2015. We met our liquidity needs through the issuance of our common stock, preferred stock, and notes payable for cash and from 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 the sale of our CBD skincare products, 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 the sale of our CBD skin care products.  

 

Operating activities

 

Net cash used by operating activities for the year ended March 31, 2016 was $348,922, compared to $230,343 used in the year ended March 31, 2015.

 

The Company had a net loss of $2,503,934 for the year ended March 31, 2016, compared to a net profit of $100,314 for the year ended March 31, 2015.  

 

Net accounts receivable for the year ended March 31, 2016 were $- 0 - compared to $33,344 for the year ended March 31, 2015.

 

Investing activities

 

For the year ended March 31, 2016 we received note repayments of $1,429.  During the year ended March 31, 2015 we invested $120,000 for the purchase of the Kensington Energy Assets, and repayments on notes receivable of $7,142.  

 

Financing activities

 

Our financing activities for the year ended March 31, 2016 provided cash of $320,000 as compared to $255,000 for the year ended March 31, 2015. We plan to raise additional capital during the coming fiscal year.  Cash generated by financing activities primarily consisted of $330,000 from the issuance of Avalon Series B Preferred Stock and AFS Series A Preferred Stock.  

 

Critical Accounting Policies

 

The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based on information available. These estimates and assumptions affect the reporting amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. A summary of the significant accounting policies is described in Note 1 to the financial statements.

 

Recently enacted accounting standards

 

In August 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and sets rules for how this information should be disclosed in the financial statements. ASU 2014-15 is effective for annual periods ending after December 15, 2016 and interim periods thereafter. The Company adopted ASU 2014-15 prospectively for the annual period ending December 31, 2016. Pursuant to ASU 2014-15, the Company is required to consider whether there are adverse conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued and the probability that management’s plans will mitigate the adverse conditions or events (if any). Adverse conditions or events would include, but not be limited to, negative financial trends (such as recurring operating losses, working capital deficiencies, or insufficient liquidity), a need to restructure outstanding debt to avoid default, and industry developments (for example commodity price declines and regulatory changes). 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

Material Commitments

 

We have no material commitments during the next twelve (12) months.

 

 10 

 

 

Purchase of Significant Equipment

 

During the twelve months ended March 31, 2016 and March 31, 2015, we used $0 for the purchase of equipment.

 

ITEM 8.   FINANCIAL STATEMENTS.

 

Our audited Financial Statements begin on page F-1.

 

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A.  CONTROLS AND PROCEDURES

 

 11 

 

 

Management’s Annual Report on Internal Control over Financing Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934). Management has assessed the effectiveness of our internal control over financial reporting under COSO Framework 2013 as of March 31, 2016 based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of this assessment, management concluded that, as of March 31, 2016, our internal control over financial reporting was not effective. The material weaknesses identified related to (i) a lack of accounting staff and resources with appropriate knowledge of U.S. GAAP and SEC reporting and compliance requirements; (ii) a lack of sufficient documented financial closing policies and procedures; and (iii) a lack of independent directors and an audit committee.

 

We plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this annual report on Form 10-K, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we hope to implement the following changes during our fiscal year ending March 31, 2019: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; (ii) adopt sufficient written policies and procedures for accounting and financial reporting, and (iii) strengthen our financial team by employing more qualified accountant(s) conversant with US GAAP to enhance the quality of our financial reporting function. The remediation efforts set out in (i), (ii) and (iii) are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

 

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to an exemption for non-accelerated filers set forth in Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

 

Changes in Internal Controls over Financial Reporting

 

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

 

During the last fiscal quarter’ assessment, we noted the material weaknesses as stated above.

 

Limitations on Controls

 

Management does not expect that the Company’s disclosure controls and procedures or the Company’s internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and the Company’s Chief Executive Officer (who is also our Chief Financial Officer) has concluded that the Company’s disclosure controls and procedures are effective at that reasonable assurance level.

 

ITEM 9B.  OTHER INFORMATION

 

None.

 

PART III

 

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Our Directors and Executive Officers are shown below:

Name  Age  Position
Kent Rodriguez   56   Chief Executive Officer, President, Secretary, and Principal Financial Officer
Jill Allison   52   Director
Douglas Barton   76   Director
Rene Haeusler   61   Director

 

 12 

 

 

Each Director is serving a term of office, which will continue until the next annual meeting of shareholders and until the election and qualification of his respective successor.

 

KENT RODRIGUEZ

 

Mr. Rodriguez joined the Company as Chief Executive Officer, Secretary, and Principal Financial Officer in May 2009. Since 1995, he has been the Managing Partner of Weyer Capital Partners, a Minneapolis-based venture capital corporation. From 1985 to 1995, he was employed by the First National Bank of Elmore, Elmore, Minnesota, in various capacities. He has a B.A. degree in Geology from Carleton College, and an Executive MBA from the Harvard Business School.

 

JILL ALLISON

 

Ms. Allison joined the Company as a Director in May 2009. She has over 20 years of diversified management experience in business development and technology commercialization. Prior to joining Avalon, Ms. Allison managed a technology strategy consulting practice with focus in the market convergence of physical and IT security industries. Her venture development background includes market leadership positions with Monsanto, Iridian Technologies, Pinkertons and Cylink Corporation. She holds a B.A. in Economics from Gustavus Adolphus College; a Master's in International Management (MIM) in Marketing from the American Graduate School of International Management (Thunderbird), Glendale, AZ; and an MBA in Strategic and Entrepreneurial Management from the Wharton School of the University of Pennsylvania, where she focused on strategic alliances and management of technology.

 

DOUGLAS BARTON

 

Mr. Barton has served as a Director of the Company since May 2009. From 1987 to the present, he has been the President and sole owner of Venture Communications, Inc., a private promotion, development, and marketing consulting firm. He has a B.S. degree in Economics/History from the University of Minnesota.

 

RENE HAUSLER

 

Mr. Häusler has served as a Director of the Company since August 2010.  He is a Political and Business Consultant, is Chairman of the Board and Managing Director of all companies of the L’Avenir Group.  He also serves as Chairman of the Board of  Bowl Construction AG , Member of the Board of ProgressNow!invest AG , a SIX-listed private equity investment company, and is a member of the Board of Directors of ThaiSwiss SME-Industrial Center Ltd ., Pranburi, Thailand, and of  Sempre-Automaten AG  and  Theracon AG  in Switzerland. His background includes Assistant to the Managerial Committee and Head of several departments for Bank Sogenal.  He also served as a member of the military-diplomatic Swiss delegation to the Neutral Nations Supervisory Commission (NNSC) in Korea, as liaison officer to the UN High Command and the Government of South Korea.  Mr. Häusler has a Master’s degree in history, political science and constitutional law from the University of Zurich/Switzerland.  From 1995 – 1999 he was also a guest lecturer at the Chulalongkorn University in Bangkok (Thailand). He has published two books and numerous articles on political psychology, economy and stock markets.   Mr. Häusler is an experienced equity investment professional with a wide range of public company and private equity expertise in international markets for commodities, mineral exploration, biotechnology, and software.

 

The Company's Directors will serve in such capacity until the next annual meeting of the Company's shareholders and until their successors have been elected and qualified. There are no family relationships among the Company's officers and directors, nor are there any arrangements or understanding between any of the directors or officers of the Company or any other person pursuant to which any officer or director was or is to be selected as an officer or director. The Directors took action six (6) times by written consent during the fiscal year ended March 31, 2016.

 

 13 

 

 

In 2009, the Board of Directors established a Compensation Committee. It is currently comprised of Messrs. Barton and Häusler. The Compensation Committee held one (1) meeting in fiscal 2016.

 

In May 2009, the Board of Directors established an Audit Committee. It is currently comprised of Messrs. Barton and Häusler.  The Audit Committee held one (1) meeting in fiscal 2016.

 

We have adopted a Code of Ethics which is designed to ensure that our directors and officers meet the highest standards of ethical conduct. The Code of Ethics requires that our directors and officers comply with all laws and other legal requirements, conduct business in an honest and ethical manner and otherwise act with integrity and in our best interest.

 

Involvement in Legal Proceedings

 

We are not aware that any of our officers and directors were, or have been involved in any material legal proceedings which would have any effect upon the Company.

 

Compliance with Section 16(a) of the Securities Exchange Act of 1934

 

Section 16(a) of the Securities Exchange Act of 1934 (the "34 Act") requires our officers and directors and persons owning more than ten (10%) percent of our Common Stock to file initial reports of ownership and changes in ownership with the Securities and Exchange Commission ("SEC"). Additionally, Item 405 of Regulation S-B under the 34 Act requires us to identify in our Form 10-K and proxy statement those individuals for whom one of the above referenced reports was not filed on a timely basis during the most recent fiscal year or prior fiscal years. Given these requirements, we have the following report to make under this section. None of our officers or directors, and all persons owning more than ten percent of its shares have filed the subject reports, if required, on a timely basis during the past fiscal year.

 

ITEM 11.  EXECUTIVE COMPENSATION

 

The following table sets forth information concerning the compensation for services in all capacities rendered to us for the year ended March 31, 2016, of our Chief Executive Officer and our other executive officers.  We did not have any corporate officers whose annual compensation exceeded $100,000 in the fiscal year ended March 31, 2016.

 

SUMMARY COMPENSATION TABLE

 

 

Name and

Principal

Position

 

 

 

Year

 

Salary

($)

 

Bonus

($)

 

Stock

Awards

($)

 

Option

Awards

($)

 

Non-Equity

Incentive Plan

Compensation

($)

 

Nonqualified

Deferred

Compensation

Earnings

($)

 

All Other

Compensation

($) (2)

 

Total

($)

Kent Rodriguez   2016   $48,000   $—     $—     $—     $—     $—     $40,000   $88,000(2)(1)
CEO and President   2015   $48,000   $—     $—     $—     $—     $—     $40,000   $88,000(2)(1)
    2014   $48,000   $—     $—     $—     $—     $—     $40,000   $88,000(2)(1)

 

(1)Mr. Rodriguez owns the 100 shares of Preferred Stock outstanding.  These shares pay an 8% dividend.  We paid Mr. Rodriguez $35,500 in 2016 and $65,000 in 2015.  The balance due Mr. Rodriguez as of March 31, 2016 is $37,450. 

 
(2)In 2016, Mr. Rodriguez was under an employment agreement dated April 1, 2014 that expired on March 31, 2016, pursuant to which he was compensated at an annual rate of 48,000. The Company extended the agreement for another year. During the fiscal year ending March 31, 2016, we paid Mr. Rodriguez $50,457, and accrued $49,202.  During the fiscal year ending March 31, 2015, we paid Mr. Rodriguez $44,500 and accrued $48,000, The balance due Mr. Rodriguez as of March 31, 2016 is $205,463.

 

 14 

 

 

Outstanding Equity Awards at Fiscal Year-End as of March 31, 2016

 

     Option Awards   Stock Awards
 Name  

Number of Securities Underlying Unexercised Options

(#)

Exercisable

   

Number of Securities Underlying Unexercised Options

(#)

Unexercisable

    

Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options

(#)

    

Option Exercise Price

($)

    Option Expiration Date  

Number of Shares or Units of Stock That Have Not Vested

(#)

   

Market Value of Shares or Units of Stock That Have Not Vested

($)

    

Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested

(#)

    

Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested

($)

 
 None   —     —      —      —      —     —     —      —      —   

 

 Director Compensation

 

Name 

Fees Earned

or Paid in

Cash

($)

 

Stock

Awards

($)

 

Option

Awards

($)

 

Non-Equity

Incentive Plan

Compensation

($)

 

Nonqualified

Deferred

Compensation

Earnings

($)

 

All Other

Compensation

($)

 

Total

($)

Kent Rodriguez  $—     $—     $—     $—     $—     $—     $—   
Jill Allison  $—     $4,000   $—     $—     $—     $—     $4,000 
Douglas Barton  $—     $4,000   $—     $—     $—     $—     $4,000 
Rene Häusler  $—     $4,000   $—     $—     $—     $—     $4,000 

 

EMPLOYMENT AGREEMENTS

 

The Company has an employment agreement with its President.  The employment agreement provides for salaries and benefits.  In addition to salary and benefits provisions, the agreement includes defined commitments should the employer terminate the employee with or without cause.

 15 

 

 

KENT RODRIGUEZ

 

In 2016, Mr. Rodriguez was under an employment agreement dated April 1, 2011 that expired on March 31, 2016, pursuant to which he was compensated at an annual rate of $48,000. We extended this agreement for another year.  During the fiscal year ended March 31, 2016, we paid Mr. Rodriguez $50,457, and accrued $48,000.  During the fiscal year ended March 31, 2015, we paid Mr. Rodriguez $44,500, and accrued $48,000. The balance due to Mr. Rodriguez as of March 31, 2016 is $205,462.

 

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth certain information regarding ownership of our Common Stock as of March 31, 2016 by (i) each person known by us to be the beneficial owner of more than five (5%) percent of our outstanding Common Stock; (ii) each director of our Company; and (iii) all executive officers and directors of our Company as a group. As of March 31, 2016, we had a total of 18,198,062 common shares issued and outstanding.

Name of Beneficial Owner  Amount of and Nature Beneficial ownership  % of Outstanding Common stock
Kent Rodriguez (1)          
310 Fourth Avenue South, Suite 7000          
Minneapolis, MN 55415   12,136,408    40.02%
Douglas Barton          
310 Fourth Avenue South, Suite 7000          
Minneapolis, MN 55415   160,667    0.88%
Jill Allison          
310 Fourth Avenue South, Suite 7000          
Minneapolis, MN 55415   160,000    0.88%
Rene Häusler (2)          
310 Fourth Avenue South, Suite 7000          
Minneapolis, MN 55415   293,665    1.61%
IP Technology Exchange, Inc. (3)          
3802 Spectrum Blvd, Suite 128E          
Tampa, FL 33612   1,920,000     10.55 
Recon Technology, Inc          
9 Fulin Road          
Bejing, 100107 China   2,800,000    15.39%
CEDE & Co.          
P.O. Box 222          
Bowling Green Station      
New York, NY 10274   4,974,172    27.33%

 

(1) Includes 12,132,041 shares of Common Stock issuable upon the conversion of 100 shares of Series A Preferred Stock.
(2)   Includes 46,501 shares owned by L’Avenir Finanz an affiliate of Mr. Häusler
(3)   These shares were cancelled in March 2018.    

 

 16 

 

 

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

 

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.

 

During the years ended March 31, 2016 and 2015, the Company incurred $40,000 in Class A preferred stock dividends, respectively.  As of March 31, 2016, there is $37,450 in accrued preferred stock dividends payable.

 

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.

 

On January 12, 2018, our Board of Directors agreed to amend Designation of the Series A Convertible Preferred Stock be amended by changing the ratio for conversion, in Article IV, subparagraph (a), from .4% to .51% so that upon conversion the number of shares of common stock to be exchanged shall equal 51% of then issued and outstanding common stock.

 

Employment Agreements

 

KENT RODRIGUEZ

 

In 2016, Mr. Rodriguez was under an employment agreement dated April 1, 2011 that expired on March 31, 2016, pursuant to which he was compensated at an annual rate of $48,000. We extended this agreement for another year.  During the fiscal year ended March 31, 2016, we paid Mr. Rodriguez $50,547, and accrued $49,202.  During the fiscal year ending March 31, 2015, we paid Mr. Rodriguez $44,500, and accrued $48,000. The balance due Mr. Rodriguez as of March 31, 2016 is $205,462.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

1. AUDIT FEES.

 

Our audit fees for the years ended March 31, 2016 and 2015 were as follows:

 

2016  2015
$32,500   $52,500 

 

 17 

 

 

2. TAX FEES.

 

Our tax return fees for the years ended March 31, 2016 and 2015 were as follows:

 

 2016    2015 
$—     $—   

 

3. ALL OTHER FEES.

 

 2016    2015 
$—     $—   

 

PART IV

 

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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*
10.6 Certificate of Designation AFS Series A Preferred Stock
10.7 Promissory Note between the Company and Carebourn Capital, LLC dated January 29, 2018 in the amount of $230,000
31.1 Certification
32.1 Certification

 

* Incorporated by reference to a previously filed exhibit or report.

 18 

 

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.

 

    Groove Botanicals, Inc.
     
Date: August 28, 2018 By: /s/ Kent Rodriguez
    Kent Rodriguez
    Chief Executive Officer, President, Secretary and Principal Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Company in the capacities and on the dates indicated.

 

Date: August 28, 2018 By: /s/ Kent Rodriguez
    Kent Rodriguez
    Chief Executive Officer, President, Secretary and Principal Financial Officer

Date: August 28, 2018 By: /s/ Jill Allison
    Jill Allison
    Director

Date: August 28, 2018 By: /s/ Douglas Barton
    Douglas Barton
    Director

Date: August 28, 2018 By: /s/ Rene Häusler
    Rene Häusler
    Director

 

 19 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Shareholders and Board of Directors of

Groove Botanicals Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Groove Botanicals Inc. (formerly known as Avalon Oil & Gas, Inc.) (the “Company”) as of March 31, 2016 and 2015, the related consolidated statements of operations, changes in equity and cash flows for each of the two years in the period ended March 31, 2016, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2016 and 2015, and the results of its operations and its cash flows for each of the two years in the period ended March 31, 2016, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

 

/s/ Bernstein & Pinchuk LLP  
Bernstein & Pinchuk LLP  
   
We have served as the Company’s auditor since 2007.  
   
New York, New York  
August 28, 2018  

 

 

 

 

 F-1 

 

 

Groove Botanicals, Inc.
Consolidated Balance Sheets
           
           
    

March 31,

2016

    

March 31,

2015

 
Assets          
Current Assets:          
Cash and cash equivalents  $108,220   $135,713 
Accounts receivable, net of allowance for doubtful accounts of $28,741 and $0   —      33,344 
Notes receivable   —      11,429 
Deposits and prepaid expenses   —      368,946 
Receivables from joint interests, net of allowance for doubtful accounts of $153,209 and $131,236   —      20,000 
Total current assets   108,220    569,432 
           
Property and equipment, net   13,592    18,125 
Unproven oil & gas properties   177,000    1,867,183 
Producing oil & gas properties, net   74,816    239,283 
Intellectual property rights, net   —      53,234 
Total Assets  $373,628   $2,747,257 
           

The accompanying notes are an integral part of these financial statements.

 

 F-2 

 

 

Groove Botanicals, Inc.
Consolidated Balance Sheets (Continued)
           
           
    

March 31,

2016

    

March 31,

2015

 
Liabilities and Equity          
Current Liabilities:          
Accounts payable and accrued liabilities   194,691    433,751 
Accrued payroll - related parties   205,462    211,317 
Dividends payable   205,488    32,950 
Accrued liabilities to joint interest   9,965    10,567 
Notes payable - related party   20,000    20,000 
Notes payable, net of discount   149,200    224,300 
Total current liabilities   784,806    932,885 
           
Accrued asset retirement obligation (ARO) liability   136,642    124,220 
Total Liabilities   921,448    1,057,105 
           
Commitments and contingencies          
           
Equity          
Preferred stock, Series A, $.10 par value, 1,000,000 shares authorized; 100 shares issued and outstanding stated at redemption value, as of March 31, 2016 and March 31, 2015, liquidation preference of $537,450 and 532,950 as of March 31, 2016 and 2015   10    10 
Preferred stock, Series B, $.10 par value, 2,000 shares authorized; 1,983 shares issued and 1,625 shares issued and outstanding stated at redemption value as of March 31, 2016 and March 31, 2015, liquidation preference of $1,983,000 and 1,625,000 as of March 31, 2016 and 2015   198    163 
Common stock, $.001 par value: 200,000,000 shares authorized 18,198,062 and 16,548,062 shares issued and outstanding at March 31, 2016 and March 31, 2015, respectively   18,198    16,548 
Additional paid in capital   32,993,499    32,572,304 
Accumulated deficit   (33,610,746)   (30,898,873)
Total Stockholders (Deficit) Equity   (598,841)   1,690,152 
Non-controlling interest   51,021    —   
Total (Deficit) Equity   (547,820)   1,690,152 
Total Liabilities and Equity  $373,628   $2,747,257 
           
The accompanying notes are an integral part of these financial statements.

 

 F-3 

 

 

Groove Botanicals, Inc.
Consolidated Statements of Operations
       
       
    For the year ended    For the year ended 
    

March 31,

2016

    

March 31,

2015

 
Oil & Gas Sales  $52,933   $110,371 
           
Operating expenses:          
Lease operating expense, severance taxes and ARO accretion   66,081    100,060 
Selling, general and administrative expenses   788,836    285,534 
Bad debt expense   58,741    —   
Impairment expense   1,839,941    —   
Stock based compensation   —      24,454 
Depreciation, depletion, and amortization   69,579    74,411 
Total operating expenses   2,823,178    484,459 
Operating loss   (2,770,245)   (374,088)
           
Other income (expense):          
Gain on settlement of debt   283,014    424,624 
Gain on conversion of dividends payable   —      82,779 
Other miscellaneous income   —      10,100 
Interest expense, net   (16,703)   (43,101)
Total other income   266,311    474,402 
Income (Loss) before income tax   (2,503,934)   100,314 
Provision for income taxes   —      —   
Net (loss) Income  $(2,503,934)  $100,314 
Less net loss attributable to noncontrolling interests   99    —   
Net income (loss) attributable to the Company  $(2,503,835)  $100,314 
Preferred stock dividends   (208,038)   (175,599)
Net income (loss) attributable to common shareholders  $(2,711,873)  $(75,285)
           
Net loss per share - basic & diluted   (0.154)   (0.006)
Weighted average shares outstanding - basic & diluted   17,620,117    12,722,363 
           

The accompanying notes are an integral part of these financial statements.  

 

 F-4 

 

 

Groove Botanicals, Inc.
Consolidated Statement of Cash Flows
       
       
    For the year ended    For the year ended 
    

March 31,

2016

    

March 31,

2015

 
Cash flows from operating activities:          
Net (loss) income  $(2,503,934)  $100,314 
Adjustments to reconcile net loss to net cash used in operating activities:          
Common stock issued for services   —      24,454 
Non-cash consulting services   433,946      
Provision for allowances for doubtful accounts   58,741      
(Gain) on extinguishment of debt   (283,014)   (424,624)
(Gain) on the reduction of dividends payable   —      (82,779)
Impairment of assets   1,839,941    —   
Stock issued for reduction of interest on notes payable   —      176,959 
Stock issued for licensing fees   —      15,000 
Depreciation, depletion, and amortization   69,579    74,411 
Depreciation and ARO liability   2,896    2,896 
Net change in operating assets and liabilities:          
Accounts receivable   4,603    20,882 
Accounts payable and other accrued expenses   21,753    (143,149)
Due to related party   (5,855)   (6,000)
Asset retirement obligation accretion   12,422    11,293 
Net cash (used) in operating activities   (348,922)   (230,343)
           
Cash flows from investing activities:          
Deposit on the purchase of additional assets   —      22,657 
Purchase of property and equipment   —      (22,657)
Acquisition of oil producing properties   —      (120,000)
Principle payments received on notes receivable   1,429    7,142 
Net cash provided by (used in) investing activities   1,429    (112,858)
           
Cash flows from financing activities:          
Proceeds from advances from related party   —      —   
Payments on notes payable   —      —   
Payments on notes payable   (10,000)   —   
Proceeds from notes payable   —      60,000 
Non-controlling interest stock sale   —      —   
Preferred stock B issued for cash   330,000    260,000 
Dividends paid on preferred stock   —      (65,000)
Net cash provided by financing activities   320,000    255,000 
           
The accompanying notes are an integral part of these financial statements.

 

 F-5 

 

 

Groove Botancials, Inc.
Consolidated Statement of Cash Flows (Continued)
 
       
    For the year ended    For the year ended 
    March 31, 2016    March 31, 2015 
Net decrease in cash and cash equivalents   (27,493)   (88,201)
           
Cash and cash equivalents at beginning of period   135,713    223,914 
           
Cash and cash equivalents at end of period   108,220   $135,713 
           
Supplemental disclosures of cash flow information:          
Cash paid during the period for:          
Interest  $—     $8,500 
Taxes  $—     $—   
Common stock issued in exchange for consulting services  $—     $99,000 
Common stock issued in exchange for licenses  $—     $15,000 
Common stock issued for the conversion of dividends payable  $—     $61,600 
Common stock issued for conversion of note payable, accrued interest, and assumption of debt  $28,000   $52,500 
Gain (Loss) on extinguishment of debt  $283,014   $424,624 
Preferred stock issued in exchange for consulting services  $—     $15,000 
Preferred stock issued for conversion of note payable, accrued interest, and assumption of debt  $25,000   $50,000 
           
The accompanying notes are an integral part of these financial statements.

 

 F-6 

 

 

GROOVE BOTANCALS, INC.
Consolidated Statements of Changes in Equity
 
                               
    Preferred Stock, Series A    Preferred Stock, Series B    Common Stock                     
    Shares    Amount    Shares    Amount    Shares    Amount    Additional Paid-in Capital    Retained Earnings    Non-Controlling Interest    Equity 
Balance at March 31, 2014   100   $10    1,300   $130    11,658,062   $11,658   $32,024,126   $(30,823,588)  $—     $1,212 
Preferred shares issued in exchange for notes payable             50    5              49,995              50,000 
Common stock issued for consulting services                       200,000    200    13,800              14,000 
Preferred stock issued for cash             260    26              259,975              260,001 
Preferred stock issued in exchange for consulting services             15    2              14,998              15,000 
Common stock issued for licenses                       300,000    300    14,700              15,000 
Common stock issued for consulting services                       1,700,000    1,700    83,300              85,000 
Common stock issued in exchange for notes payable                       1,150,000    1,150    51,350              52,500 
Common stock issued in exchange for dividends payable                       1,540,000    1,540    60,060              61,600 
Preferred Dividends                                      (175,599)        (175,599)
Net income   —                                    100,314        $100,314 
Balance at March 31, 2015   100   $10    1,625   $163    16,548,062   $16,548   $32,572,304   $(30,898,873)  $—     $1,690,152 
Preferred shares issued in exchange for notes payable             25    2              24,998              25,000 
Common stock issued for consulting services                                                  
Preferred stock issued for cash             280    28              279,972              280,000 
Preferred stock issued for cash (AFS Holdings, Inc.)                                 50,000              50,000 
Preferred stock issued in exchange for consulting services             53    5              52,995              53,000 
Common stock issued to pay accounts payable                       650,000    650    25,350              26,000 
Common stock issued for consulting services                       300,000    300    11,700              12,000 
Common stock issued in exchange for notes payable                       700,000    700    27,300              28,000 
Common stock issued in exchange for dividends payable                                                  
Non-controlling interest                                 (1,120)        1,120    —   
Preferred Dividends                                      (208,038)        (208,038)
Net loss   —                                    (2,503,835)   (99)  $(2,503,934)
Balance at March 31, 2016   100   $10    1,983   $198    18,198,062   $18,198   $32,993,499   $(33,610,746)  $51,021   $(547,820)
                                                   
The accompanying notes are an integral part of these financial statements.

 

 F-7 

 

 

GROOVE BOTANICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2016 AND 2015

 

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Operations

 

Groove Botanicals, Inc. (the "Company") (formally known as Avalon Oil & Gas, Inc.), 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.

 

On March 21, 2018 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 Groove Botanicals, Inc.  We filed an amendment to our Articles of Incorporation with the State of Nevada on May 18, 2018.

 

The Company is currently in the process of raising funds to manufacture and sell our CBD skincare products.  

 

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.

 

 F-8 

 

 

GROOVE BOTANICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2016 AND 2015

 

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.

 

Going Concern

 

The Company has minimal revenues from our remaining oil and gas assets. We are in need of additional cash resources to maintain our operations. As of March 31, 2016, the Company had a working capital deficit of $676,586, had incurred losses since inception of $33,610,746, and have not yet received any revenue from the sale our CBD skincare products. These factors raise substantial doubt about its ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent on its ability to raise additional capital or obtain necessary debt financing. The Company is presently dependent on its controlling shareholder to provide us funding for its daily operation and expenses, including professional fee and fees charged by regulators, although he is under no obligation to do so.

 

The Company intends to meet the cash requirements for the next 12 months from the issuance date of this report through a combination of debt and equity financing by way of private placements, friends, family and business associates. The Company currently did not have any arrangements in place to complete any private placement financings and there is no assurance that the Company will be successful in completing any such financings on terms that will be acceptable to it.

 

If we do not have sufficient working capital to pay our operating costs for the next 12 months, we will require additional funds to pay our legal, accounting and other fees associated with our Company and our filing obligations under United States federal securities laws, as well as to pay our other accounts payable generated in the ordinary course of our business. Once these costs are accounted for, we will focus on the following the manufacture and sale of our CBD skincare products.

 

Any failure to raise money will have the effect of delaying the timeframes in the business plan as set forth above, and the Company may have to push back the dates of such activities.

 

The financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred losses and further losses are anticipated as a result of the development of business which raises substantial doubt about the Company’s ability to continue as a going concern within the next twelve months from the issuance date of this report. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining financing necessary to meet the Company’s obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand and loans from directors and/or private placement of the Company’s common stock.

 

Our cash and cash equivalents were $108,220 on March 31, 2016, compared to $135,713 on March 31, 2015. We met our liquidity needs through the issuance of our common stock, preferred stock, and notes payable for cash and from 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 the sale of our CBD skincare products, 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 the sale of our CBD skin care products.

 

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.

 

 F-9 

 

 

GROOVE BOTANICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2016 AND 2015

 

Cash and Cash Equivalents

 

Cash and cash equivalents consist primarily of cash on deposit.  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 determined that the accounts receivable from the Joint Interest accounts were uncollectable for the year ended March 31, 2016.  

 

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. 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 year ended March 31, 2016 no acquisition costs were capitalized.  During the year ended March 31, 2015, we capitalized $120,000 for the purchase of the Kensington Energy Assets.  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. Under the full cost method of accounting, a ceiling test is performed on a quarterly basis. The full cost ceiling test is an impairment test prescribed by SEC Regulation S-X Rule 4-10. The ceiling test determines a limit on the book value of oil and natural gas properties. The capitalized costs of proved oil and natural gas properties, net of accumulated depletion in the Company’s Consolidated Balance Sheets, may not exceed the estimated future net cash flows from proved oil and natural gas reserves, excluding future cash outflows associated with settling asset retirement obligations that have been accrued in the Company’s Consolidated Balance Sheets, using the unweighted average first day of the month commodity sales prices for the previous twelve months (adjusted for quality and basis differentials), held constant for the life of production, discounted at 10%, plus the cost of unevaluated properties and major development projects excluded from the costs being amortized. If capitalized costs exceed this limit, the excess is charged to expense. As of March 31, 2016 and 2015, the Company impaired $128,462 in Proven Oil and Gas Properties and $1,690,183 in Unproved Oil and Gas Properties and - 0- respectively.

 

 F-10 

 

 

GROOVE BOTANICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2016 AND 2015

 

Property and Equipment

 

Other property and equipment is reviewed on an annual basis for impairment and as of March 31, 2016 the Company had not identified any such impairment.  Repairs and maintenance are charged to operations when incurred and improvements and renewals are capitalized.

 

Other property and equipment are stated at cost. Depreciation is calculated using the straight-line method for financial reporting purposes and accelerated methods for tax purposes.

 

Their estimated useful lives are as follows:

 

            Office Equipment:  5-7 Years

 

Asset Retirement Obligations

 

In accordance with the provisions of Financial Accounting Standards Board “FASB” Accounting Standard Codification “ASC” 410-20-15, “Accounting for Asset Retirement Obligations”, the Company records the fair value of its liability for asset retirement obligations in the period in which it is incurred and a corresponding increase in the carrying amount of the related long live assets. Over time, the liability is accreted to its present value at the end of each reporting period, and the capitalized cost is depreciated over the useful life of the related assets. Upon settlement of the liability, the Company will either settle the obligation for its recorded amount or incur a gain or loss upon settlement. The Company's asset retirement obligations relate to the plugging and abandonment of its oil properties.

 

Intellectual Property

 

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.

 

The Company impaired $21,292 for the year ended March 31, 2016.  There were not any impairment loss for the fiscal year ended March 31, 2015.  

 

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,   
  2017 and thereafter  $- 

 

 F-11 

 

 

GROOVE BOTANICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2016 AND 2015

 

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.

 

Loss per Common Share

 

ASC 260-10-45, “Earnings Per Share”, requires presentation of "basic" and "diluted" earnings per share on the face of the statements of operations for all entities with complex capital structures. Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted during the period. Dilutive securities having an anti-dilutive effect on diluted earnings per share are excluded from the calculation.  In addition, the Company had a net loss during current period so dilutive securities would decrease negative EPS and have an anti-dilutive effect.

 

Income Taxes

 

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial   statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

 

ASC 740-10-25, “Accounting for Uncertainty in Income Taxes”, is intended to clarify the accounting for uncertainty in income taxes recognized in a company's financial statements and prescribes the recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740-10-25 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.