GROOVE BOTANICALS INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Edgar Glimpses |

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") (formally known as Avalon Oil & Gas, Inc.), was originally incorporated in Colorado in 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 . In late 1993, the Company relocated its operations to Minnesota and in changed our name to Snow Runner, Inc. In we changed our name to the Sled Dogs Company. On , we filed for protection under Chapter 11 of the U.S. Bankruptcy Code. In , 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 , 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 , 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 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 shall receive one (1) post-split Share on the effective date of for each three hundred (300) Shares owned. The reverse split was effective on . On , 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 , to increase our authorized shares to 200,000,000.

On 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 .



Corporate Strategy


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

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



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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 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 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 compared to the three month period ended :



Revenues


Revenues for the three months ended were $17,898, an increase of $9,367 or approximately 110% compared to revenue of $8,531 for the three months ended . Revenues increased as a result of consulting income.



Lease Operating Expenses


During the three months ended , our lease operating expenses were $19,115, an increase of $8,568 or approximately 81% compared to $10,547 for the three months ended . The increase was due to the workover expense on the Company's properties in Miller County, Arkansas.



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Selling, General, and Administrative Expenses

Selling, general and administrative expenses for the three months ended were $21,937, a decrease of $52,116 or approximately 70% compared to selling, general and administrative expenses of $74,053 during the three months ended . Selling, general and administrative expenses for the three months ended consisted primarily of payroll and related costs of $12,000, legal and accounting fees in the amount of $500, travel and entertainment expenses of $1,549, facilities costs in the amount of $3,000, and office and miscellaneous expenses of $7,888.



Stock Based Compensation


We did not have any stock based compensation for the three months ended , compared to stock based compensation of $20,333 for the three months ended .

Depreciation, Depletion, and Amortization

Depreciation, Depletion, and Amortization was $6,253 for the three months ended , a decrease of $8,315 or approximately 57% compared to $14,568 for the three months ended . The decrease was due to no amortization and lower depletion costs during the three months ended .

Interest Income, net of Interest Expense

Interest expense was $2,868 for the three months ended compared to interest income of $4,950 for the three months ended . The interest income for the three months ended 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 loss for the three months ended , was $32,275. We had net income of $138,952 for the three months ended 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 the issuance of 650,000 shares of the Company's common stock.

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 $107,302 on , compared to $108,220 on . 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.

As of , the Company had a working capital deficit of $754,896, had incurred losses since inception of $33,699,087, 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.



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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 did not invest any funds during the three months ended , we invested $714 during the three months ended .



Financing Activities


We did not receive any funds from investing activities during the three months ended . During the three months ended , we received $100,000 from the sale of preferred stock and paid dividends on preferred stock of $13,500.




Operating activities



Our net loss for the three months ended , was $32,275 compared to net income of $138,952, during the three months ended . The net income for the three months ended 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 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.



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Material Commitments


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

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