UNITED
STATES

SECURITIES
AND EXCHANGE COMMISSION

Washington,
D.C. 20549





FORM
10-K/A

Amendment
#4







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



For
the year ended March 31, 2014



Or



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



For
the transition period from ___________ to ___________



Commission
File Number: 1-12850



AVALON
OIL & GAS, INC.

(Exact
Name of Small Business Issuer as specified in its charter)



|Nevada                                                             |  | 84-1168832                          
|------------------------------------------------------------------ |  | ------------------------------------
|(State or other jurisdiction of incorporation
    or organization) |  | (I.R.S. employer identification no.)





|310
    Fourth Avenue South, Suite 7000                    
|-----------------------------------------------------------
|Minneapolis,
    MN 55415                                  
|(Address
        of principal executive offices) (Zip Code)
|Registrant's
    telephone number, including area code:    
|(952)
    746-9652                                         



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 ☒



11,858,062 shares
of our common stock were issued and outstanding as of September 19, 2014.



Amendment
Description



This Amendment
is being filed to correct the financial information in Amendment #3 that was inadvertently filed by the Company on October 22,
2014







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TABLE
OF CONTENTS



|           |                                                                                                                       | Page
|---------- | --------------------------------------------------------------------------------------------------------------------- | ----
|PART I     |                                                                                                                       |     
|Item 1.    | Business                                                                                                              | 3   
|Item 1A.   | Risk Factors                                                                                                          | 6   
|Item 2.    | Properties                                                                                                            | 7   
|Item 3.    | Legal Proceedings                                                                                                     | 8   
|Item 4.    | (Removed and Reserved)                                                                                                | 8   
|           |                                                                                                                       |     
|PART II    |                                                                                                                       |     
|Item 5.    | Market for Common Equity and Related Stockholder Matters and Small
    Business Issuer Purchases of Equity Securities | 8   
|Item 6.    | Selected Financial Data                                                                                               | 10  
|Item 7.    | Management’s Discussion and Analysis of Financial Condition
    and Results of Operations                             | 10  
|Item 8.    | Consolidated Financial Statements                                                                                     | 13  
|Item 9.    | Changes and Disagreements With Accountants on Accounting and Financial
    Disclosures                                | 13  
|Item 9A.   | Controls and Procedures                                                                                               | 13  
|Item 9B .  | Other Information                                                                                                     | 14  
|           |                                                                                                                       |     
|PART III   |                                                                                                                       |     
|Item 10.   | Directors, Executive Officers, Promoters, Control Persons and Corporate
    Governance                                | 14  
|Item 11.   | Executive Compensation                                                                                                | 16  
|Item 12.   | Security Ownership of Certain Beneficial Owners and Management
    and Related Stockholder Matters                    | 18  
|Item 13.   | Certain Relationships and Related Transactions, and Director Independence                                             | 19  
|Item 14.   | Principal Accountant Fees and Services                                                                                | 19  
|Item 15.   | Exhibits and Financial Statement Schedules                                                                            | 20  
|           |                                                                                                                       |     
|SIGNATURES | 21                                                                                                                   







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PART
I



References
in this document to "us," "we," the "Registrant," or the "Company" refer to 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



Business
Development



Avalon
Oil & Gas, Inc. (the "Company") was originally incorporated in Colorado in April 1991 under the name Snow Runner
(USA), Inc. The Company was the general partner of Snow Runner (USA) Ltd.; a Colorado limited partnership to sell proprietary
snow skates under the name "Sled Dogs" which was dissolved in August 1992. In late 1993, the Company relocated its operations
to Minnesota and in January 1994 changed our name to Snow Runner, Inc. In November 1994 we changed our name to the Sled Dogs Company.
On November 5, 1997, we filed for protection under Chapter 11 of the U.S. Bankruptcy Code. In September 1998, we emerged from
protection of Chapter 11 of the U.S. Bankruptcy Code. In May, 1999, we changed our state of domicile to Nevada and our name to
XDOGS.COM, Inc. On July 22, 2005, the Board of Directors and a majority of the Company's shareholders approved an amendment to
our Articles of Incorporation to change the Company's name to Avalon Oil & Gas, Inc., and to increase the authorized number
of shares of our common stock from 200,000,000 shares to 1,000,000,000 shares par value of $0.001, and engage in the acquisition
of producing oil and gas properties. On November 16, 2011, a majority of the Company's shareholders approved an amendment to our
Articles of Incorporation to increase the authorized number of shares of our common stock from 1,000,000,000 shares to 3,000,000,000
shares par value of $0.001.  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.



Acquisition
Strategy



Our
strategy is to acquire oil and gas producing properties that have proven reserves and established in-field drilling locations
with a combination of cash, debt, and equity. We believe that acquisition of such properties minimizes our risk, allows us to
generate immediate cash flow, and provides in-field drilling locations to expand production within the proven oil and gas fields.
We will aggressively develop these low cost/low risk properties in order to enhance shareholder value. In addition, Avalon's technology
group acquires oil production enhancing technologies.





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



During
the year ended March 31, 2013, we advanced $160,000 for the purchase of oil and gas producing properties in Western Oklahoma,
pending the completion of due diligence by the Company, if the Seller is not able to deliver clear title to these properties these
funds will be returned to us.



On
July 1, 2013, the Company acquired a fifty percent (50%) working interest in the Moody and West Lease, Duval County, Texas.



On
October 10, 2013, the Company entered into a Technology Scouting Agreement with IP Technology Exchange, Inc. ("IP TechEx"),
to identify potential technology acquisition and licensing opportunities.  Our alliance with IP TechEx will enable us
to develop a portfolio of new technologies within the oil and gas industry.



On
March 19, 2014, the Company formed Weyer Partners, LLC, a one hundred percent (100%) wholly owned a Minnesota Corporation. Weyer
Partners, LLC, was formed to operate oil and gas properties in Oklahoma and Texas.



We
plan to raise additional capital during the coming fiscal year, but currently have not identified additional funding sources.
Our ability to continue operations is highly dependent upon our ability to obtain additional financing, or generate revenues from
our acquired oil and gas leasehold interests, none of which can be guaranteed.



Ultimately,
our success is dependent upon our ability to generate revenues from our acquired oil and gas leasehold interests, and to achieve
profitability, which is dependent upon a number of factors, including general economic conditions and the sustained profitability
resulting from the operation of the acquired oil and gas leaseholds. There is no assurance that even with adequate financing or
combined operations, we will generate revenues and be profitable.



PATENTS,
TRADEMARKS, AND PROPRIETARY RIGHTS



On
May 17, 2006, The Company signed a strategic alliance agreement with Innovaro Corporation, a technology transfer company to develop
a portfolio of new technologies for the oil and gas industry.





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On
November 9, 2006, The Company acquired Intelli-Well Technologies, Inc., ("IWT"). IWT holds a license for borehole casing
technology developed by researchers at Lawrence Livermore National Laboratory.



On
March 29, 2007, The Company acquired Leak Location Technologies, Inc., ("LLT"). LLT owns an exclusive license to a system
for determining the presence and location of leaks in underground pipes.



On
May 17, 2007, The Company renewed its strategic alliance agreement with Innovaro Corporation, a technology transfer company to
develop a portfolio of new technologies for the oil and gas industry.



On
August 16, 2007, Kent Rodriguez, the Company's President and CEO, presented a proposal to the Board of Directors to spin-off Oiltek
Inc. ("Oiltek"), which specializes in oil and gas recovery technology to Avalon's shareholders. The oil and gas technology
include, but are not limited, to the Patent; a system to detect hazardous gas leaks including small leaks in natural gas pipelines;
and a system for intelligent drilling and completion sensors to provide real-time oil reservoir monitoring of subsurface information.



On
September 22, 2007 the Company entered into an agreement with respect to its purchase of a 75.6% interest in Oiltek for $50,000
and the right of Oiltek to promote Avalon's intellectual property.



On
October 10, 2013, the Company entered into a Technology Scouting Agreement with IP Technology Exchange, Inc. ("IP TechEx"),
to identify potential technology acquisition and licensing opportunities.  Our alliance with IP TechEx will enable us
to develop a portfolio of new technologies within the oil and gas industry.



ENVIRONMENTAL
MATTERS



During
the last three fiscal years, 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



As
of March 31, 2014 we had two full time employees, our President, Kent Rodriguez and an 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. We also have three part time employees at this time.





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RESEARCH
AND DEVELOPMENT



During
the last three fiscal years, 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, 2014,
we incurred a net loss of $785,978. There can be no assurance that we will ever be profitable.



We
need additional capital.



We
need additional financing to continue operations. The amount required depends upon our business operations, and the capital needs
of our acquisition of the certain oil and gas leasehold interests. 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 OTCQB. 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.





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Our
management controls us.



Our
current officers and directors own approximately 45% 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. 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.



On
July 2, 2008, we signed a letter agreement to acquire all of the oil and gas producing assets owned by Bedford Energy, Inc. in
the East Chandler Field, Lincoln County, Oklahoma. We increased our current interest in the Grace #2 well and acquired working
interests in four other producing wells in the East Chandler Field, the Grace #1, Grace #3, Grace #5A and Grace #6 wells.



We increased
our working interest in the Grace #2 from 2.5% to 7.5%; and increasing our net revenue interest in the Grace #2 to 11.95%. We
initially acquired our working interest in the Grace #2 well in June, 2008.  We also acquired acquiring a 10% working
interest and 13.825% net revenue interest in the Grace #1, Grace #3, Grace #5A and Grace #6 wells and a 50% working interest in
a salt water disposal well and offset and development acreage in the two quarter sections (320 acres)  adjoining the
Grace Wells in the East Chandler Field.



The
table below shows the Company’s working interests in the Grace Wells:



|Well      |  | March
                                         31, 2014
        and
        2013
        Working
        Interest
|--------- |  | -----------------------------------------------------------------------------------------------------------------
|Grace #1  |  |                                                                                                                  
|Grace #2  |  |                                                                                                                  
|Grace #3  |  |                                                                                                                  
|Grace #5A |  |                                                                                                                  
|Grace #6  |  |                                                                                                                  





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We
expect to increase our ownership in the Grace wells. As of March 31, 2014, the working interest owners owe the Company $156,873.  We
will file a claim against these working interest owners and foreclose on this claim to increase our ownership.



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").  Since April 2010 our
Common Stock has traded and continues to trade on the electronic OTCQB and OTCBB market.  Market makers and other dealers
provided bid and ask quotations of our Common Stock. We trade under the symbol "AOGN".



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



|Per Share Common Stock Bid Prices by Quarter For the Two Most
    Recent Fiscal Years |  |      |      |  |     |  
|------------------------------------------------------------------------------------- |  | ---- | ---- |  | --- | -
|                                                                                      |  | High |      |  | Low |  
|Quarter Ended March 31, 2014                                                          |  | $    | 0.10 |  |     | $
|Quarter Ended December 31, 2013                                                       |  | $    | 0.27 |  |     | $
|Quarter Ended September 30, 2013                                                      |  | $    | 0.30 |  |     | $
|Quarter Ended June 30, 2013                                                           |  | $    | 0.18 |  |     | $
|Quarter Ended March 31, 2013                                                          |  | $    | 0.19 |  |     | $
|Quarter Ended December 31, 2012                                                       |  | $    | 0.25 |  |     | $
|Quarter Ended September 30, 2012                                                      |  | $    | 0.10 |  |     | $
|Quarter Ended June 30, 2012                                                           |  | $    | 0.12 |  |     | $



As
of June 20, 2014, 11,858,062 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, 2014, or the fiscal year ended 2013, nor
do we anticipate paying dividends on Common Stock in the foreseeable future. Holders of Common Stock are entitled to receive such
dividends as may be declared by our Board of Directors.





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



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



(d)
Preferred Stock.



Our
Articles of Incorporation authorize us to issue up to 1,000,000 shares of $0.10 par value preferred stock, with such classes,
series and preferences as our Board of Directors may determine from time to time. In June 2002, our Board of Directors authorized
the issuance of 100 shares of Series A Convertible Preferred Stock (the "Series A Preferred Stock"). Our Board further
agreed to issue all of the Series A Preferred Stock to our Chairman and President, Kent Rodriguez, in satisfaction of $500,000
in loans made by Mr. Rodriguez



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



If
we liquidate or dissolve, and after payment of our debts, the holders of the Series A Preferred Stock are entitled to a preference
payment before we make any distributions to our Common Stockholders. The preference amount is equal to the original purchase price
for the Series A Preferred shares plus accrued, but unpaid dividends.



The
Series A Preferred Stock is convertible at any time into 40% of the then outstanding shares of Common Stock and securities convertible
into Common Stock on a fully diluted basis. However, conversion is limited to the number of shares of Common Stock available for
issuance under our articles of incorporation.



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



In
March, 2013, our Board of Directors authorized the issuance of 2,000 shares of Series B Preferred Stock (the "Series B Preferred
Stock"). The face amount of share of the Series B Preferred Stock is $1,000. There are currently 1,300 shares of Series
B Preferred Stock outstanding.



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, 2015.



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.



SECURITIES
AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS



The
Company does not have any securities authorized for issuance under equity compensation plans.



RECENT
SALES OF UNREGISTERED SECURITIES



The
Company sold the following unregistered securities between January 1, 2014 and March 31, 2014:



In January
2014 the Company exchanged 400 share Series B Preferred Stock for $400,000 of notes payable.



In March
2014 the Company exchanged 200 share Series B Preferred Stock for $200,000 of notes payable.



In
February 2014 we issued 300 Shares of Series B Preferred Stock to an accredited investor for $300,000.



On March
25, 2014 the Company exchanged 2,000,000 shares of Common Stock for 200 shares of Series B Preferred Stock.



On
March 31, 2014, the Company issued 600,000 shares of common stock for payment of accrued interest of $51,507.



On
March 31, 2014 the Company issued 1,600,000 shares of common to a consultant, the value of these shares in the amount of
$112,000, 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.



During the
twelve months ended March 31, 2014 and 2013, the Company incurred $24,780 and $-0- in dividends on Series B preferred stock.







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All
other unregistered securities sold by the Company during the past three years, but prior to January 1, 2014, 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 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, 2014 compared to the year ended March 31, 2013



Revenues



Revenues
for the year ended March 31, 2014 were $156,322, a decrease of $7,252 or approximately 4% compared to revenue of $163,574
for the year ended March 31, 2013. Revenue from the sale of oil and gas decreased as a result of the decrease in gas production
from the wells in the Grace Field, a decrease in oil production from the wells in Miller County, Arkansas, and a decrease in the
market price of natural gas.



Lease
Operating Expenses



During
the year ending March 31, 2014, our lease operating expenses were $134,033, an increase of $9,131 or approximately 7% compared
to $124,902 for the year ended March 31, 2013.  The increase was due to the workover cost incurred on the Company’s
leasehold in Miller County, Arkansas.



Selling,
General, and Administrative Expenses



Selling,
general and administrative expenses for the year ended March 31, 2014 were $602,303 an increase of $65,301 or approximately 12% compared
to selling, general and administrative expenses of $537,002 during the year ended March 31, 2013.   Selling, general
and administrative expenses for 2014 consisted primarily of payroll and related costs of $58,704; legal and accounting
fees in the amount of $74,051; facilities costs in the amount of 12,745; investor relations costs of $14,548;  travel
and entertainment expenses of $65,118; office expenses of $40,851 and consulting fees in the amount of $262,001; financing expenses
of $60,000.  The increase was due to the increase in financing expenses of $60,000 during the year ended March 31, 2014
compared to $-0- expense incurred in financing expenses for the year ended March 31, 2013.



Stock-based
Compensation



Stock-based
compensation for the year ended March 31, 2014 was $262,001, an increase of $64,501 or approximately 33% compared to non-cash
compensation of $197,500 for the year ended March 31, 2013.  This increase was the result of more common stock issuances
to outside consultants as payment for services rendered.





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Depreciation,
Depletion, and Amortization



Depreciation,
Depletion, and Amortization were $63,046 for the year ended March 31, 2014 a decrease of $13,087 or approximately 17% compared
to $76,133 for the year ended March 31, 2013, due to a slight decrease in the depletion allowance.



Gain
on Sale of Property



During
the year ended March 31, 2014, the Company did not sell any oil and gas properties.



Loss
on Settlement of Debt



During
the year ended March 31, 2014, the Company had a net loss on the settlement of debt in the amount of $57,050.



Interest
Expense, net of Interest Income



Interest
expense, net of interest income of $91,752 for the year ended March 31, 2014, a decrease of $34,388 or approximately 27%  compared
to interest expense, net of $126,140 for the year ended March 31, 2013. This decrease is due to a reduction in the principal balances
of notes payable during the year.



Net Loss



For
the reasons stated above, our net loss for the year ended March 31, 2014, was $785,978 an increase of $36,664 or approximately
5% compared to a net loss of $749,314 during the year ended March 31, 2013.



Liquidity
and Capital Resources



Going Concern



The
March 31, 2014, financial statements have been prepared assuming the Company will continue as a going concern. However, the Company
has incurred a loss of $30,823,588 from inception through March 31, 2014, and has a working capital deficiency of $275,768 and
stockholders’ equity of $1,212,337, respectively, at March 31, 2014. The Company currently has minimal revenue generating
operations and expects to incur substantial operating expenses in order to expand its business. As a result, the Company expects
to incur operating losses for the foreseeable future.  The accompanying consolidated financial statements do not include
any adjustments that might become necessary should the Company be unable to continue as a going concern.





11







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Our
cash and cash equivalents were $223,914 on March 31, 2014, compared to $129,931 on March 31, 2013. 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 our acquired oil and gas leasehold interest, and to achieve profitability, none of which can be guaranteed.
Unless additional funding is located, it is highly unlikely that we can continue to operate. There is no assurance that
even with adequate financing or combined operations, we will generate revenues and be profitable.



Ultimately,
our success is dependent upon our ability to generate revenues from our acquired oil and gas leasehold interests.



Operating
activities



Net
cash used by operating activities for the year ended March 31, 2014 was $381,594, compared to $333,833 used in the year ended
March 31, 2013.



The
Company had a net loss of $785,978 for the year ended March 31, 2014, compared to a net loss of $749,314 for the year ended March
31, 2013.  Net accounts receivable for the year ended March 31, 2014 were $54,226 compared to $52,667 for the year ended
March 31, 2013.



Investing
activities



For
the year ended March 31, 2014 we invested $119,400 for the purchase of the Moody and West Lease, Duval County, Texas.



Financing
activities



Our
financing activities for the year ended March 31, 2014 provided cash of $611,200 as compared to $345,000 for the year ended March
31, 2013. We plan to raise additional capital during the coming fiscal year.  Cash generated by financing activities
primarily consisted of $350,000 from the issuance of Series B Preferred Stock and $300,000 from the issuance of Common Stock.



Critical
Accounting Policies



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



Recently
enacted accounting standards



During
the year, The Financial Accounting Standards Board (“FASB”) has issued various pronouncements, none of which apply
to the current financial statements.



Off-Balance
Sheet Arrangements



We
have no off-balance sheet arrangements.



Material
Commitments



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





12







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Purchase
of Significant Equipment



During
the twelve months ended March 31, 2014 and March 31, 2013, 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



Our
principal executive and financial officers, after evaluating the effectiveness of our "disclosure controls and procedures"
(as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of March 31, 2012, have concluded that as
of March 31, 2014, our disclosure controls and procedures were effective to provide reasonable assurance that information required
to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is accumulated and communicated to our
management, including our Chief Executive Officer, as appropriate to allow timely decisions regarding required disclosure, and
(ii) is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms.



There
have been no changes in our internal controls or in other factors that could affect these controls during or subsequent to the
end of the period covered by this report.





13







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Management’s
Annual Report on Internal Control Over Financial Reporting



Our
management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule
13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934. Our internal control over financial reporting is
a process designed to provide reasonable assurance with respect to the reliability of financial reporting and the preparation
and fair presentation of financial statements for external purposes in accordance with generally accepted accounting principles
and includes those policies and procedures which:



●
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions
of our assets;



●
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations
of our management and directors; and



●
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets
that could have a material effect on the financial statements.



Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



Our
management assessed the effectiveness of our internal control over financial reporting as of March 31, 2014 based upon the criteria
set forth in the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).



This
Annual Report does not include an attestation report of our registered public accounting firm with respect to internal control
over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant
to temporary rules of the Securities and Exchange Commission which permit us to provide only our management’s report in
this Annual Report.



We
believe that our internal controls are effective.



Changes
in Internal Control over Financial Reporting



There
have been no changes in our internal control over financial reporting identified during our year ended March 31, 2013, which
have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.



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 |  | 53  |  | Chief Executive Officer, President,
    Secretary, and Principal Financial Officer
|Jill Allison   |  | 49  |  | Director                                                                          
|Douglas Barton |  | 73  |  | Director                                                                          
|Rene Haeusler  |  | 57  |  | Director                                                                          





14







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|



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
Häusler



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 ofBowl Construction AG , Member of the Board ofProgressNow!invest AG , a SIX-listed private equity
investment company, and is a member of the Board of Directors ofThaiSwiss SME-Industrial Center Ltd ., Pranburi, Thailand,
and ofSempre-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 sixteen (16) times by written
consent during the fiscal year ended March 31, 2014.





15







|
|
|



In
1999, 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 2014.



In
May 2000, 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 2014.



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, 2014, 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, 2014.



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                                      |  | 2014 |  | $                  | 48,000 |  |                   | $ | - |                                  |  | $ | -                                 |  |  | $                                                                          | - |  |                                                                                 | $ | - |                                                                                                 |  | $ | -                 | 
|CEO and President                                   |  | 2013 |  | $                  | 48,000 |  |                   | $ | - |                                  |  | $ | -                                 |  |  | $                                                                          | - |  |                                                                                 | $ | - |                                                                                                 |  | $ | -                 | 
|                                                    |  | 2012 |  | $                  | 48,000 |  |                   | $ | - |                                  |  | $ | -                                 |  |  | $                                                                          | - |  |                                                                                 | $ | - |                                                                                                 |  | $ | -                 | 



|(1)  Mr.
                            Rodriguez owns the 100 shares of Preferred Stock outstanding.  These shares pay an 8% dividend. 
                            We paid Mr. Rodriguez $38,800 in 2014 and $34,700 in 2013.  The balance due Mr. Rodriguez
                            as of March 31, 2014 is $41,950.                                                                                                                                                                                                     
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2)  In 2012, Mr. Rodriguez
    was under an employment agreement dated April 1, 2011 that expired on March 31, 2014, 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, 2014, we paid Mr. Rodriguez $42,400, and accrued $48,000.  During the fiscal year ending March 31, 2013, we
    paid Mr. Rodriguez $46,750, and accrued $48,000, The balance due Mr. Rodriguez as of March 31, 2014 is $207,817.





16









|
|
|



Outstanding
Equity Awards at Fiscal Year-End as of March 31, 2014



|     |  | Option
    Awards                                                                                                            |   |  | Stock
    Awards                                                                                                               | 
|---- |  | ---------------------------------------------------------------------------------------------------------------------------- | - |  | ------------------------------------------------------------------------------------------------------------------------------ | 
|Name |  | Number
                                         of Securities Underlying Unexercised Options
        (#)
        Exercisable |   |  | Number
                                         of Securities Underlying Unexercised Options
        (#)
        Unexercisable | 
|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   |  | $                                                                                                        | - |  |                                  | $ | 6,000 |                                   |  | $ | -                                                                          |  |  | $                                                                               | - |  |                                                                                     | $ | - |                   | 
|Douglas Barton |  | $                                                                                                        | - |  |                                  | $ | 6,000 |                                   |  | $ | -                                                                          |  |  | $                                                                               | - |  |                                                                                     | $ | - |                   | 
|Rene Häusler   |  | $                                                                                                        | - |  |                                  | $ | 6,000 |                                   |  | $ | -                                                                          |  |  | $                                                                               | - |  |                                                                                     | $ | - |                   | 



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.





17







|
|
|



KENT
RODRIGUEZ



In
2013, Mr. Rodriguez was under an employment agreement dated April 1, 2011 that expired on March 31, 2014, pursuant to which he
was compensated at an annual rate of 48,000. We extended this agreement for another year.  During the fiscal year
ending March 31, 2014, we paid Mr. Rodriguez $42,400, and accrued $48,000.  During the fiscal year ending March 31,
2014, we paid Mr. Rodriguez $46,750, and accrued $48,000. The balance due Mr. Rodriguez as of March 31, 2014 is $207,817.



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, 2014 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, 2014, we had a total of 11,658,062
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                                                                                                                                                 |  |                                               | 7,909,742 |  |                                   |      
|                                                                                                                                                                      |  |                                               |           |  |                                   |      
|Douglas Barton                                                                                                                                                        |  |                                               |           |  |                                   |      
|310 Fourth Avenue South, Suite 7000                                                                                                                                   |  |                                               |           |  |                                   |      
|Minneapolis, MN 55415                                                                                                                                                 |  |                                               | 60,667    |  |                                   | 0.51 
|                                                                                                                                                                      |  |                                               |           |  |                                   |      
|Jill Allison                                                                                                                                                          |  |                                               |           |  |                                   |      
|310 Fourth Avenue South, Suite 7000                                                                                                                                   |  |                                               |           |  |                                   |      
|Minneapolis, MN 55415                                                                                                                                                 |  |                                               | 60,000    |  |                                   | 0.51 
|                                                                                                                                                                      |  |                                               |           |  |                                   |      
|Rene Häusler (2)                                                                                                                                                      |  |                                               |           |  |                                   |      
|310 Fourth Avenue South, Suite 7000                                                                                                                                   |  |                                               |           |  |                                   |      
|Minneapolis, MN 55415                                                                                                                                                 |  |                                               | 108,283   |  |                                   | 0.91 
|                                                                                                                                                                      |  |                                               |           |  |                                   |      
|Recon Technology, LTD.                                                                                                                                                |  |                                               |           |  |                                   |      
|King
    Long International Mansion                                                                                                                                   |  |                                               |           |  |                                   |      
|9
    Fulin Road                                                                                                                                                      |  |                                               |           |  |                                   |      
|Bejing,
    100107 China                                                                                                                                              |  |                                               | 2,800,000 |  |                                   | 23.61
|                                                                                                                                                                      |  |                                               |           |  |                                   |      
|CEDE & Co.                                                                                                                                                            |  |                                               |           |  |                                   |      
|P.O. Box 222                                                                                                                                                          |  |                                               |           |  |                                   |      
|Bowling Green Station                                                                                                                                                 |  |                                               | 3,737,345 |  |                                   |      
|New
        York, NY 10274
        
        Maerki
        Baumann & Company AG  (3)
        Dreikonigstrasse
        6
        CH
        -8002, Zurich, Switzerland |  |                                               | 4,008,937 |  |                                   |      
|                                                                                                                                                                      |  |                                               |           |  |                                   |      
|                                                                                                                                                                      |  |                                               |           |  |                                   |      
|                                                                                                                                                                      |  |                                               |           |  |                                   |      
|                                                                                                                                                                      |  |                                               |           |  |                                   |      
|                                                                                                                                                                      |  |                                               |           |  |                                   |      
|                                                                                                                                                                      |  |                                               |           |  |                                   |      



|(1) | Includes 7,905,375 shares
    of Common Stock issuable upon the conversion of 100 shares of Series A Preferred Stock.
|--- | ---------------------------------------------------------------------------------------------------------------------





|(2) | Includes 13,334 shares
    owned by L’Avenir Finanz AG and 8,522 shares owned by Lawewa International LTD, affiliates of Mr. Häusler
|--- | ------------------------------------------------------------------------------------------------------------------------------------



|(3) | Maerki Baumann & Company
    AG, holds the shares as custodian on behalf of seventeen (17) of their clients.
|--- | ------------------------------------------------------------------------------------------------------------





18







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|
|



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, 2014 and 2013, the Company incurred $40,000 in Class A preferred stock dividends, respectively. As of
March 31, 2014, there is $41,950 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.



Employment
Agreements



KENT
RODRIGUEZ



In
2013, Mr. Rodriguez was under an employment agreement dated April 1, 2011 that expired on March 31, 2014, pursuant to which he
was compensated at an annual rate of 48,000. We extended this agreement for another year.  During the fiscal year
ending March 31, 2014, we paid Mr. Rodriguez $42,400, and accrued $48,000.  During the fiscal year ending March 31,
2013, we paid Mr. Rodriguez $46,750, and accrued $48,000. The balance due Mr. Rodriguez as of March 31, 2014 is $207,817



ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES



1.
AUDIT FEES.



Our
audit fees for the years ended March 31, 2014 and 2013 were as follows:



|2014 |        |  | 2013 |  
|---- | ------ |  | ---- | -
|$    | 52,500 |  |      | $
|     |        |  |      |  





19







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|
|



2.
TAX FEES.



Our
tax return fees for the years ended March 31, 2014 and 2013 were as follows:



|2014 |   |  | 2013 |  
|---- | - |  | ---- | -
|$    | - |  |      | $
|     |   |  |      |  



3. ALL OTHER
FEES.



|2014 |   |  | 2013 |  
|---- | - |  | ---- | -
|$    | - |  |      | $
|     |   |  |      |  



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
        
        10.5 |  | Promissory
        Note between the Company and Maerki Baumann & Company AG dated January 27, 2012, in the amount of $200,000 *
        Certificate
        of Designation Series B Preferred Stock *
|31.1                       |  | Certification                                                                                                                                                                                        
|32.1                       |  | Certification                                                                                                                                                                                        



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





20







|
|
|



SIGNATURES



In
accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



|                       | Avalon Oil & Gas, Inc. |                                                                                                                                  
|---------------------- | ---------------------- | ---------------------------------------------------------------------------------------------------------------------------------
|                       |                        |                                                                                                                                  
|Date: October 31, 2014 | 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: October 31, 2014 | By: | /s/ Kent
    Rodriguez                                                                                                            | 
|---------------------- | --- | --------------------------------------------------------------------------------------------------------------------------------- | 
|                       |     | Kent Rodriguez                                                                                                                    | 
|                       |     | Chief
                                    Executive Officer, President,
        Secretary
        and Principal Financial Officer | 





|Date: October 31, 2014 | By: | /s/ Jill
    Allison | 
|---------------------- | --- | -------------------- | 
|                       |     | Jill Allison         | 
|                       |     | Director             | 





|Date: October 31, 2014 | By: | /s/ Douglas
    Barton | 
|---------------------- | --- | ---------------------- | 
|                       |     | Douglas Barton         | 
|                       |     | Director               | 





|Date: October 31, 2014 | By: | /s/ Rene
    Häusler | 
|---------------------- | --- | -------------------- | 
|                       |     | Rene Häusler         | 
|                       |     | Director             | 





21







|
|
|









REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To
the Audit Committee of the

Board
of Directors and Stockholders

of
Avalon Oil & Gas, Inc.



We
have audited the accompanying consolidated balance sheets of Avalon Oil & Gas, Inc. (the “Company”) as of March
31, 2014 and 2013, and the related consolidated statements of operations, cash flows and changes in stockholders’ deficit
for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these financial statements based on our audits.



We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances, 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. 
An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis for our opinion.



In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
Company, as of March 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.



The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 1, the Company has incurred significant losses from operations since its inception and has a working capital
deficiency. 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.









Bernstein
& Pinchuk llp

New
York, New York

September
30, 2014 except for revised disclosures in Note 1, which is dated October 15, 2014













|
|
|







|Avalon Oil & Gas,
    Inc.                                                    
|------------------------------------------------------------------------------
|Consolidated Balance Sheets                                                   
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Assets                                                                        
|                                                                              
|Current Assets:                                                               
|Cash and cash equivalents                                                     
|Accounts receivable, net of allowance for doubtful                            
|accounts of $0 and $0                                                         
|Notes receivable                                                              
|Deposits and prepaid expenses                                                 
|Receivables from joint interests, net of allowance                            
|for doubtful
    accounts of $136,873 and $140,277                            
|                                                                              
|Total current assets                                                          
|                                                                              
|Notes receivable                                                              
|Unproven oil & gas properties                                                 
|Producing oil & gas properties, net                                           
|Intellectual property rights,
    net                                         
|                                                                              
|Total Assets                                                                  
|                                                                              
|                                                                              
|                                                                              
|The accompanying notes are
    an integral part of these financial statements.



F-1



|
|
|







|Avalon Oil & Gas,
    Inc.                                                    
|------------------------------------------------------------------------------
|Consolidated Balance Sheets
    (Continued)                                   
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Liabilities and Stockholders'
    Equity                                      
|                                                                              
|Current Liabilities:                                                          
|Accounts payable and accrued liabilities                                      
|Accrued payroll - related parties                                             
|Dividends payable                                                             
|Accrued liabilities to joint interest                                         
|Notes payable - related party                                                 
|Notes payable, net of discount                                                
|                                                                              
|Total current liabilities                                                     
|                                                                              
|Notes payable, net of discount                                                
|Accrued asset retirement
    obligation (ARO) liability                       
|                                                                              
|Total Liabilities                                                             
|                                                                              
|Commitments and contingencies                                                 
|                                                                              
|Stockholders' Equity                                                          
|                                                                              
|Preferred stock, authorized 1,000,000; $.10 par value                         
|Preferred stock, Series A, $.10 par value, 1,000                              
|shares authorized; 100 shares issued and outstanding                          
|stated at redemption value, as of March 31, 2014 and                          
|and March 31, 2013, respectively                                              
|Preferred stock, Series B, $.10 par value, 2,000                              
|shares authorized; 1,300 shares
    and 150 shares issued and outstanding     
|stated at redemption value as of March 31, 2014 and                           
|and March 31, 2013, respectively                                              
|Common stock, $.001 par value: 200,000,000 shares                             
|authorized 11,658,062 and 6,208,062 shares issued and                         
|outstanding at March 31, 2014 and March 31, 2013, respectively                
|Additional paid in capital                                                    
|Accumulated deficit                                                           
|                                                                              
|Total Stockholders Equity                                                     
|                                                                              
|Total Liabilities and Stockholders'
    Equity                                
|                                                                              
|                                                                              
|                                                                              
|The accompanying notes are
    an integral part of these financial statements.



F-2



|
|
|



|Avalon
    Oil & Gas, Inc.                                                    
|------------------------------------------------------------------------------
|Consolidated
    Statements of Operations                                     
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Oil & Gas Sales                                                               
|                                                                              
|Operating expenses:                                                           
|Lease operating expense, severance
    taxes                                  
|and ARO accretion                                                             
|Selling, general and administrative
    expenses                              
|Depreciation,
    depletion, and amortization                                 
|                                                                              
|Total operating expenses                                                      
|                                                                              
|Operating loss                                                                
|                                                                              
|Other income (expense):                                                       
|                                                                              
|Gain (Loss) on extinguishment
    of debt                                     
|Gain (Loss) on conversion of
    notes payable                                
|Interest
    expense, net                                                     
|                                                                              
|Total other income
    (expense)                                              
|                                                                              
|Loss before income tax                                                        
|                                                                              
|Provision for income
    taxes                                                
|                                                                              
|Net loss                                                                      
|                                                                              
|Preferred stock
    dividends                                                 
|                                                                              
|Net loss attributable
    to common shareholders                              
|                                                                              
|Net loss per share - basic and diluted                                        
|                                                                              
|Weighted average
    shares outstanding - basic and diluted                   
|                                                                              
|                                                                              
|                                                                              
|The accompanying notes are an integral
    part of these financial statements.





F-3

|
|
|



|Avalon Oil & Gas,
    Inc.                                                    
|------------------------------------------------------------------------------
|Consolidated Statement of
    Cash Flows                                      
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Cash flows from operating activities:                                         
|Net (loss)                                                                    
|Adjustments to reconcile net loss to net cash used                            
|in operating activities:                                                      
|Common stock issued for services                                              
|(Gain) on extinguishment of debt                                              
|Loss on conversion of debt                                                    
|Accrued interest                                                              
|Stock issued for reduction of interest on notes
    payable                   
|Depreciation                                                                  
|Depletion                                                                     
|Depreciation and ARO liability                                                
|Amortization of discount on notes payable                                     
|Amortization of intangible assets                                             
|Net change in operating assets and liabilities:                               
|Accounts receivable                                                           
|Joint interest receivable                                                     
|Prepaid expenses                                                              
|Accounts payable and other accrued expenses                                   
|Dividends payable                                                             
|Due to related party                                                          
|Asset retirement
    obligation accretion                                     
|                                                                              
|Net cash (used) in operating activities                                       
|                                                                              
|Cash flows from investing activities:                                         
|Deposit on the purchase of additional assets                                  
|Principle payments received on
    notes receivable                           
|                                                                              
|Net cash provided in investing activities                                     
|                                                                              
|Cash flows from financing activities:                                         
|Payments on notes payable                                                     
|Proceeds from notes payable                                                   
|Common stock issued for cash                                                  
|Preferred stock B issued for cash                                             
|Dividends paid on preferred stock                                             
|                                                                              
|Net cash provided in financing activities                                     
|                                                                              
|The accompanying notes are
    an integral part of these financial statements.



F-4

|
|
|



|Avalon Oil & Gas,
    Inc.                                                    
|------------------------------------------------------------------------------
|Consolidated Statement of
    Cash Flows (Continued)                          
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Net (decrease) in cash and cash equivalents                                   
|                                                                              
|Cash and cash equivalents at beginning
    of period                          
|                                                                              
|Cash and cash equivalents at end
    of period                                
|                                                                              
|Supplemental disclosures of cash flow information:                            
|Cash
    paid during the period for:                                          
|Interest                                                                      
|Taxes                                                                         
|Common stock issued in exchange for consulting                                
|services                                                                      
|Common stock issued for conversion of note payable,                           
|accrued interest, and assumption
    of debt                                  
|Gain (Loss) on extinguishment of
    debt                                     
|Preferred stock issued for conversion of notes payable,                       
|accrued interest, and assumption
    of debt                                  
|                                                                              
|The accompanying notes are
    an integral part of these financial statements.
|                                                                              



F-5



|
|
|



|AVALON
    OIL AND GAS, INC.                                    
|----------------------------------------------------------------
|STATEMENT
    OF CHANGES IN SHAREHOLDERS' DEFICIT               
|(Restated
    to reflect June 2012 300 to 1 reverse stock split)
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                



F-6



|
|
|

AVALON
OIL & GAS, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED MARCH 31, 2014 AND 2013



NOTE
1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Nature
of Operations



Avalon
Oil & Gas, Inc. (the "Company") was originally incorporated in Colorado in April 1991 under the name Snow Runner
(USA), Inc. The Company was the general partner of Snow Runner (USA) Ltd.; a Colorado limited partnership to sell proprietary
snow skates under the name "Sled Dogs" which was dissolved in August 1992. In late 1993, the Company relocated its operations
to Minnesota and in January 1994 changed our name to Snow Runner, Inc. In November 1994 we changed our name to the Sled Dogs Company.
On November 5, 1997, we filed for protection under Chapter 11 of the U.S. Bankruptcy Code. In September 1998, we emerged from
protection of Chapter 11 of the U.S. Bankruptcy Code. In May, 1999, we changed our state of domicile to Nevada and our name to
XDOGS.COM, Inc. On July 22, 2005, the Board of Directors and a majority of the Company's shareholders approved an amendment to
our Articles of Incorporation to change the Company's name to Avalon Oil & Gas, Inc., and to increase the authorized number
of shares of our common stock from 200,000,000 shares to 1,000,000,000 shares par value of $0.001, and engage in the acquisition
of producing oil and gas properties.  On November 16, 2011, a majority of the Company's shareholders approved an amendment
to our Articles of Incorporation to increase the authorized number of shares of our common stock from 1,000,000,000 shares to
3,000,000,000 shares par value of $0.001.



On
June 4, 2012 the Board of Directors approved an amendment to our Articles of Incorporation to a reverse split of the issued and
outstanding shares of Common Stock of the Corporation (“Shares”) such that each holder of Shares as of the record
date of June 4, 2012 shall receive one (1) post-split Share on the effective date of June 4, 2012 for each three hundred (300)
Shares owned.  The reverse split was effective on July 23, 2012.   On September 28, 2012, we held a special
meeting of Avalon’s shareholders and approved an amendment to the Company’s Articles of Incorporation such that the
Company would be authorized to issue up to 200,000,000 shares of common stock.  We filed an amendment with the Nevada
Secretary of State on April 10, 2013, to increase our authorized shares to 200,000,000.



The
Company is currently in the process of raising funds to acquire oil and gas properties and related oilfield technologies, which
the Company plans to develop into commercial applications.



On
September 22, 2007 the Company entered into an agreement with respect to its purchase of a 75.6% interest in Oiltek, Inc. (Oiltek)
for $50,000 and the right of Oiltek to market Avalon's intellectual property. Oiltek is consolidated in these financial statements
with a minority interest shown.



On
October 10, 2013, the Company entered into a Technology Scouting Agreement with IP Technology Exchange, Inc. ("IP TechEx"),
to identify potential technology acquisition and licensing opportunities.  Our alliance with IP TechEx will enable us
to develop a portfolio of new technologies within the oil and gas industry.



On
March 19, 2014, the Company formed Weyer Partners, LLC, a one hundred percent (100%) wholly owned a Minnesota Corporation. Weyer
Partners, LLC, was formed to operate oil and gas properties in Oklahoma and Texas. We expect operations in Weyer Partners, LLC
to begin in November 2014.









F-7







|
|
|



AVALON
OIL & GAS, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED MARCH 31, 2014 AND 2013



Principles
of consolidation



The
consolidated financial statements include the accounts of the Company and The Company’s subsidiary Oiltek, Inc. All significant
inter-company items have been eliminated in consolidation.



Revised
disclosures



Subsequent
to original issuance date, September 30, 2014, the following revised disclosures have been made:



Note
1- Nature of Operations; 1).on October 10, 2013 entered into agreement with IP Technology Exchanges, Inc. 2). on March 19, 2014,
formed Weyer Partners, LLC to operate oil and gas properties in Oklahoma and Texas.



Note
14- Subsequent Events; 1). on May 9, 2014, formed AFS Holdings, Inc. 2). On September 29, 2014, acquired the assets of certain
entities.





Going
Concern



The
March 31, 2014, financial statements have been prepared assuming the Company will continue as a going concern. However, the Company
has incurred a loss of $30,823,588 from inception through March 31, 2014, and has a working capital deficiency of $275,768 and
stockholders’ equity of $1,212,337 as of March 31, 2014. The Company currently has minimal revenue generating operations
and expects to incur substantial operating expenses in order to expand its business. As a result, the Company expects to incur
operating losses for the foreseeable future.  The Company will continue to seek equity and debt financing to meet our
operating losses. The accompanying consolidated financial statements do not include any adjustments that might become necessary
should the Company be unable to continue as a going concern.



Use
of Estimates



The
preparation of financial statements in conformity with generally accepted accounting principles generally accepted in the United
States of America requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those estimates and assumptions.



Basis
of Accounting



The
Company's financial statements are prepared using the accrual method of accounting. Revenues are recognized when earned and expenses
when incurred.





F-8







|
|
|



AVALON
OIL & GAS, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED MARCH 31, 2014 AND 2013





Cash
and Cash Equivalents



Cash
and cash equivalents consist primarily of cash on deposit, certificates of deposit, money market accounts, and investment grade
commercial paper that are readily convertible into cash and purchased with original maturities of three months or less. The Company
maintains its cash balances at several financial institutions. Accounts at the institutions are insured by the Federal Deposit
Insurance Corporation up to $250,000.



Fair
Value of Financial Instruments



The
Company's financial instruments are cash and cash equivalents, accounts receivable, accounts payable, notes payable, notes receivable
and long-term debt. The recorded values of cash and cash equivalents, accounts receivable, and accounts payable approximate their
fair values based on their short-term nature. The recorded values of notes payable, notes receivable and long-term debt approximate
their fair values, as interest approximates market rates.



Accounts
Receivable



Management
periodically assesses the collectability of the Company's accounts receivable. Accounts determined to be uncollectible are charged
to operations when that determination is made. The Company had an allowance for accounts receivable of $136,873 and $140,227 for
the years ended March 31, 2014 and 2013.



Oil
and Natural Gas Properties



The
Company follows the full cost method of accounting for natural gas and oil properties.  Under the full cost concept,
all costs incurred in acquiring, exploring, and developing properties cost center are capitalized when incurred and are amortized
as mineral reserves in the cost center are produced, subject to a limitation that the capitalized costs not exceed the value of
those reserves.  The unamortized costs relating to a property that is surrendered, abandoned, or otherwise disposed
of are accounted for as an adjustment of accumulated amortization, rather than as a gain or loss that enters into the determination
of net income, until all of the properties constituting the amortization base are disposed of, at which point gain or loss is
recognized. all acquisition, exploration, and development costs are capitalized. The Company capitalizes all internal costs, including:
salaries and related fringe benefits of employees directly engaged in the acquisition, exploration and development of natural
gas and oil properties, as well as other identifiable general and administrative costs associated with such activities. During
the years ended March 31, 2014 and 2013, no acquisition costs were capitalized.  Oil and natural gas properties are
reviewed for recoverability at least annually or when events or changes in circumstances indicate that its carrying value may
exceed future undiscounted cash inflows. As of March 31, 2014 and 2013, the Company had not identified any such impairment.





F-9







|
|
|



AVALON
OIL & GAS, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED MARCH 31, 2014 AND 2013



Other
Property and Equipment



Other
property and equipment is reviewed on an annual basis for impairment and as of March 31, 2014, the Company had not identified
any such impairment. Repairs and maintenance are charged to operations when incurred and improvements and renewals are capitalized.



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



Their
estimated useful lives are as follows:



Office
Equipment:  5-7 Years



Asset
Retirement Obligations



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



Intangible
Assets



The
cost of licensed technologies acquired is capitalized and will be amortized over the shorter of the term of the licensing agreement
or the remaining life of the underlying patents.



The
Company evaluates recoverability of identifiable intangible assets whenever events or changes in circumstances indicate that intangible
assets carrying amount may not be recoverable. Such circumstances include, but are not limited to: (1) a significant decrease
in the market value of an asset, (2) a significant adverse change in the extent or manner in which an asset is used, or (3) an
accumulation of cost significantly in excess of the amount originally expected for the acquisition of an asset. The Company measures
the carrying amount of the assets against the estimated undiscounted future cash flows associated with it.



There
were not any impairment losses for the fiscal years ended March 31, 2014 and 2013.



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, |  |   |       
|--------- |  | - | ------
|          |  |   |       
|2015      |  | $ | 42,584
|2016      |  |   | 42,584
|2017      |  |   | 10,647
|          |  | $ | 95,815
|          |  |   |       





F-10







|
|
|



AVALON
OIL & GAS, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED MARCH 31, 2014 AND 2013



Stock
Based Compensation



Share
awards granted to employees and independent directors are accounted for under ASC 718, "Share-Based Payment". ASC 718-10
eliminates accounting for share-based compensation transaction using the intrinsic value method and requires instead that such
transactions be accounted for using a fair-value-based method. The Company has elected to adopt the provisions of ASC 718-10 effective
January 1, 2006, under the modified prospective transition method, in which compensation cost was recognized beginning with the
effective date (a) based on the requirements of ASC 718-10 for all share-based payments granted after the effective date and (b)
based on the requirements of ASC 718-10 for all awards granted to employees prior to the effective date of ASC 718-10 that remain
unvested on the effective date.



The
Company records share-based compensation expense for awards granted to non-employees in exchange for services at fair value in
accordance with the provisions of ASC 505-50, "Equity-based " payment to non-employees. For the awards granted
to non-employees, the Company will record compensation expenses equal to the fair value of the share options at the measurement
date, which is determined to be the earlier of the performance commitment date or the service completion date.



Warrants



The
value of warrants issued is recorded at their fair values as determined by use of a Black Scholes Model at such time or over such
periods as the warrants vest.



Loss
per Common Share



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



Income
Taxes



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



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



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





F-11







|
|
|



AVALON
OIL & GAS, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED MARCH 31, 2014 AND 2013



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



The
adoption of ASC 740-10-25 at January 1, 2007 did not have a material effect on the Company's financial position.



Revenue
Recognition



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



Long-Lived
Assets



Equipment
is stated at acquired cost less accumulated depreciation.  Office equipment is depreciated on the straight-line basis
over the estimated useful lives (five to seven years).



Impairment
of long-lived assets is recognized when events or changes in circumstances indicate that the carrying amount of the asset or related
group of assets may not be recoverable.  If the expected future undiscounted cash flows are less than the carrying amount
of the asset, an impairment loss is recognized at that time.  Measurement of impairment may be based upon appraisal,
market value of similar assets or discounted cash flows. There was no impairment for the fiscal year ended March 31, 2014 and
2013.



Recently
Issued Accounting Pronouncements



As
of September 30, 2014, the Financial Accounting Standards Board (“FASB”) has issued up to ASU 2014-15, which are not
expected to have a material impact on the consolidated financial statements upon adoption.





F-12







|
|
|



AVALON
OIL & GAS, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED MARCH 31, 2014 AND 2013



NOTE
2:   RECEIVABLE FROM JOINT INTERESTS



The
Company is the operator of certain wells acquired in the Expanded Bedford Agreement (see note 4).  Pursuant to a joint
interest operating agreement (the “Joint Interest Agreement”), the Company charges the other owners of the Grace
Wells for their pro-rata share of operating and workover expenses.  These receivables are carried on the Company’s
balance sheet as Receivable from Joint Interests. At March 31, 2014 and 2013, the amount of these receivables is $156,873
and $160,227, respectively.  During the year ended March 31, 2013, the Company deemed the collectability of the receivable
from joint interests in the amount of $136,873 and 140,227 respectively as unlikely.



NOTE
3: PROPERTY AND EQUIPMENT



A
summary of property and equipment at March 31, 2014 and 2013 is as follows:



|                               |  | March
    31, 2014 |         |   | March
    31, 2013 |  
|------------------------------ |  | ------------------ | ------- | - | ------------------ | -
|Office Equipment               |  | $                  | 41,778  |   |                    | $
|Leasehold improvements         |  |                    | -0-     |   |                    |  
|                               |  |                    | 41,778  |   |                    |  
|Less: Accumulated depreciation |  |                    | (41,778 | ) |                    |  
|Total                          |  | $                  | -       |   |                    | $



Depreciation
expense for the years ended March 31, 2014 and 2013 was $ -0-.





F-13







|
|
|



AVALON
OIL & GAS, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED MARCH 31, 2014 AND 2013



NOTE
4: INTELLECTUAL PROPERTY RIGHTS



A
summary of the intellectual property rights at March 31, 2014 and 2013, are as follows:



|                               |  | March
    31, 2014 |          |   | March
    31, 2013 |  
|------------------------------ |  | ------------------ | -------- | - | ------------------ | -
|Intelli-well                   |  | $                  | 425,850  |   |                    | $
|Less: accumulated amortization |  |                    | (330,035 | ) |                    |  
|Total                          |  | $                  | 95,815   |   |                    | $
|                               |  |                    |          |   |                    |  
|                               |  |                    |          |   |                    |  
|                               |  |                    |          |   |                    |  
|                               |  |                    |          |   |                    |  



Amortization
expense for the year ended March 31, 2014 and 2013 was $42,587 and $42,584, respectively.





F-14







|
|
|



AVALON
OIL & GAS, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED MARCH 31, 2014 AND 2013



NOTE 5:
OIL AND GAS PROPERTY ACTIVITY



The
table below shows the Company’s working interests in the Grace Wells as of March 31, 2014 and 2013:



|Well      |  | March
                                         31, 2013
        Working
        Interest |       |   | Additional
    Acquisition |  |   | March
    31, 2014 Working Interest | 
|--------- |  | ---------------------------------------------------------------------------------------- | ----- | - | -------------------------- |  | - | ----------------------------------- | 
|Grace #1  |  |                                                                                          | 65.25 | % |                            |  | 0 | %                                   | 
|Grace #2  |  |                                                                                          | 55.75 | % |                            |  | 0 | %                                   | 
|Grace #3  |  |                                                                                          | 64.00 | % |                            |  | 0 | %                                   | 
|Grace #5A |  |                                                                                          | 52.00 | % |                            |  | 0 | %                                   | 
|Grace #6  |  |                                                                                          | 58.00 | % |                            |  | 0 | %                                   | 





Producing
oil and gas properties consist of the following:



|                         |  | March
    31, 2014 |           |   | March
    31, 2013 |  
|------------------------ |  | ------------------ | --------- | - | ------------------ | -
|Lincoln County, Oklahoma |  | $                  | 111,402   |   |                    | $
|Other properties, net    |  |                    | 1,005,676 |   |                    |  
|Asset retirement cost    |  |                    | 40,572    |   |                    |  
|Property impairments     |  |                    | (481,072  | ) |                    |  
|Less: Depletion          |  |                    | (527,101  | ) |                    |  
|Net                      |  | $                  | 149,477   |   |                    | $





F-15







|
|
|



AVALON
OIL & GAS, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED MARCH 31, 2014 AND 2013



NOTE
6: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES



Accounts
payable and accrued liabilities consisted of the following:



|                 |  | March
                                         31,
        2014 |         |  | March
    31, 2013 |  
|---------------- |  | --------------------------------------------------------------- | ------- |  | ------------------ | -
|Accounts payable |  | $                                                               | 375,272 |  |                    | $
|Accrued interest |  |                                                                 | 204,264 |  |                    |  
|Total            |  | $                                                               | 579,536 |  |                    | $



NOTE 7:
NOTES PAYABLE



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | March
    31, 2014 |       |  | March 31,
    2013 |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ----- |  | ------------------ | -
|On May 8, 2006, the Company
    entered into a convertible note payable agreement with a shareholder in the amount of $100,000.  The note carries
    an interest rate of 10% per annum and matures of November 8, 2006.  The note holder has the right to convert the
    note and accrued interest at a rate of $0.01 per share.  The value of this conversion feature was treated as a loan
    discount for the full $100,000 of the loan and was amortized to interest expense over the life of the loan.   On
    May 8, 2007 the note was extended for one year.  The conversion feature of the note was valued at $25,852 and was
    treated as a prepaid loan costs.  The prepaid loan costs have been amortized over the life of the new note. On October
    19, 2007, the note holder converted $30,000 of principal plus accrued interest of $16,152 for 1,350,000 shares of common stock.
    On November 30, 2007, the note holder converted $10,000 of principal for 950,000 shares of common stock. On January 31, 2008,
    the note holder converted $10,000 of principal and accrued interest of $600 for 1,250,000 shares of common stock. On February
    29, 2008, the note holder converted $8,000 of principal for 1,250,000 shares of common stock. On March 31, 2008, the note
    holder converted $5,000 of principal for 1,250,000 shares of common stock. On March 31, 2008, the note holder converted $5,000
    of principal for 1,250,000 shares of common stock. On June 6, 2008, the note holder converted $7,000 of principal and $1,372
    of accrued interest for 1,550,000 shares of common stock. On June 23, 2008, the note holder converted $10,000 of principal
    and $395 of accrued interest for 1,500,000 shares of common stock. On October 15, 2008, the note holder converted $5,000 of
    principal and $10,000 of interest for 3,300,000 shares of common stock. On December 3, 2008, the note holder converted $3,000
    of principal and $201 of interest for 2,000,000 shares of common stock. On February 24, 2009, the note holder converted $2,000
    of principal and $167 of accrued interest into 4,000,000 shares of common stock During the three months ended September
    30, 2009, the Company issued 33,000,000 shares for the conversion of $2,000 of principal and $367 of accrued interest on this
    note, and for other consideration.  During the three months ended December 31, 2009, the Company issued 30,000,000
    shares of common stock for the conversion of $1,000 principal and $361 of accrued interest on this note and for other considerations.
    During the period ended March 31, 2014, the Company issued 450,000 shares of common stock for the conversion of $450 principal.
    Interest in the amount of $410 and $201 was accrued on this note during the year ended March 31, 2014 and 2013, respectively.  
    The maturity of this note has been extended until April 1, 2015. |  | $                  | 1,800 |  |                    | $
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                    |       |  |                    |  





F-16







|
|
|



AVALON
OIL & GAS, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED MARCH 31, 2014 AND 2013



|On November 11, 2008, the
    Company issued a convertible promissory note to an investor in the amount of $30,000.  The note carries an interest
    rate of 10% per annum and a maturity date of October 1, 2009.  The note holder has the right to convert the
    note and accrued interest into shares of the Company’s common stock at a rate of $3.00 per share. The discount
    is being amortized to interest expense over the life of the note via the effective interest method. Interest in the amount
    of $3,000 and $3,000 was accrued on this note during the year ended March 31, 2014 and 2013, respectively. Accrued interest
    was $11,876 and $8,876 respectively at March 31, 2014 and 2013.  The maturity of this note has been extended until April
    1, 2015. |  |  | 30,000 |  |  |  | 30,000 | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ------ |  |  |  | ------ | 



|On December 22, 2008, the
    Company issued a promissory note to an investor in the amount of $150,000.  This note carries an interest rate of
    10% per annum and matures of December 15, 2009.  In addition to the note payable, the Company issued 7,500,000 shares
    of common stock to the note holder.  The shares are considered a discount to the note payable. At the time of the
    issuance of the shares to the note holder, the market price of the shares exceeded the fair value of the note payable; as
    a result the value of the discount was capped at the face value of the note, $150,000.  The discount will be amortized
    to interest expense over the life of the note, 1 year, via the effective interest method.  Interest in the amount
    of $15,000 and $15,000 was accrued on this note during the year ended March 31, 2014 and 2013, respectively. Accrued interest
    was $79,110 and $64,109 at March 31, 2014 and 2013 respectively. This note has been extended until April 1, 2015.                                                                                                                          |  |  | 150,000 |  |  |  | 150,000 | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ------- |  |  |  | ------- | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |  |         |  |  |  |         | 
|On December 31, 2008, the Company received
    a cash advance from an investor in the amount of $100,000.  On January 1, 2009, the Company received an additional
    $50,000 and the Company entered into a note payable agreement in the amount of $150,000.  The note bears interest
    at a rate of 10% per annum and matures on December 15, 2009.  In additional to the note payable, the Company issued
    7,500,000 shares of common stock to the note holder.  The shares are considered a discount to the note payable.  At
    the time of issuance of the shares to the note holders, the market price of the shares exceeded the fair value of the note
    payable; as a result the value of the discount was capped at the face value of the note, $150,000.  The discount
    will be amortized over the life of the note via the effective interest method. Interest in the amount of $15,000 and $15,001
    was accrued on this note during the year ended March 31, 2014 and 2013, respectively.   Accrued interest was $78,123
    and $63,123 at March 31, 2014 and 2013 respectively. This note has been extended until Apri1 1, 2015. |  |  | 150,000 |  |  |  | 150,000 | 





F-17







|
|
|



AVALON
OIL & GAS, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED MARCH 31, 2014 AND 2013



|On January 27, 2009, the
    Company issued a promissory note to an investor in the amount of $50,000.  The note carries an interest rate of
    10% per annum and matures on December 15, 2009.  In addition to the note payable, the Company issued 1,000,000 shares
    of common stock to the note holder.  The shares are considered a discount to the note payable.  The shares
    are value using the closing market price on the date the note was signed and have a value of $25,000.  The discount
    will be amortized over the life of the note via the effective interest method.  Interest in the amount of $5,000
    and $5,000 was accrued on this note during the year ended March 31, 2014 and 2013, respectively. . Accrued interest was $20,863
    and $25,863 at March 31, 2014 and 2013 respectively. This note has been extended until Apri1 1, 2015 |  |  | 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, 2014 and 2013, respectively. This note was extended its maturity date until
    April 1, 2015. |  |  | 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, 2014 and 2013, respectively. This note was extended its maturity date until April 1, 2015.     |  |  | 5,000 |  |  |  | 5,000 | 





F-18







|
|
|



AVALON
OIL & GAS, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED MARCH 31, 2014 AND 2013



|On January 1, 2011 the
    Company issued a convertible note payable in the amount of $250,000.  This note bears interest at a rate of 8% per
    annum and will mature on 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, 2014 and 2013 respectively.  Interest in the amount
    of $17,945 and $20,000 was accrued on this note during the twelve months ended March 31, 2014 and 2013, respectively. Accrued
    interest was 1,847 and $24,384 at March 31, 2014 and 2013 respectively as interest in the amount of $40,482 and $20,000 was
    paid through the years. In January of 2014 the Company exchanged 125 shares of class B preferred stock for $125,000 in principal.
    This note was extended its maturity date until April 1, 2015. |  |   | 125,000 |  |  |   | 250,000   | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ------- |  |  | - | --------- | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |   |         |  |  |   |           | 
|On
        January 1, 2011 the Company issued a convertible note payable in the amount of $200,000.  This note bears interest
        at a rate of 8% per annum and will mature on January 15, 2014.   The principal amount of the note and accrued
        interest are convertible into shares of the Company’s common stock at a price of $0.01 per share.  A beneficial
        conversion feature in the amount of $60,000 was recorded as a discount to the note and is being amortized to interest
        expense. A discount of $-0- and $59,400 was deducted for the years ended March 31, 2014 and 2013 respectively.  Interest
        in the amount of $16,000 and $16,000 was accrued on this note during the twelve months ended March 31, 2014 and 2013,
        respectively.  Accrued interest was $-0- and $35,507 at March 31, 2014 and 2013 respectively. In March of 2014
        the Company exchanged 200 shares of class B preferred stock for $200,000 in principal and 600,000 shares of Common Stock
        for the payment of $51,507 in accrued interest.                    |  |   | -0-     |  |  |   | 200,000   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |   |         |  |  |   |           | 
|On January 27,
    2012 the Company issued a convertible note payable in the amount of $200,000.  This note bears interest at a rate
    of 8% per annum and will be matured on January 15, 2015. Interest in the amount of $12,713 and  $15,298 was accrued
    on this note during the twelve months ended March 31, 2014 and 2013 respectively.  Accrued interest was $-0- and
    $18,805 at March 31, 2014 and 2013 respectively. In January of 2014 the Company exchanged 200 shares of class B preferred
    stock for $200,000 in principal.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |   | -0-     |  |  |   | 200,000   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |   |         |  |  |   |           | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |   |         |  |  |   |           | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |   |         |  |  |   |           | 
|On December
    3, 2012 the Company issued a promissory note to an investor in the amount of $75,000.  The note carries an interest
    rate of 10% per annum and matures on January 15, 2015.   Interest in the amount of $5,958 and $2,425 was accrued
    on this note during the year ended March 31, 2014 and 2013 respectively. Accrued interest was $2,500 and $2,425 at March 31,
    2014 and 2013 respectively. In January of 2014 the Company exchanged 75 shares of class B preferred stock for $75,000
    in principal.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |   |         |  |  |   |           | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |   | -0-     |  |  |   | 75,000    | 
|Total outstanding                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |   |         |  |  |   |           | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | $ | 514,300 |  |  | $ | 1,114,750 | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |   |         |  |  |   |           | 





F-19







|
|
|



AVALON
OIL & GAS, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED MARCH 31, 2014 AND 2013



|                                  |  | Note   |         |  | Unamortized |   |    | Net of   | 
|--------------------------------- |  | ------ | ------- |  | ----------- | - | -- | -------- | 
|March 31, 2014:                   |  | Amount |         |  | Discounts   |   |    | Discount | 
|Notes payable – long-term portion |  | $      | 514,300 |  |             | $ | (0 | )        | 
|Notes payable – current portion   |  |        | -0-     |  |             |   | (0 | )        | 
|Total                             |  | $      | 514,300 |  |             | $ | (0 | )        | 





|                                  |  | Note   |           |  | Unamortized |   |     | Net of   | 
|--------------------------------- |  | ------ | --------- |  | ----------- | - | --- | -------- | 
|March 31, 2013:                   |  | Amount |           |  | Discounts   |   |     | Discount | 
|Notes payable – long-term portion |  | $      | 864,750   |  |             | $ | (0) |          | 
|Notes payable – current portion   |  |        | 250,000   |  |             |   | (0) | )        | 
|Total                             |  | $      | 1,114,500 |  |             | $ | (0  | )        | 







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





|2015 |  | $ | -0-     | 
|---- |  | - | ------- | 
|2016 |  |   | 514,300 | 
|     |  | $ | 514,300 | 



NOTE 8:
RELATED PARTY TRANSACTIONS



During
the fiscal year ended March 31, 2014 and 2013 the president advanced the Company $5,000 and $6,000 respectively. The balance at
March 31, 2014 and March 31, 2013 was $26,000 and $21,000 respectively.





F-20







|
|
|



AVALON
OIL & GAS, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED MARCH 31, 2014 AND 2013



Preferred
Stock



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



During
the years ended March 31, 2014 and 2013, the Company incurred $40,000 in Class A preferred stock dividends, respectively.



The
holders of the Series A Preferred Stock have the right to convert each share of preferred stock into a sufficient number of shares
of common stock to equal 40% of the then fully-diluted shares outstanding. Fully diluted shares outstanding is computed as the
sum of the number of shares of common stock outstanding plus the number of shares of common stock issuable upon exercise, conversion
or exchange of outstanding options, and warrants. In the event that the Company does not have an adequate number of shares of
Common Stock authorized, upon a conversion request, only the maximum allowable number of shares of Series A preferred stock shall
convert into Common Stock and the remaining shares of Series A preferred Stock shall convert upon lapse of the applicable restrictions.



Employment
Agreements



KENT
RODRIGUEZ



During
the years ended March 31, 2014 and March 2013, the Company charged to operations the amount of $48,000 in annual salary for Mr.
Rodriguez, of which $42,400 and $46,750 was paid to him during the years ended March 31, 2014 and 2013, respectively.  As
of March 31, 2014 and 2013, the balances of accrued and unpaid salaries were $207,817 and $202,217.



NOTE
8: INCOME TAXES



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





F-21







|
|
|



AVALON
OIL & GAS, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED MARCH 31, 2014 AND 2013



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 $30,823,588, which will expire beginning in 2028.  The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies
in making this assessment. Based upon our cumulative losses through March 31, 2014, we have provided a valuation allowance reducing
the net realizable benefits of these deductible differences to $0 at March 31, 2014.  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,
        2014 |          |   | Twelve
                                         Months
        Ended
        March
        31,
        2013 |  
|--------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------- | -------- | - | ----------------------------------------------------------------------------------------------------------- | -
|Computed “expected” income tax expense
    at approximately 34% |  | $                                                                                                           | (267,233 | ) |                                                                                                             | $
|Change in valuation allowance                                   |  |                                                                                                             | (267,233 | ) |                                                                                                             |  
|                                                                |  | $                                                                                                           | -        |   |                                                                                                             | $



NOTE
9: 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, 2014 and 2013,
the Company has 100 shares of Series A preferred stock issued and outstanding.



During
the twelve months ended March 31, 2014 and 2013, the Company incurred $40,000 respectively in Series A preferred stock dividends,
and paid $38,800 and $34,700 for the twelve months ended March 31, 2014 and 2013 respectively. As of March 31, 2014 and 2013,
the accrued balance due Mr. Rodriguez was $41,950 and 40,750 respectively



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



The
holders of the Series A Preferred Stock have the right to convert the preferred stock into shares of common stock such that if
converted simultaneously, they shall represent forty percent (40%) of the fully diluted shares outstanding after their issuance.
Fully diluted shares outstanding is computed as the sum of the number of shares of common stock outstanding plus the number of
shares of common stock issuable upon exercise, conversion or exchange of outstanding options, warrants, or convertible securities.



Series B Preferred
Stock



In
March, 2013, our Board of Directors authorized the issuance of 2,000 shares of Series B Preferred Stock (the "Series B Preferred
Stock").  The face amount of share of the Series B Preferred Stock is $1,000.  As of March 31, 2014 and
2013, the Company has 1,300 and 150 shares of Series B preferred stock respectively issued and outstanding.



The
Series B Preferred Stock accrues dividends at the rate of 8% per annum on the original purchase price for the shares. These dividends
are payable annually, beginning in January 2014. We are prohibited from paying any dividends on our Common Stock until all accrued
dividends are paid on our Series B Preferred Stock.  The Series B Preferred Stock ranks junior to the Series A Preferred
Stock owned by our President and Chief Executive Officer, as to Dividends and to a distribution of assets in the event of a liquidation
of assets.



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



During the
twelve months ended March 31, 2013 the Company sold 150 shares of Series B Preferred Stock to an accredited investor for $150,000.



In May of
2013 the Company sold 50 shares of Series B Preferred Stock to two accredited investors for $50,000.



In January
of 2014 the Company exchanged 400 share Series B Preferred Stock for $400,000 of notes payable.



In March
of 2014 the Company exchanged 200 share Series B Preferred Stock for $200,000 of notes payable.



In March
of 2014 the Company exchanged 200 share Series B Preferred Stock for 2,000,000 shares of Common Stock.



In
February 2014 we issued 300 Shares of Series B Preferred Stock to an accredited investor for $300,000.



During the
twelve months ended March 31, 2014 and 2013, the Company incurred $24,780 and $-0- in dividends on Series B preferred stock.



Total dividends
payable from both A and B preferred shares at March 31, 2014 and 2013 is $66,730 and $40,750 respectively.









|
|
|



AVALON
OIL & GAS, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED MARCH 31, 2014 AND 2013



Common
Stock



On
June 4, 2012 the Board of Directors approved an amendment to our Articles of Incorporation to a reverse split of the issued and
outstanding shares of Common Stock of the Corporation (“Shares”) such that each holder of Shares as of the record
date of June 4, 2012 shall receive one (1) post-split Share on the effective date of June 4, 2012 for each three hundred (300)
Shares owned.  The reverse split was effective on July 23, 2012



The
Company has authorized 200,000,000 shares of common stock with a par value of $0.001 per share.  As of March 31, 2014
and 2013, the Company has 6,208,062 and 2,558,584 shares of common stock issued and outstanding.



Common
stock issuances during the year ended March 31, 2013:



The
Company issued 1,341,617 shares of common stock to consultants for services provided, pursuant to consulting agreements.  The
value of these shares in the amount of $197,500, or $0.15 per share was charged to operations, and was based on the quoted market
value at the date the consulting agreements were executed.



The
Company issued 891,195 shares of common stock for the conversion of a note payable and assumption of debt.  The carrying
value of the debt was reclassed to stock.



The
Company issued 1,500,000 shares of common stock for cash in the amount of $150,000, and was based on current market value at the
date of issuance.



The
Company cancelled 83,334 shares of common stock which had previously been issued in previous fiscal years, and credited the
par value of $83 to par value.



Common
stock issuances during the year ended March 31, 2014:



On
May 3, 2013, the Company issued 500,000 shares of Common Stock for $50,000 or $0.10 per share, and was based on current market
value at the date of issuance.



On
May 5, 2013 the Company issued 100,000 shares of Common Stock for compensation for the placement of 500,000 shares of Common Stock
and 50 Shares of Series B Preferred Stock for $100,000 to an third party.  The value of these shares in the amount of
$10,000, or $0.10 per share was charged to operations, and was based on the current market value at the date of issuance.



On
June 4, 2013, the Company issued 100,000 shares of common stock for the conversion of a note payable and assumption of debt.  The
fair market value of these shares was $8,000 or  $0.08 per share and  was based on the current market value
on the date of issuance. $100 has been credited to the note payable, and a loss of $7,900 was recognized on this conversion, and
was charged to operations.



On
June 28, 2013, the Company issued 2,800,000 shares of Common Stock for $250,000, and was based on current market value at the
date of issuance.



On
June 28, 2013, the Company issued 500,000 shares of Common Stock to a consultant, the value of these shares in the amount
of $50,000, or $0.10 per share was charged to operations, and was based on the current market value at the date of issuance.



On
July 1, 2013, the Company issued 100,000 shares of common stock for the conversion of a note payable and assumption of debt.  The
fair market value of these shares was $17,000, or $0.17 per share which was based on the current market value on the date of issuance.
$100 has been credited to the note payable, and a loss of $16,900 was recognized on this conversion, and was charged to operations.



On
July 2, 2013, the Company issued 180,000 shares of Common Stock to its board of directors, the value of these shares in the
amount of $18,000, or $0.10 per share was charged to operations, and was based on the on current market value at the date of issuance.



On
July 26, 2013, the Company issued 250,000 shares of Common Stock to a consultant, the value of these shares in the amount
of $25,000, or $0.10 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
September 13, 2013, the Company issued 150,000 shares of common stock for the conversion of a note payable and assumption of debt.  The
fair market value of these shares was $22,500, or $0.15 per share which was based on the current market value on the date of issuance.
$150 has been credited to the note payable, and a loss of $22,350 was recognized on this conversion, and was charged to operations.





AVALON
OIL & GAS, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED MARCH 31, 2014 AND 2013



On
October 10, 2013, the Company issued 220,000 shares of common to a consultant, the value of these shares in the amount of
$22,000, or $0.10 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
October 16, 2013, the Company issued 100,000 shares of common stock for the conversion of a note payable and assumption of debt.  The
fair market value of these shares was $10,000 or $0.10 per share which was based on the current market value on the date of issuance.
$100 has been credited to the note payable, and a loss of $9,900 was recognized on this conversion, and was charged to operations.



On
November 6, 2013, the Company issued 250,000 to a consultant, the value of these shares in the amount of $25,000, or $0.10
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 March
25, 2014 the Company exchanged 2,000,000 shares of Common Stock for 200 shares of Series B Preferred Stock.



On
March 31, 2014, the Company issued 600,000 shares of common stock for payment of accrued interest of $51,507.



On
March 31, 2014 the Company issued 1,600,000 shares of common to a consultant, the value of these shares in the amount of
$112,000, 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.





Options



There
are no stock options outstanding.





F-23







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AVALON
OIL & GAS, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED MARCH 31, 2014 AND 2013



Warrants



The
following table summarizes the warrants outstanding and the related prices for the shares of the Company’s common stock
issued to non-employees of the Company at March 31, 2014:



|Warrants
    Outstanding |        | Warrants
    Exercisable |            
|------------------------ | ------ | ------------------------ | -----------
|                         |        |                          |            
|Exercise                 |        |                          | Number     
|Prices                   |        |                          | Outstanding
|                         |        |                          |            
|                         | 600.00 |                          |            
|                         |        |                          |            



Transactions
involving warrants are summarized as follows:



|                              |  | Number
    of Shares |     |  | Weighted
                                         Average
        Exercise
        Price Per Share |  
|----------------------------- |  | -------------------- | --- |  | -------------------------------------------------------------------------------------------------- | -
|Outstanding at March 31, 2013 |  |                      | 167 |  |                                                                                                    | $
|Granted                       |  |                      | -   |  |                                                                                                    |  
|Exercised                     |  |                      | -   |  |                                                                                                    |  
|Cancelled or expired          |  |                      | -   |  |                                                                                                    |  
|Outstanding at March 31, 2014 |  |                      | 167 |  |                                                                                                    | $



NOTE
10: TECHNOLOGY LICENSE AGREEMENTS



On
July 12, 2006 UMTI entered into a technology license of a patented process for paraffin wax mitigation from crude oil using ultrasonic
waves from the University of Wyoming. This license calls for an earned royalty of five percent on net sales of licensed technologies
and services; twenty-five percent of all sublicense fees and revenues with an escalating minimum annual royalty which will be
credited toward the total royalties due. During the year ended March 31, 2011, the Company determined that the UMTI license value
was impaired, which resulted in the impairment expense of $534,711.  As of March 31, 2014, the Company has valued this
technology at $0.



(See
note 3.)





F-24







|
|
|



AVALON
OIL & GAS, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED MARCH 31, 2014 AND 2013



NOTE
11: EARNINGS PER SHARE



ASC
260-10-45 requires a reconciliation of the numerator and denominator of the basic and diluted earnings per share (EPS) computations.
As the Company is in a loss position during the year ended March 31, 2014 and 2013, there is no dilutive effect included. The
net loss per share was $0.085 and $0.227 for March 31, 2014 and 2013.



NOTE
12:COMMITMENTS AND CONTINGENCIES



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



NOTE
13: ASC 932-235-55 SUPPLEMENTAL DISCLOSURES



Net
Capitalized Costs



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



|                                                        |  | March
    31, 2014 |            |   | March
    31, 2013 |  
|------------------------------------------------------- |  | ------------------ | ---------- | - | ------------------ | -
|                                                        |  |                    |            |   |                    |  
|Natural gas and oil properties and related equipment:   |  |                    |            |   |                    |  
|Proven                                                  |  | $                  | 1,157,650  |   |                    | $
|Unproven                                                |  |                    | 1,867,183  |   |                    |  
|Accumulated depreciation, depletion,
    and impairment |  |                    | (1,008,173 | ) |                    |  
|Net capitalized costs                                   |  | $                  | 2,016,660  |   |                    | $



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, 2014 |           |  | March
    31, 2013 |  
|------------------------- |  | ------------------ | --------- |  | ------------------ | -
|                          |  |                    |           |  |                    |  
|Acquisition of properties |  | $                  | - 0 -     |  |                    | $
|Development costs         |  |                    | - 0
    - |  |                    |  
|Total costs incurred      |  | $                  | -
    0 - |  |                    | $





F-25







|
|
|



AVALON
OIL & GAS, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED MARCH 31, 2014 AND 2013



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, 2014 and 2013. 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, 2014 |          |   | March
                                         31,2013 |  
|----------------------------------------------------------------- |  | ------------------ | -------- | - | ------------------------------------------------------ | -
|                                                                  |  |                    |          |   |                                                        |  
|Production revenues                                               |  | $                  | 156,322  |   |                                                        | $
|Production costs                                                  |  |                    | (134,033 | ) |                                                        |  
|Impairment of property                                            |  |                    | -        |   |                                                        |  
|Depreciation and depletion expense                                |  |                    | (63,046  | ) |                                                        |  
|                                                                  |  | $                  | (40,757  | ) |                                                        | $
|Imputed income tax provision (1)                                  |  |                    | -        |   |                                                        |  
|Results of operation for natural
    gas / oil producing activity |  | $                  | (40,757  | ) |                                                        | $



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





F-26







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|
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AVALON
OIL & GAS, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED MARCH 31, 2014 AND 2013

Natural
Gas and Oil Reserve Quantities



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



|                              |  | Oil
    - bbls |        
|----------------------------- |  | -------------- | -------
|Proved reserves:              |  |                |        
|                              |  |                |        
|Balance as of March 31, 2006  |  |                | -      
|                              |  |                |        
|Purchase of reserves-in-place |  |                | 29,815 
|Extensions and discoveries    |  |                | -      
|Production                    |  |                | (1,043 
|Balance as of March 31, 2007  |  |                | 28,772 
|                              |  |                |        
|Purchase of reserves-in-place |  |                | 11,560 
|Extensions and discoveries    |  |                | 4,216  
|Change in estimates           |  |                | (11,911
|Production                    |  |                | (3,504 
|Balance as of March 31, 2008  |  |                | 29,133 
|                              |  |                |        
|Purchase of reserves-in-place |  |                | 22,282 
|Extensions and discoveries    |  |                | -      
|Change in estimates           |  |                | -      
|Production                    |  |                | (5,768 
|Balance as of March 31, 2009  |  |                | 45,647 
|                              |  |                |        
|Purchase of reserves-in-place |  |                | -      
|Extensions and discoveries    |  |                | -      
|Change in estimates           |  |                | -      
|Production                    |  |                | (22,514
|Balance as of March 31, 2010  |  |                | 23,133 



|Purchase of reserves-in-place |  |  | 4,823   |  
|----------------------------- |  |  | ------- | -
|Extensions and discoveries    |  |  | -       |  
|Change in estimates           |  |  | -       |  
|Production                    |  |  | (5,291  | )
|Balance as of March 31, 2011  |  |  | 22,665  |  
|Purchase of reserves-in-place |  |  | -       |  
|Extensions and discoveries    |  |  | -       |  
|Change in estimates           |  |  | 4,506   |  
|Production                    |  |  | (2,439  | )
|Balance as of March 31, 2012  |  |  | 24,732  |  
|Purchase of reserves-in-place |  |  | -       |  
|Extensions and discoveries    |  |  | -       |  
|Change in estimates           |  |  | 2,873   |  
|Production                    |  |  | (2,290) |  
|Balance as of March 31, 2013  |  |  | 25,315  |  





F-27







|
|
|





AVALON
OIL & GAS, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED MARCH 31, 2014 AND 2013



|Purchase of reserves-in-place |  |  | -      
|----------------------------- |  |  | -------
|Extensions and discoveries    |  |  | -      
|Change in estimates           |  |  | 7,736  
|Production                    |  |  | (3,979)
|Balance as of March 31, 2014  |  |  | 29,072 



AVALON
OIL & GAS, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED MARCH 31, 2014 AND 2013



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, 2014 and 2013. 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,
2014 and 2013, 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,
        2014 |           |   | March
                                         31,
        2013 |  
|--------------------------------------------------------- |  | --------------------------------------------------------------- | --------- | - | --------------------------------------------------------------- | -
|Future production revenue                                 |  | $                                                               | 1,126,270 |   |                                                                 | $
|Future production costs                                   |  |                                                                 | (566,261  | ) |                                                                 |  
|Future development costs                                  |  |                                                                 | -         |   |                                                                 |  
|Future cash flows before income taxes                     |  |                                                                 | 560,009   |   |                                                                 |  
|Future income tax                                         |  |                                                                 | -         |   |                                                                 |  
|Future net cash flows                                     |  |                                                                 | 560,009   |   |                                                                 |  
|Effect of discounting future annual
    cash flows at 10% |  |                                                                 | (234,457  | ) |                                                                 |  
|Standard measure of discounted net
    cash flows         |  | $                                                               | 325,552   |   |                                                                 | $



(1)  The
weighted average oil wellhead price used in computing the Company's reserves were $93.51 per bbl and $94.99 per bbl at March 31,
2014 and 2013, respectively. The weighted average gas wellhead price used in computing the Company's reserves were $3.63 and $2.97/mmbtu
at March 31, 2014 and 2013, 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, 2014 and 2013:



|                                                           |  | March
                                         31,
        2014 |         |   | March
                                         31,
        2013 |  
|---------------------------------------------------------- |  | --------------------------------------------------------------- | ------- | - | --------------------------------------------------------------- | -
|Standardized measure of discount future net
    cash flows |  | $                                                               | 325,552 |   |                                                                 | $
|                                                           |  |                                                                 |         |   |                                                                 |  
|Proved natural oil and gas property, net of accumulated    |  |                                                                 |         |   |                                                                 |  
|depreciation, depletion, and amortization, including       |  |                                                                 |         |   |                                                                 |  
|impairment                                                 |  |                                                                 | 149,478 | 7 |                                                                 |  
|                                                           |  |                                                                 |         |   |                                                                 |  
|Standardized measure of discount future net cash flows in  |  |                                                                 |         |   |                                                                 |  
|excess of net carrying value of proved natural oil and     |  |                                                                 |         |   |                                                                 |  
|gas properties                                             |  | $                                                               | 176,075 |   |                                                                 | $





F-28







|
|
|



AVALON
OIL & GAS, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

FOR
THE YEARS ENDED MARCH 31, 2014 AND 2013



NOTE
14:  SUBSEQUENT EVENTS



On March
14, 2014, we filed an amendment with the Nevada Secretary of State increasing the dividend 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 dividend payment on the Series B Preferred Stock will be on April 1, 2015



On
May 9, 2014, the Company formed AFS Holdings, Inc., a one hundred percent (100%) wholly owned Nevada Corporation. AFS Holding,
Inc., was formed to leverage the Company’s relationship with IP TechEx, and market technology licensed from IP TechEx.



On
September 29, 2014 the Company acquired the assets of Kensington Energy Limited Partnership – 1985, Kensington Energy Limited
Partnership – 1986, Kensington Energy Limited Partnership – 1987, Kensington Energy Company, Kensington Group Venture
Kensington Group Venture I, Kensington Group Venture II, and Kensington Group Venture III for a combination of cash and debt.
The assets are small fragmented working interests located in Arkansas, Oklahoma and Texas.

The
following tabulation summarizes, by reserve category, the estimated net reserves of the Properties,

|Reserve
    Classification   | Net
    Gas (MCF) | Net
    Oil (BBL)
|---------------------------- | ----------------- | -----------------
|Kensington
    Group Venture | 18,508            | 3,657            
|Kensington
    Energy        | 15,994            | 2,301            
|Total                        | 34,502            | 5,958            



The
following tabulation summarizes the estimated future net revenue and present worth of the reviewed interests.



|Reserve
    Classification   | Estimated
    Future Net Revenue | Present
    Worth @ 8%
|---------------------------- | -------------------------------- | ----------------------
|Kensington
    Group Venture | $242,805                         | $121,220              
|Kensington
    Energy        | $147,186                         | $78,613               
|Total                        | $389,991                         | $199,833              



The Company
has evaluated subsequent events through the issuance of the consolidated financial statements, no other subsequent events need
to be disclosed other than the events disclosed above.



F-29

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