GROOVE BOTANICALS INC. 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with our financial statements and the 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. Corporate Structure Groove Botanicals, Inc. (the "Company") (formerly known as Avalon Oil & Gas, Inc.), was originally incorporated in Colorado in April 1991 under the name Snow Runner (USA), Inc. The Company was the general partner of Snow Runner (USA) Ltd.; a Colorado limited partnership to sell proprietary snow skates under the name "Sled Dogs" which was dissolved in August 1992. In late 1993, the Company relocated its operations to Minnesota and in January 1994 changed our name to Snow Runner, Inc. In November 1994 we changed our name to the Sled Dogs Company. On November 5, 1997, we filed for protection under Chapter 11 of the U.S. Bankruptcy Code. In September 1998, we emerged from protection of Chapter 11 of the U.S. Bankruptcy Code. In May, 1999, we changed our state of domicile to Nevada and our name to XDOGS.COM, Inc. On July 22, 2005, the Board of Directors and a majority of the Company's shareholders approved an amendment to our Articles of Incorporation to change the Company's name to Avalon Oil & Gas, Inc., and to increase the authorized number of shares of our common stock from 200,000,000 shares to 1,000,000,000 shares par value of $0.001, and engage in the acquisition of producing oil and gas properties. On November 16, 2011, a majority of the Company's shareholders approved an amendment to our Articles of Incorporation to increase the authorized number of shares of our common stock from 1,000,000,000 shares to 3,000,000,000 shares par value of $0.001. This amendment was not filed with the Nevada Secretary of State. On June 4, 2012 the Board of Directors approved an amendment to our Articles of Incorporation to a reverse split of the issued and outstanding shares of Common Stock of the Corporation (“Shares”) such that each holder of Shares as of the record date of June 4, 2012 shall receive one (1) post-split Share on the effective date of June 4, 2012 for each three hundred (300) Shares owned. The reverse split was effective on July 23, 2012. On September 28, 2012, we held a special meeting of Avalon’s shareholders and approved an amendment to the Company’s Articles of Incorporation such that the Company would be authorized to issue up to 200,000,000 shares of common stock. We filed an amendment with the Nevada Secretary of State on April 10, 2013, to increase our authorized shares to 200,000,000. On January 12, 2018, our Board of Directors agreed to amend Designation of the Series A Convertible Preferred Stock be amended by changing the ratio for conversion, in Article IV, subparagraph (a), from .4% to .51% so that upon conversion the number of shares of common stock to be exchanged shall equal 51% of then issued and outstanding common stock. The note payable in the amount of $50,000, issued on November 11, 2008, and its accrued interest, and the $30,000 note payable, issued in the amount of $50,000 on January 27, 2009, and its accrued interest, were settled on March 9, 2018 for $2,500 plus the issuance of 600,000 shares of Common Stock The principal and accrued interest on $60,000 notes payables were settled on March 20, 2018 for $5,000. On March 21, 2018 the Board of Directors and a majority of the Company's shareholders approved an amendment to our Articles of Incorporation to change the Company's name to Groove Botanicals, Inc. We filed an amendment to our Articles of Incorporation with the State of Nevada on May 18, 2018. The maturity of notes payable, amount of $9,200, has been extended until April 1, 2018. The outstanding principal balance and all outstanding interest was converted into 1,850,000 shares in subsequent three months. Corporate Strategy Our Company’s new name reflects our new corporate direction as a consumer health products company dedicated to improving people’s health and well-being. We will assemble a portfolio of assets via royalty agreements, equity investments, and licensing agreements, as well as develop our own proprietary CB3 skin care products. Our products will contain premium hemp extracts with a broad range of cannabinoids, including cannabidiol (CBD). CBD is a cannabinoid compound naturally derived from the hemp plant. It is not a drug and has no intoxicating effects, but has a long history of natural uses. Recent breakthroughs in research have shown the powerful health benefits of CBD on the body. CBD is also rich in vitamins A, B, D, and E, antioxidants, and fatty acids, all of which dramatically improve skin health. When applied topically to the skin, CBD has been shown to reduce inflammation, retain skin moisture levels, reduce cellular damage, inhibit oil production leading to breakouts, and protect skin from free radicals that damage collagen and elastin. 20 We have partnered with top leaders in CBD research, cultivation, and extraction to create the world’s finest cannabis skincare product line. Our Groove Botanicals, Inc. proprietary CB3 launches with three foundational products: Revita Wash, a gentle yet effective daily wash that removes toxins and smooths skin; Phyto Lotion, a light-weight, long-lasting daily moisturizer that hydrates, softens, and protects; and Eye Matter, a powerfully effective eye cream that diminishes dark circles, puffiness, expression lines, and wrinkles. Together, these products offer a minimalist skincare routine designed to deliver immediate and transformative results to all skin types. We are also proud to say that our products are 100% American made and non-toxic, paraben free, sulfate free, artificial fragrance free, dye free, vegan, animal by-product free, and 100% pet friendly. We look forward to announcing further developments in the coming months as we expand and develop both our CBD skin care line and our other innovative new product lines. We plan to raise additional capital during the coming fiscal year, but currently have not identified additional funding sources. Our ability to continue operations is highly dependent upon our ability to obtain additional financing, or generate revenues from the sale of our CBD skincare products, none of which can be guaranteed. Ultimately, our success is dependent upon our ability to generate revenues from the sale our CBD skincare products, and to achieve profitability, which is dependent upon a number of factors, including general economic conditions and the sustained profitability resulting from the sale of our CBD skincare products. There is no assurance that even with adequate financing or combined operations, we will generate revenues and be profitable. PATENTS, TRADEMARKS, AND PROPRIETARY RIGHTS On July 18, 2018 the Company filed five trademark applications with the United States Patent and Trademark Office for CB3SKINCARE: U.S. Trademark Application Serial No. 88/040,563, CB3: U.S. Trademark Application Serial No. 88/040,571, EYE MATTER: U.S. Trademark Application Serial No. 88/040,574, REVITA WASH: U.S. Trademark Application Serial No. 88/040,580, and TAKE YOUR SKIN HIGHER: U.S. Trademark Application Serial No. 88/040,584. 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, 2017 compared to the three month period ended June 30, 2016: 21 Revenues Revenues for the three months ended June 30, 2017 were $11,731, a decrease of $6,167 compared to revenue of $17,898 for the three months ended June 30, 2016. Revenues decreased due to no consulting income earned during the three months ended June 30, 2017. Lease Operating Expenses During the three months ended June 30, 2017, our lease operating expenses were $12,973, a decrease of $6,142 compared to $19,115 for the three months ended June 30, 2016. The decrease was due to the workover expense on the Company's properties in Miller County, Arkansas and Lincoln County, Oklahoma during the three months ended June 30, 2016, which was not incurred in the three months ended June 30, 2017. Selling, General, and Administrative Expenses Selling, general and administrative expenses for the three months ended June 30, 2017 were $20,026, a decrease of $1,911 compared to selling, general and administrative expenses of $21,937 during the three months ended June 30, 2016. Selling, general and administrative expenses for the three months ended June 30, 2017 consisted primarily of payroll and related costs of $12,000, travel and entertainment expenses of $334, facilities costs in the amount of $1,200, and office and miscellaneous expenses of $6,492. Depreciation, Depletion, and Amortization Depreciation, Depletion, and Amortization was $2,849 for the three months ended June 30, 2017, a decrease of $3,404 compared to $6,253 for the three months ended June 30, 2016. The decrease was due to lower depletion costs during the three months ended June 30, 2017. Other Miscellaneous Loss We sold the property in Lipscomb County, Texas, for $13,000, with a $3,564 loss in sale of the property during the three month periods ended June 30, 2017. We did not have any other miscellaneous loss for the three months ended June 30, 2016. Interest Income, net of Interest Expense Interest expense was $2,870 for the three months ended June 30, 2017 compared to interest expense of $2,868 for the three months ended June 30, 2016. Net Loss Our net loss for the three months ended June 30, 2017, was $30,551, a decrease of $1,724 compared to a net loss of $32,275 for the three months ended June 20, 2016. The decrease was due to lower operating costs, selling, general, and administrative expenses, and depreciation, depletion, and amortization expenses for the three months ended June 30, 2017. LIQUIDITY AND CAPITAL RESOURCES The Company has minimal revenues from our remaining oil and gas assets. We are in need of additional cash resources to maintain our operations. Our cash and cash equivalents were $102,024 on June 30, 2017, compared to $104,574 on March 31, 2017. We met our liquidity needs through the revenue derived from our oil and gas operations and advances from our President. 22 As of June 30, 2017, the Company had a working capital deficit of $1,004,856, had incurred losses since inception of $34,161,557, and have not yet received any revenue from the sale our CBD skincare products. These factors raise substantial doubt about its ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent on its ability to raise additional capital or obtain necessary debt financing. The Company is presently dependent on its controlling shareholder to provide us funding for its daily operation and expenses, including professional fee and fees charged by regulators, although he is under no obligation to do so. The Company intends to meet the cash requirements for the next 12 months from the issuance date of this report through a combination of debt and equity financing by way of private placements, friends, family and business associates. The Company currently did not have any arrangements in place to complete any private placement financings and there is no assurance that the Company will be successful in completing any such financings on terms that will be acceptable to it. If we do not have sufficient working capital to pay our operating costs for the next 12 months, we will require additional funds to pay our legal, accounting and other fees associated with our Company and our filing obligations under United States federal securities laws, as well as to pay our other accounts payable generated in the ordinary course of our business. Once these costs are accounted for, we will focus on the manufacture and sale of our CBD skincare products. Any failure to raise money will have the effect of delaying the timeframes in the business plan as set forth above, and the Company may have to push back the dates of such activities. The financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred losses and further losses are anticipated as a result of the development of business which raises substantial doubt about the Company’s ability to continue as a going concern within the next twelve months from the issuance date of this report. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining financing necessary to meet the Company’s obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand and loans from directors and/or private placement of the Company’s common stock. Ultimately, our success is dependent upon our ability to generate revenues from the sale of our CBD skincare products. Investing activities We sold the property in Lipscomb County, Texas, for $13,000, with $3,564 loss in sale of the property during the three month periods ended June 30, 2017. We did not invest any funds during the three months ended June 30, 2016. Financing Activities We did not receive any funds from financing activities during the three months ended June 30, 2017 and June 30, 2016. Operating activities Our net loss for the three months ended June 30, 2017, was $30,551 compared to net loss of $32,275, during the three months ended June 30, 2016. The decrease was due to lower operating costs, selling, general, and administrative expenses, and depreciation, depletion, and amortization expenses for the three months ended June 30, 2017. 23 Critical Accounting Policies The condensed 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 Policies For a discussion of recent accounting pronouncements, see Note 1 to our Financial Statements – “DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.” 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.