GROOVE BOTANICALS INC. - FORM 10-K

Attached files

file	filename
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

☐ 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.

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

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.

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.

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 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.

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.

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.

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.

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.

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.

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.

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

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

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.

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.

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.

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.

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

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.

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

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.

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.

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.

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.

Under ASC 740-10-25, evaluation of a tax position is a two-step process. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.

F-12

GROOVE BOTANICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2016 AND 2015

Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met.

Revenue Recognition

In accordance with the requirements ASC topic 605 "Revenue Recognition", revenues are recognized at such time as (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the seller's price to the buyer is fixed or determinable and (4) collectability is reasonably assured. Specifically, oil and gas sales are recognized as income at such time as the oil and gas are delivered to a viable third party purchaser at an agreed price.

Recent Accounting Standards

In August 2014, the 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).

F-13

GROOVE BOTANICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2016 AND 2015

NOTE 2: RECEIVABLE FROM JOINT INTERESTS

The Company is the operator of certain wells acquired in the Expanded Bedford Agreement. Pursuant to a joint interest operating agreement (the “Joint Interest Agreement”), the Company charges the other owners of the Grace Wells for their pro-rata share of operating and workover expenses. These receivables are carried on the Company’s balance sheet as Receivable from Joint Interests. At March 31, 2016 and 2015, the amount of these receivables is $153,209 and $151,236, respectively. During the year ended March 31, 2016, the Company deemed the collectability of the receivable from joint interests in the amount of $153,209, as unlikely.

NOTE 3: DEPOSITS AND PREPAID EXPENSES

During the years ended March 31, 2016 and 2015 the Company has advanced $- 0- and $279,400 toward the purchase of properties.

We wrote off the $279,000 in deposits of $279,400 on March 31, 2016.

During the year ended March 31, 2015 the Company incurred prepaid consulting fees in the amount of $100,000 which was being amortized over 36 months. In November 2015 the Company incurred prepaid consulting fees to Rene Haeusler, a director of the company, in the amount of $50,000 which is being amortized over 48 months. Amortization through March 31, 2016 was $37,131.

We wrote off the remaining balance of our prepaid consulting fees in the on March 31, 2016.

	March 31, 2016			March 31, 2015
Deposits on wells	$	279,400		$	279,400
Prepaid consulting fees		150,000			100,000
		429,400			379,400

Less: Accumulated Amortization on Prepaid Consulting Fees		(37,131	)		(10,454	)
Less: Impairment of Well Deposits and Consulting Fees		(392,269	)		—
	$	0		$	368,946

NOTE 4: PROPERTY AND EQUIPMENT

A summary of property and equipment at March 31, 2016 and 2015 is as follows:

	March 31, 2016			March 31, 2015
Office Equipment	$	41,778		$	41,778
Vehicles		22,657			22,657
		64,435			64,435
Less: Accumulated depreciation		(50,843	)		(46,310	)
Total	$	13,592		$	18,125

Depreciation expense for the years ended March 31, 2016 and 2015 was $4,533 and $4,532 respectively.

F-14

GROOVE BOTANICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2016 AND 2015

NOTE 5: INTELLECTUAL PROPERTY RIGHTS

A summary of the intellectual property rights at March 31, 2016 and 2015, are as follows:

	March 31, 2016			March 31, 2015
Intelli-well	$	425,850		$	425,850
Less: accumulated amortization		(404,558	)		(372,616	)
Less: impairment		(21,292	)		—
Total	$	-0-		$	53,234

Amortization expense for the years ended March 31, 2016 and 2015 was $31,938 and $42,851.

We impaired the remaining $21,292 for the year ended March 31, 2016.

F-15

GROOVE BOTANICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2016 AND 2015

NOTE 6: OIL AND GAS PROPERTY ACTIVITY

Producing oil and gas properties consist of the following:

	March 31, 2016			March 31, 2015
Lincoln County, Oklahoma	$	111,402		$	111,402
Lipscomb County, Texas		250,082			250,082
Miller County, Arkansas		139,909			139,909
Ward Petroleum Assets		290,500			290,500
Kensington Energy Assets		120,000			120,000
Other Properties		325,185			325,185
Total Properties		1,237,078			1,237,078

Asset retirement cost, net		34,780			37,676
Property impairments		(609,534	)		(481,072	)
Less: Depletion		(587,508	)		(554,399	)
Net	$	74,816		$	239,283

For the year ended March 31, 2016 and 2015, depletion per Bbl was $6.85 and $6.85 respectively.

F-16

GROOVE BOTANICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2016 AND 2015

NOTE 7: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consisted of the following:

	March 31, 2016		March 31, 2015
Accounts payable	$	130,747	$	371,721
Accrued interest		63,944		62,030
Total	$	194,691	$	433,751

NOTE 8: NOTES PAYABLE

	March 31, 2016		March 31, 2015
On May 8, 2006, the Company entered into a convertible note payable agreement with a shareholder in the amount of $100,000. The note carries an interest rate of 10% per annum and matures of November 8, 2006. The note holder has the right to convert the note and accrued interest at a rate of $0.01 per share. The value of this conversion feature was treated as a loan discount for the full $100,000 of the loan and was amortized to interest expense over the life of the loan. During the year ended March 31, 2016, the Company issued 700,000 shares of common stock for the conversion of $100 of principal. Interest in the amount of $175 and $180 was accrued on this note during the year ended March 31, 2016 and 2015, respectively. The maturity of this note has been extended until April 1, 2018. The outstanding principal balance and all outstanding interest was converted into 500,000 shares on June 15, 2018.	$	1,700	$	1,800
On November 11, 2008, the Company issued a convertible promissory note to an investor in the amount of $50,000. The current balance of the note is $30,000. The note carries an interest rate of 10% per annum and a maturity date of October 1, 2009. The note holder has the right to convert the note and accrued interest into shares of the Company’s common stock at a rate of $3.00 per share. The discount is being amortized to interest expense over the life of the note via the effective interest method. Interest in the amount of $3,000 and $3,000 was accrued on this note during the year ended March 31, 2015 and 2014, respectively. Accrued interest was $17,884 and $14,877 respectively at March 31, 2016 and 2015. This remaining balance of $30,000 on this promissory note and the promissory note issued in the amount of $50,000 on January 27, 2009 and accrued interest, was settled on March 9, 2018 for $2,500 plus the issuance of 600,000 shares of Common Stock		30,000		30,000
On January 27, 2009, the Company issued a promissory note to an investor in the amount of $50,000. The note carries an interest rate of 10% per annum and matures on December 15, 2009. In addition to the note payable, the Company issued 1,000,000 shares of common stock to the note holder. The shares are considered a discount to the note payable. The shares are value using the closing market price on the date the note was signed and have a value of $25,000. The discount will be amortized over the life of the note via the effective interest method. Accrued interest was $35,877 and $30,863 at March 31, 2016 and 2015 respectively. This note and the promissory note issued in the amount of $50,000 on November 11, 2008, with a remaining balance of $30,000 plus accrued interest was settled on March 9, 2018 for $2,500 plus the issuance of 600,000 shares of Common Stock.		50,000		50,000
On November 28, 2006, Oiltek, of which the Company has a majority interest in, issued a convertible note payable in the amount of $2,500. This note bears interest at a rate of 8% per annum and matures on October 1, 2007. The principal amount of the note and accrued interest are convertible into shares of the Company’s common stock at a price of $0.01 per share. A beneficial conversion feature in the amount of $2,500 was recorded as a discount to the note and was amortized to interest expense during the period ended December 31, 2006. Interest in the amount of $200 and $200 was accrued on this note during the twelve months ended March 31, 2016 and 2015, respectively. The maturity date of this note has been extended until Apri1 1, 2018. The outstanding principal balance and all accrued interest was converted into 950,000 shares on April 19, 2018.		2,500		2,500
On November 28, 2006, Oiltek, of which the Company has a majority interest in, issued a convertible note payable in the amount of $5,000. This note bears interest at a rate of 8% per annum and matured on October 1, 2007. The principal amount of the note and accrued interest are convertible into shares of the Company’s common stock at a price of $0.01 per share. A beneficial conversion feature in the amount of $5,000 was recorded as a discount to the note and was amortized to interest expense during the period ended December 31, 2006. Interest in the amount of $400 and $400 was accrued on this note during the twelve months ended March 31, 2016 and 2015, respectively. The maturity date of this note has been extended until Apri1 1, 2018. The outstanding principal balance and all accrued interest was converted into 400,000 shares on April 19, 2018.		5,000		5,000
On September 29, 2014, the Company issued two promissory notes note payable in the total amount of $60,000. These notes bear interest at a rate of 5% per annum, matured on January 1, 2014, and were extended until December 1, 2016. Accrued interest as of March 31, 2015 and March 31, 2016 was $1,504 and 4,512. The principal and accrued interest on these notes were settled in March 2018 for $5,000.		60,000		60,000
On January 1, 2011 the Company issued a promissory note payable in the amount of $250,000. This note bears interest at a rate of 8% per annum and matured on January 1, 2014, and were extended until April 1, 2015. The principal amount of the note and accrued interest are convertible into shares of the Company’s common stock at a price of $0.01 per share. A beneficial conversion feature in the amount of $95,000 was recorded as a discount to the note and is being amortized to interest expense. A discount of $-0- and $94,050 was deducted for the years ended March 31, 2015 and 2014 respectively. Interest in the amount of $4,010 and $17,945 was accrued on this note during the twelve months ended March 31, 2015 and 2014, respectively. Accrued interest was $5,858 and $1,847 at March 31, 2015. During the year ended March 31, 2016, we settled $50,000 of this note plus accrued interest for $10,000 and issued 25 shares of our Series B Preferred Stock for the remaining $25,000 plus accrued interest		0		75,000
Total outstanding	$	149,200	$	224,300

F-17

GROOVE BOTANICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2016 AND 2015

	Note		Unamortized		Net of
March 31, 2016:	Amount		Discounts		Discount
Notes payable – long-term portion	$	—	$	—	$	—
Notes payable – current portion		149,200		—		149,200
Total	$	149,200	$	—	$	149,200

	Note		Unamortized		Net of
March 31, 2015:	Amount		Discounts		Discount
Notes payable – long-term portion	$	224,300	$	—	$	224,300
Notes payable – current portion		—		—		—
Total	$	224,300	$	—	$	224,300

Minimum future principal payments under the note payable are due as follows during the year ended March 31:

2017

149,200

F-18

GROOVE BOTANICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2016 AND 2015

NOTE 9: RELATED PARTY TRANSACTIONS

During the fiscal year ended March 31, 2016 and 2015, the president advanced the Company $0 and $0, respectively. The balance as of March 31, 2016 and 2015 were $20,000 and $20,000, respectively.

Preferred Stock

The 100 shares of Series A Preferred Stock were issued on June 3, 2002 as payment for $500,000 in promissory notes, are convertible into the number of shares of common stock sufficient to represent forty percent (40%) of the fully diluted shares outstanding after their issuance The holder of these shares of Series A Preferred Stock is our President, Kent Rodriguez. The Series A Preferred Stock pays an eight percent (8%) dividend. The dividends are cumulative and payable quarterly. The Series A Preferred Stock carries liquidating preference, over all other classes of stock, equal to the amount paid for the stock plus any unpaid dividends. The Series A Preferred Stock provides for voting rights on an "as converted to common stock" basis.

During the years ended March 31, 2016 and 2015, the Company incurred $40,000 in Class A preferred stock dividends.

Employment Agreements

KENT RODRIGUEZ

During the years ended March 31, 2016 and 2015, the Company charged to operations the amount of $49,202 and $48,000 in annual salary for Mr. Rodriguez, of which $50,457 and $49,202 was paid to him during the years ended March 31, 2016 and 2015, respectively. As of March 31, 2016 and 2015, the balances of accrued and unpaid salaries were $205,462 and $211,317.

In March, 2013, our Board of Directors authorized the issuance of 2,000 shares of Series B Preferred Stock, par value $0.10 per share (the "Series B Preferred Stock"). The face amount of share of the Series B Preferred Stock is $1,000. As of March 31, 2016 and 2015, the Company has 1,983 and 1,625 shares of Series B preferred stock respectively issued and outstanding. The liquidation preference as of March 31, 2016 and 2015 was $1,983,000 and $1,625,000 or $1,000.00 per share.

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

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

In November 2015 we issued 50 shares Series B Preferred Stock for consulting services to Rene Haeusler, a director of the Company, for $50,000. As of March 31, 2016, the balances of related party was $0. For details, please refer to Note 3.

NOTE 10: INCOME TAXES

Deferred income taxes result from the temporary difference arising from the use of accelerated depreciation methods for income tax purposes and the straight-line method for financial statement purposes, and an accumulation of Net Operating Loss carryforwards for income tax purposes with a valuation allowance against the carryforwards for book purposes.

F-19

GROOVE BOTANICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2016 AND 2015

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Included in deferred tax assets are Federal and State net operating loss carryforwards of $31,770,841 which will expire beginning in 2029. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon our cumulative losses through March 31, 2016, we have provided a valuation allowance reducing the net realizable benefits of these deductible differences to $0 at March 31, 2016. The amount of the deferred tax asset considered realizable could change in the near term if projected future taxable income is realized. Due to significant changes in the Company's ownership, the Company's future use of its existing net operating losses may be limited.

A reconciliation between the actual income tax expense and income taxes computed by applying the statutory Federal and state income tax rates to income from continuing operations before income taxes is as follows:

Twelve Months

Ended

March 31,

2016

Twelve Months

Ended

March 31,

2015

Computed “expected” income tax benefit at approximately 34%

(10,802,086

)

(10,471,510

)

Change in valuation allowance

10,802,086

10,471,510

NOTE 11: STOCKHOLDERS’ EQUITY

Preferred Stock

Series A Preferred Stock

The Company is authorized to issue 1,000,000 shares of preferred stock, par value $0.10 per share. As of March 31, 2016 and 2015, the Company has 100 shares of Series A preferred stock issued and outstanding.

During the twelve months ended March 31, 2016 and 2015, the Company incurred $40,000 respectively in Series A preferred stock dividends, and paid $35,500 and $49,000 for the twelve months ended March 31, 2016 and 2015 respectively. As of March 31, 2016 and 2015, the accrued balance due Mr. Rodriguez was $37,450 and $32,950 respectively. The liquidation preference as of March 31, 2016 and March 31, 2015 was $537,450 or $5,374.5 per share and $532,950 or $5,329.5 per share.

The 100 shares of Series A Preferred Stock, issued to Mr. Rodriguez as payment for $500,000 in promissory notes, are convertible into the number of shares of common stock sufficient to represent 40 percent (40%) of the fully diluted shares outstanding after their issuance. The Series A Preferred Stock pays an eight percent (8%) dividend. The dividends are cumulative and payable quarterly. The Series A Preferred Stock carries liquidating preference, over all other classes of stock, equal to the amount paid for the stock plus any unpaid dividends. The Series A Preferred Stock provides for voting rights on an "as converted to common stock" basis.

The holders of the Series A Preferred Stock have the right to convert the preferred stock into shares of common stock such that if converted simultaneously, they shall represent fifty-one percent (51%) of the fully diluted shares outstanding after their issuance. Fully diluted shares outstanding is computed as the sum of the number of shares of common stock outstanding plus the number of shares of common stock issuable upon exercise, conversion or exchange of outstanding options, warrants, or convertible securities.

F-20

GROOVE BOTANICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2016 AND 2015

Series B Preferred Stock

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.

Series B Preferred Stock Issuances during the year ended March 31, 2016:

In June 2015 we exchanged 25 shares Series B Preferred Stock for $25,000 of notes payable.

In June 2015 we issued 100 Shares of Series B Preferred Stock to an accredited investor for $100,000.

In September 2015 we issued 75 Shares of Series B Preferred Stock to an accredited investor for $75,000.

In November 2015 we issued 50 shares Series B Preferred Stock for consulting services for $50,000.

In December 2015 we issued 85 Shares of Series B Preferred Stock to an accredited investor for $85,000.

In March 2016 we issued 23 Shares of Series B Preferred Stock to an accredited investor for $23,000.

In March 2018 we issued 2,015000 Shares of Common Stock for all accrued interest as of March 31, 2018, on the outstanding 1,625 shares of our Series B Preferred Stock.

During the twelve months ended March 31, 2016 and 2015, the Company incurred $165,038 and $135,599 in dividends on Series B preferred stock.

Total dividends payable from both A and B preferred shares at March 31, 2016 and 2015 is $205,488 and $32,950 respectively.

AFS Holdings, Inc. Series A Preferred Stock

There are currently 50 shares of AFS Series A Preferred Stock outstanding. As of March 31, 2016, the liquidation preference is $53,000 or $1,060 per share. Accrued interest as of March 31, 2016 is $3,000.

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

AFS Series A Preferred Stock Issuances during the year ended March 31, 2016:

On October 13, 2015 we issued 50 shares of AFS Series A Preferred Stock to an unaffiliated accredited investor for $50,000.

F-21

GROOVE BOTANICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2016 AND 2015

Common Stock

The Company has authorized 200,000,000 shares of common stock with a par value of $0.001 per share. As of March 31, 2016 and 2015, the Company has 18,198,062 and 16,548,062 shares of common stock issued and outstanding.

Common stock issuances during the year ended March 31, 2015:

On April 25, 2014, the Company issued 200,000 shares of common stock to a consultant, the value of these shares in the amount of $14,000, or $0.07 per share was charged to operations, and was valued at closing bid price of the Company's common stock on the date the Consulting Agreement was executed by the Company.

On December 1, 2014, the Company issued 300,000 shares of common stock for a technology licensing agreement dated December 1, 2014, the value of these shares in the amount of $15,000, or $0.05 per share was charged to operations, and was valued at the middle of the closing bid price and the closing offering price of the Company's common stock on the date the Consulting Agreement was executed by the Company

On December 15, 2015, the Company issued 650,000 shares of common stock in exchange for a $150,000 promissory note payable and $90,000 of accrued interest. The value of these shares in the amount of $32,500, or $0.05 per share and was valued at closing bid price of the Company's common stock on the date the Agreement was executed by the Company. $207,500 was treated as a gain from this transaction.

On December 26, 2014, the Company issued 1,700,000 shares of common to a consultant, the value of these shares in the amount of $85,000, or $0.05 per share was charged to operations, and was valued at the middle of the closing bid price and the closing offering price of the Company's common stock on the date the Consulting Agreement was executed by the Company.

On March 25, 2015, the Company issued 1,540,000 shares of common stock to the holders of Series B Preferred Stock to pay all accrued interest as of March 31, 2015. The value of these shares in the amount of $61,600, or $.04 per share.

On March 27, 2015, the Company issued 500,000 shares of common stock along with $6,000, in exchange for a $150,000 promissory note payable and $90,000 of accrued interest. The value of these shares in the amount of $20,000 or $0.04 per share, and were valued at closing bid price of the Company's common stock on the date the Agreement was executed by the Company, $215,000 was treated as a gain from this transaction.

Common stock issuances during the year ended March 31, 2016:

On April 2, 2015 we issued 300,000 shares of our Common Stock to our directors for their services. The shares were valued at $12,000 or $0.04 per share and were valued based on the midpoint between the closing bid and offer price of the Company's common stock on the date the shares were issued.

On June 25, 2015, the company issued 650,000 shares of Common Stock, paid $5,000 in cash and issued a $5,000 promissory note for settlement of an account payable of $280,972.06. The shares were valued at $26,000 or $0.04 per share. The value of the shares was based on the closing bid price of the Company's common stock on the date the Agreement was executed by the Company. $244,972 was treated as a gain from this transaction.

On November 9, 2015, the Company issued 700,000 shares of common stock for the conversion of a note payable and assumption of debt. The fair market value of these shares was $28,000 or $0.04 per share which was based on the current market value on the date of issuance. $100 has been credited to the note payable, $830 to interest payable, and a loss of $27,070 was recognized on this conversion, and was charged to operations.

Options

There are no stock options outstanding.

F-22

GROOVE BOTANICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2016 AND 2015

Warrants

None

NOTE 12: TECHNOLOGY LICENSE AGREEMENTS

On December 1, 2014, the Company entered into an exclusive license agreement for anti-corrosion technology from Ronald Knight in exchange for three hundred thousand (300,000) shares of our common stock. This license calls for an earned royalty of three percent (3.00%) on sales of licensed products and services as they may relate to corrosion prevention and maintenance of sump pumps at gasoline and diesel dispensing locations, including, but not limited to gas stations, convenience stores, trucking companies, bus companies, and any other locations where gasoline and/or diesel is dispensed. We did not have any revenue for the period ended March 31, 2015. The Company terminated this agreement on August 7, 2017

F-23

GROOVE BOTANICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2016 AND 2015

NOTE 13: LOSS PER SHARE

ASC 260-10-45 requires a reconciliation of the numerator and denominator of the basic and diluted earnings per share (EPS) computations. We compute basic EPS by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. The calculation of income (loss) available to common stockholders and EPS is based on the underlying premise that all income after payment of dividends on preferred shares is available to and will be distributed to the common stockholders. As the Company is in a loss position during the year ended March 31, 2016 and 2015, there is no dilutive effect included. The net loss per share was $0.154 and $0.006 for March 31, 2016 and 2015.

NOTE 14: COMMITMENTS AND CONTINGENCIES

Commitments and contingencies through the date of these financial statements were issued have been considered by the Company and none were noted which were required to be disclosed.

NOTE 15: ASC 932-235-55 SUPPLEMENTAL DISCLOSURES

Net Capitalized Costs

The Company's aggregate capitalized costs related to natural gas and oil producing activities are summarized as follows:

	March 31, 2016			March 31, 2015
Natural gas and oil properties and related equipment:
Proven	$	1,271,858		$	1,274,754
Unproven		1,867,183			1,867,183
Accumulated depreciation, depletion, and impairment		(2,887,225	)		(1,035,471	)
Net capitalized costs	$	251,816		$	2,016,466

Costs Incurred

Costs incurred in natural gas and oil property acquisition, exploration and development activities that have been capitalized are summarized as follows:

	March 31, 2016		March 31, 2015
Acquisition of properties	$	—	$	120,000
Development costs		—		-0-
Total costs incurred	$	—	$	120,000

F-24

GROOVE BOTANICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2016 AND 2015

Results of Operations for Natural Gas and Oil Producing Activities

The Company's results of operations from natural gas and oil producing activities are presented below for the fiscal years ended March 31, 2016 and 2015. The following table includes revenues and expenses associated directly with the Company's natural gas and oil producing activities. It does not include any interest costs and general and administrative costs and, therefore, is not necessarily indicative of the contribution to consolidated net operating results of the Company's natural gas and oil operations.

	March 31, 2016			March 31, 2015
Production revenues	$	52,933		$	110,371
Production costs		(66,081	)		(100,060	)
Depreciation and depletion expense		(69,579	)		(74,411	)
	$	(82,727	)	$	(64,100	)
Imputed income tax provision (1)		—			—
Results of operation for natural gas / oil producing activity		$(82, 727)		$	(64,100	)

(1) 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. For the year ended March 31, 2015, four customers, Scissortail Energy, KROG Partners, Rockwell Energy and Swift Energy, individually accounted for 33%, 14%, 11% and 11% 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 and 2015.

(2) The imputed income tax provision is hypothetical (at the statutory rate) and determined without regard to the Company's deduction for general and administrative expenses, interest costs and other income tax credits and deductions, nor whether the hypothetical tax provision will be payable.

F-25

GROOVE BOTANICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2016 AND 2015

Natural Gas and Oil Reserve Quantities

The following schedule contains estimates of proved natural gas and oil reserves attributable to the Company. Proved reserves are estimated quantities of natural gas and oil that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those which are expected to be recovered through existing wells with existing equipment and operating methods. Reserves are stated in thousand cubic feet (mcf) of natural gas and barrels (bbl) of oil. Geological and engineering estimates of proved natural gas and oil reserves at one point in time are highly interpretive, inherently imprecise and subject to ongoing revisions that may be substantial in amount. Although every reasonable effort is made to ensure that the reserve estimates are accurate, due to their nature reserve estimates are generally less precise than other estimates presented in connection with financial statement disclosures.

	Oil - bbls
Proved reserves:
Balance as of March 31, 2014		6,883
Production		(567	)
Purchase of reserves-in-place		3,414
Technical Revision		338
Economic Revision		(80	)
Balance as of March 31, 2015		9,988
Production		(1,136	)
Purchase of reserves-in-place		—
Technical Revisions		(1,039	)
Economic Revision		(3,616	)
Balance as of March 31, 2016		5,275

	Gas - mcf
Proved reserves:
Balance as of March 31, 2014		133,136
Production		(9,470	)
Purchase of reserves-in-place		8,071
Technical Revision		17,957
Economic Revision		—
Balance as of March 31, 2015		149,694
Production		(15,744	)
Purchase of reserves-in-place		—
Technical Revisions		4,270
Economic Revision		(29,387	)
Balance as of March 31, 2016		108,833

F-26

GROOVE BOTANICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2016 AND 2015

Standardized Measure of Discounted Future Net Cash Flows

The following schedule presents the standardized measure of estimated discounted future net cash flows from the Company's proved reserves for the fiscal years ended March 31, 2016 and 2015. Estimated future cash flows are based on independent reserve data. Because the standardized measure of future net cash flows was prepared using the prevailing economic conditions existing at March 31, 2016 and 2015, it should be emphasized that such conditions continually change. Accordingly, such information should not serve as a basis in making any judgment on the potential value of the Company's recoverable reserves or in estimating future results of operations.

	March 31, 2016			March 31, 2015
Future production revenue	$	428,105		$	1,317,165
Future production costs		(317,887	)		(675,670	)
Future development costs		—			—
Future cash flows before income taxes		110,218			641,495
Future income tax		—			—
Future net cash flows		110,218			641,495
Effect of discounting future annual cash flows at 10%		(35,402			(253,043	)
Standard measure of discounted net cash flows	$	74,816		$	388,452

(1) The weighted average oil wellhead price used in computing the Company's reserves were $42.10 per bbl and $80.60 per bbl at March 31, 2016 and 2015, respectively. The weighted average gas wellhead price used in computing the Company's reserves were $1.824 and $3.34/mmbtu at March 31, 2016 and 2015, respectively. The oil and gas pricing were calculated using the arithmetic average of the price on the first day of each month that was received for each property during the previous fiscal year. These prices were held constant throughout the economic life of the properties. Previous year run checks were used to determine the actual prices received.

The following schedule contains a comparison of the standardized measure of discounted future net cash flows to the net carrying value of proved natural gas and oil properties at March 31, 2016 and 2015:

	March 31, 2016		March 31, 2015
Standardized measure of discount future net cash flows	$	74,816	$	388,452
Proved natural oil and gas property, net of accumulated depreciation, depletion, and amortization, including impairment		74,816		239,283
Standardized measure of discount future net cash flows in excess of net carrying value of proved natural oil and gas properties	$	—	$	149,169

F-27

GROOVE BOTANICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2016 AND 2015

NOTE 16: SUBSEQUENT EVENTS

The Company has reviewed the subsequent event through the date of this report. Below are our subsequent events:

On January 29, 2018 the Company executed a Promissory Note between the Company and Carebourn Capital, LLC in the amount of $230,000.

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. 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.

F-28

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