GROOVE BOTANICALS INC. 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) We plan to raise additional capital during the coming fiscal year, but currently have not identified additional funding sources. Our ability to continue operations is highly dependent upon our ability to obtain additional financing, or generate revenues from our acquired oil and gas leasehold interests, none of which can be guaranteed. Ultimately, our success is dependent upon our ability to generate revenues from our acquired oil and gas leasehold interests, and to achieve profitability, which is dependent upon a number of factors, including general economic conditions and the sustained profitability resulting from the operation of the acquired oil and gas leaseholds. There is no assurance that even with adequate financing or combined operations, we will generate revenues and be profitable. . PATENTS, TRADEMARKS, AND PROPRIETARY RIGHTS On May 17, 2006, The Company signed a strategic alliance agreement with Innovaro Corporation, a technology transfer company to develop a portfolio of new technologies for the oil and gas industry. On March 29, 2007, The Company acquired Leak Location Technologies, Inc., ("LLT"). LLT owns an exclusive license to a system for determining the presence and location of leaks in underground pipes. On May 17, 2007, The Company renewed its strategic alliance agreement with Innovaro Corporation, a technology transfer company to develop a portfolio of new technologies for the oil and gas industry. On August 16, 2007, Kent Rodriguez, the Company's President and CEO, presented a proposal to the Board of Directors to spin-off Oiltek Inc. ("Oiltek"), which specializes in oil and gas recovery technology to Avalon's shareholders. The oil and gas technology include, but are not limited, to the Patent; a system to detect hazardous gas leaks including small leaks in natural gas pipelines; and a system for intelligent drilling and completion sensors to provide real-time oil reservoir monitoring of subsurface information. On September 22, 2007 the Company entered into an agreement with respect to its purchase of a 75.6% interest in Oiltek for $50,000 and the right of Oiltek to promote Avalon's intellectual property. We are working with IP Technology Exchange, Inc. to market this intellectual property. On October 10, 2013, the Company entered into a Technology Scouting Agreement with IP Technology Exchange, Inc. ("IP TechEx"), to identify potential technology acquisition and licensing opportunities. Our alliance with IP TechEx will enable us to develop a portfolio of new technologies within the oil and gas industry. On December 1, 2014, the Company acquired a license for proprietary products and solutions to prevent corrosion on new sump equipment and sump equipment currently in use. These proprietary products can be used on new or used sump equipment and will substantially minimize corrosion. On December 15, 2014, the Company renewed its Technology Scouting Agreement with IP TechEx for an additional three (3) years. GOING CONCERN The June 30, 2015, financial statements have been prepared assuming the Company will continue as a going concern. However, the Company has incurred a loss of $30,808,171 from inception through June 30, 2015, and has a working capital deficiency of $91,353 and stockholders’ equity of $1,943,854 as of June 30, 2015. The Company currently has minimal revenue generating operations and expects to incur substantial operating expenses in order to expand its business. As a result, the Company expects to incur operating losses for the foreseeable future. The Company will continue to seek equity and debt financing to meet our operating losses. The accompanying consolidated financial statements do not include any adjustments that might become necessary should the Company be unable to continue as a going concern. - 21 - Financing Activities We have been funding our obligations through the issuance of our Common Stock for services rendered and for notes payable owed or for cash in private placements. The Company may seek additional funds in the private or public equity or debt markets in order to execute its plan of operation and business strategy. There can be no assurance that we will be able to attract capital or obtain such financing when needed or on acceptable terms in which case the Company's ability to execute its business strategy will be impaired. Results of Operations Results of Operations Three month periods ended June 30, 2015 compared to the three month period ended June 30, 2014: Revenues Revenues for the three months ended June 30, 2015 were $8,531, a decrease of $15,970 or approximately 65% compared to revenue of $24,501 for the three months ended June 30, 2014. Revenues decreased as a result of the lower market price of oil and natural gas. Lease Operating Expenses During the three months ended June 30, 2015, our lease operating expenses were $10,547, a decrease of $9,000 or approximately 46% compared to $19,547 for the three months ended June 30, 2014. The decrease was due to the completion of workover expense on the Company's properties in Miller County, Arkansas. Selling, General, and Administrative Expenses Selling, general and administrative expenses for the three months ended June 30, 2015 were $74,053, an increase of $617 or approximately 1% compared to selling, general and administrative expenses of $73,436 during the three months ended June 30, 2014. Selling, general and administrative expenses for the three months ended June 30, 2014 consisted primarily of payroll and related costs of $12,000, legal and accounting fees in the amount of $16,400, travel and entertainment expenses of $28,176, facilities costs in the amount of $3,000, and office and miscellaneous expenses of $14,477. Stock Based Compensation Non-cash compensation for the three months ended June 30, 2015 was $20,333, compared to non-cash compensation of $14,000 for the three months ended June 30, 2014, or an increase of 6,333 or 45%. The incense was the result of a the amortization of shares issued to Consultants for services rendered, Depreciation, Depletion, and Amortization Depreciation, Depletion, and Amortization was $14,568 for the three months ended June 30, 2015, a decrease of $5,064 or approximately 26% compared to $19,632 for the three months ended June 30, 2014. The decrease was due to lower depletion costs during the three months ended June 30, 2015. Interest Income, net of Interest Expense Interest income was $4,950 for the three months ended June 30, 2015 compared to interest expense of $10,604 for the three months ended June 30, 2014. The interest income was due to the forgiveness of interest on a $25,000 promissory note that was exchanged for 25 shares of the Company’s Series B Preferred Stock. Net Income (Loss) Our net income for the three months ended June 30, 2015, was $138,952 an increase of $241,750 or approximately 235% compared to a net loss of $102,618, during the three months ended June 30, 2014. The increase in net income was due to a gain on the settlement of an account payable of $280,972.06 for $5,000 in cash, a $5,000 promissory note and 650,000 shares of the Company’s common stock. - 22 - LIQUIDITY AND CAPITAL RESOURCES The June 30, 2015, financial statements have been prepared assuming the Company will continue as a going concern. However, the Company has incurred a loss of $30,808,171 from inception through June 30, 2015, and has a working capital deficiency of $91,353 and stockholders’ equity of $1,943,854 as of June 30, 2015. The Company currently has minimal revenue generating operations and expects to incur substantial operating expenses in order to expand its business. As a result, the Company expects to incur operating losses for the foreseeable future. The Company will continue to seek equity and debt financing to meet our operating losses. The accompanying consolidated financial statements do not include any adjustments that might become necessary should the Company be unable to continue as a going concern. Our cash and cash equivalents were $128,818 on June 30, 2015, compared to $135,713 on March 31, 2015. We met our liquidity needs through the issuance of our common and preferred stock for cash and the revenue derived from our oil and gas operations. We need to raise additional capital during the fiscal year, but currently have not acquired sufficient additional funding. Our ability to continue operations as a going concern is highly dependent upon our ability to obtain immediate additional financing, or generate revenues from our acquired oil and gas leasehold interest, and to achieve profitability, none of which can be guaranteed. Unless additional funding is obtained, it is highly unlikely that we can continue to operate. There is no assurance that even with adequate financing or combined operations, we will generate revenues and be profitable. Ultimately, our success is dependent upon our ability to generate revenues from our acquired oil and gas leasehold interests. Investing activities During the three months ended June 30, 2015, we invested $714 a decrease of $4,285 compared $4,999 or 85% during the three months ended June 30, 2014. Financing Activities During three months ended June 30, 2015, we received $100,000 from the sale of preferred stock and paid dividends on preferred stock of $13,500. During the three months ended June 30, 2014, we received did not receive any cash from the sale of common stock or preferred stock and paid dividends on preferred stock of $35,000. Operating activities Our net income for the three months ended June 30, 2015, was $138,952 an increase of $241,570 or approximately 235% compared to a net loss of $102,618, during the three months ended June 30, 2014. The increase in net income was due to a gain on the settlement of an account payable of 280,972.06, for $5,000 in cash, the issuance of a $5,000 promissory note and the issuance of 650,000 shares of the Company’s common stock. The common stock was valued at $.04 per share, and was based on the closing bid price. Critical Accounting Policies The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based on information available. These estimates and assumptions affect the reporting amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. A summary of the significant accounting policies is described in Note 1 to the financial statements. Recently Issued Accounting Pronouncements Management does not believe that any recently issued, but not yet effective, accounting standards or pronouncements, if currently adopted, would have a material effect on the Company’s condensed consolidated financial statements. - 23 - Off-Balance Sheet Arrangements We have no off-balance sheet arrangements. Material Commitments We have no material commitments during the next twelve (12) months. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This information has been omitted, as the Company qualifies as a smaller reporting company.