GRVE 10-Q
Groove Botanicals Inc. (GRVE)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM
____________
For the quarterly period ended
Or
For the transition period from ___________ to ___________
Commission File Number:
(Exact Name of Small Business Issuer as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. employer identification no.) |
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act: None
| Title of each class | Trading Symbol(s) |
Name of each exchange on which registered | ||
| N/A | N/A | N/A |
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.
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☑ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
shares of our common stock were issued and outstanding as of February 13, 2024.
Table of Contents
2
Groove Botanicals, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
| (Unaudited) | (Audited) | |||||||
| December 31, | March 31, | |||||||
| 2023 | 2023 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and Cash Equivalents | $ | $ | ||||||
| Accounts Receivable | ||||||||
| Prepaid Expenses | ||||||||
| Total Current Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES & STOCKHOLDERS' EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts Payable and Accrued Liabilities | $ | $ | ||||||
| Interest Payable | ||||||||
| Related Party Payable | ||||||||
| Convertible Notes Payable | ||||||||
| Dividends Payable - Related Party | ||||||||
| Total Current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Stockholders' Deficit | ||||||||
| Preferred Stock, Series A, $ par value, shares authorized; shares issued and outstanding as of December 31, 2023, and March 31, 2023 | ||||||||
| Preferred Stock, Series B, $ par value, shares authorized; shares issued and outstanding as of December 31, 2023, and March 31, 2023 | ||||||||
| Common Stock, $ par value, shares authorized; and shares issued and outstanding as of December 31, 2023 and March 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholder's deficit | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
3
Groove Botanicals, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months ended | Nine Months ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Expenses: | ||||||||||||||||
| Selling, General and Administrative Expenses | $ | $ | $ | $ | ||||||||||||
| Rent | ||||||||||||||||
| Legal and Professional Expenses | ||||||||||||||||
| Consulting Expense | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Operating Loss | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other Income (Expense) | ||||||||||||||||
| Amortization of Debt Discount | ( |
) | ( |
) | ||||||||||||
| Change in Derivative Liability | ||||||||||||||||
| Gain on Settlement of Debt | ||||||||||||||||
| Interest Expense | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Total Other Income (Expense) | ( |
) | ||||||||||||||
| Net income (loss) | $ | $ | ( |
) | $ | ( |
) | ( |
) | |||||||
| Dividend on Preferred Stock | ||||||||||||||||
| Loss attributed to common stockholders | $ | ( |
$ | ( |
) | $ | ( |
$ | ( |
) | ||||||
| Basic and Diluted Earnings (Loss) per Common Share | $ | $ | ) | ) | $ | ) | ||||||||||
| Weighted Average Common Shares Outstanding – Basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
4
Groove Botanicals, Inc.
Condensed Consolidated Statements of Stockholders' Equity
For the Nine Months Ended December 31, 2022
| Series A Preferred Stock |
Series B Preferred Stock |
Common Stock | Common Stock to be Issued |
Additional Paid In Capital |
Accumulated Deficit |
Total | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Amount | Amount | Amount | ||||||||||||||||||||||||||||||
| Balance, March 31, 2022 (Audited) | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||||||||
| Issuance of Stock for Cash Received in Prior Period | — | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| Net Income | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 (Unaudited) | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||||||||
| Net Loss | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 (Unaudited) | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||||||||
| Issuance of Stock for Cash | — | — | - | |||||||||||||||||||||||||||||||||||||
| Issuance of Stock for Consulting | — | — | - | |||||||||||||||||||||||||||||||||||||
| Net Loss | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 (Unaudited) | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||||||||
Groove Botanicals, Inc.
Consolidated Statements of Stockholders' Equity
For the Nine Months Ended December 31, 2023
| Series A Preferred Stock |
Series B Preferred Stock |
Common Stock | Common Stock to be Issued |
Additional Paid In Capital |
Accumulated Deficit |
Total | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Amount | Amount | Amount | ||||||||||||||||||||||||||||||
| Balance, March 31, 2023 (Audited) | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||||||||
| Issuance of Stock for Consulting | — | — | — | |||||||||||||||||||||||||||||||||||||
| Accrual of Preferred Dividends to Related Party | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||
| Net Loss | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 (Unaudited) | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||||||||
| Accrual of Preferred Dividends to Related Party | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||
| Net Loss | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 (Unaudited) | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||||||||
| Issuance of Stock for Cash | ||||||||||||||||||||||||||||||||||||||||
| Accrual of Preferred Dividends to Related Party | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||
| Net Income | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2023 (Unaudited) | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
5
Groove Botanicals, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| For the Nine Months Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flow From Operating Activities | ||||||||
| Net (Loss) | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Amortization of Debt Discount | ||||||||
| Change in Derivative Liability | ( | ) | ||||||
| Gain on Settlement of Debt | ( | ) | ( | ) | ||||
| Stock-Based Compensation for Consulting | ||||||||
| Accrued Interest | ||||||||
| Accrued Payroll | ||||||||
| Accounts Payable and Accrued Liabilities - Related Party | ||||||||
| Changes in working capital | ||||||||
| Decrease in Accounts Receivable | ||||||||
| Decrease in Prepaid Expenses | ||||||||
| Increase (Decrease) in Accounts Payable and Accrued Liabilities | ( | ) | ||||||
| Net Cash Used in Operating Activities | ( | ) | ( | ) | ||||
| Cash Flow From Investing Activities | ||||||||
| Net Cash Provided by (Used in) Investing Activities | ||||||||
| Cash Flow From Financing Activities | ||||||||
| Funds Received from Related Party | ||||||||
| Funds Distributed to Related Party | ( | ) | ( | ) | ||||
| Funds received from issuance of common stock | ||||||||
| Repayment of Outstanding Convertible Debt | ( | ) | ( | ) | ||||
| Repayment of Outstanding Contingent Liability | ( | ) | ||||||
| Net Cash Provided by (Used in) Financing Activities | ||||||||
| Net Change in Cash | ( | ) | ( | ) | ||||
| Cash at Beginning of Period | ||||||||
| Cash at End of Period | $ | $ | ||||||
| Net cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income Taxes | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
6
GROOVE BOTANICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2023 AND 2022
(UNAUDITED)
NOTE 1 - ORGANIZATION AND OPERATIONS
Current Operations
Groove Botanicals (“GRVE” or the “Company” or the “Corporation”), a Nevada corporation, is a publicly quoted independent oil and gas producer.
Corporate History
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
In May 1999, we changed our state of domicile to Nevada and our name to XDOGS.COM, Inc.
On July 31, 1998, the Corporation split their shares One (1) for Fifty-Four (54).
On August 24, 2000, the Corporation split their shares One (1) for Five (5) and changed our name from XDOGS.COM to XDOGS, Inc. We changed our symbol from XDGS to XDGI.
On June 22, 2005, the Corporation changed our name from XDOGS, Inc. to Avalon Oil and Gas, Inc. We changed our symbol from XDGI to AOGS.
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 shares par value of $.
On May 15, 2007, the Corporation split their shares One (1) for Twenty (20). We changed our symbol from AOGS to AOGN.
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 shares of common stock. We filed an amendment with the Nevada Secretary of State on April 10, 2013, to increase our authorized shares to .
On July 23, 2012,
On May 14, 2018, the Corporation changed our name from Avalon Oil and Gas, Inc., to Groove Botanicals, Inc. We changed our symbol from AOGN to GRVE. On September 14, 2023, we filed a Form 10 with the Securities and Exchange Commission which will become effective on November 13, 2023.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United Stated of America (“U.S. GAAP”) for unaudited financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The unaudited consolidated financial statements include all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary in order to make the condensed financial statements not misleading. The audited consolidated balance sheet as of March 31, 2023, was derived from the Company’s audited consolidated financial statements at that date.
7
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Specifically, such estimates were made by the Company for the valuation of derivative liability, stock compensation and beneficial conversion feature expenses. Actual results could differ from those estimates.
Financial Instruments
Pursuant to ASC Topic 820, Fair Value Measurements, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
| · | Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. |
| · | Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets: quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. |
| · | Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. |
Basic net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share gives the effect to all dilutive potential common shares outstanding during the period, including stock options, warrants and convertible instruments. Diluted net loss per share excludes all potentially issuable shares if their effect is anti-dilutive. Under the provisions of ASC 260, “Earnings per Share,” basic loss per common share is computed by dividing net loss available to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the income of the Company, subject to anti-dilution limitations. The Company has excluded some instruments from its dilutive shares calculations due to the instruments being anti-dilutive. These instruments previously referenced are convertible preferred shares, specifically Series A preferred shares which can be converted into common shares which after their conversion, would be equal to 51% of the issued and outstanding common stock following the moment of conversion. Furthermore, on January 12, 2018, our Board of Directors agreed that the Designation of the Series A Convertible Preferred Stock be amended by changing the ratio for conversion, in Article IV, subparagraph (a), from 0.4% to 0.51% so that upon conversion the number of shares of common stock to be exchanged shall equal 51% of then issued and outstanding common stock.
Recently Adopted Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations.
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.
8
On December 18, 2019, the FASB issued ASU 2019-12 which modifies ASC 740 to simplify the accounting for income taxes. The ASU’s amendments are based on changes that were suggested by stakeholders as part of the FASB’s simplification initiative (i.e., the Board’s effort to reduce the complexity of accounting standards while maintaining or enhancing the helpfulness of information provided to financial statement users).
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 it 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.
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.
Beneficial Conversion Feature
The Company measures its convertible debt using a nondetachable conversion feature known as a beneficial conversion feature, or BCF. A convertible instrument contains a BCF when the conversion price is less than the fair value of the shares into which the instrument is convertible at the commitment date. From time to time, the Company may issue convertible notes that may contain a beneficial conversion feature. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of the warrants, if related warrants have been granted. The intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid-in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method.
Debt Issuance Cost
Debt issuance costs incurred in connection with the issuance of debt are capitalized and amortized to interest expense over the term of the debt using the effective interest method. The unamortized amount is presented as a reduction of debt on the balance sheet.
In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20 that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock. Two methods of transition were permitted upon adoption: full retrospective and modified retrospective. The Company has yet to adopt ASC 2020-06, and expects to adopt this policy on January 1, 2024. The accounting impact will be a reclassification from Additional Paid-In Capital to Retained Earnings.
NOTE 3 - GOING CONCERN
The accompanying condensed consolidated financial statements
have been prepared on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal
course of business. As shown in the consolidated financial statements, the Company has incurred recurring net losses since its inception
and has raised limited capital. The Company had a net loss of $
9
NOTE 4 – CASH
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of December 31, 2023, the Company’s cash consisted of non-restricted cash.
NOTE 5 – FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments are cash, accounts receivable, accounts payable, notes payable, notes receivable and their carrying amounts are approximate their fair values based on their short-term nature. The recorded values of notes payable and notes receivable approximate their fair values, as interest approximates market rates. Furthermore, the Company had derivative liabilities in its prior fiscal year, which it considered to be a level 3 liability. For more information on the valuation method used for determining the value of the derivative liability, see Note 11.
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”) and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
| Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. | |
| Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. | |
| Level 3 | Pricing inputs that are generally observable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. A slight change in unobservable inputs such as volatility can significantly have a significant impact on the fair value measurement of the derivatives liabilities.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts of the Company’s financial assets and liabilities, such as cash and accounts payable approximate their fair values because of the short maturity of these instruments.
NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The Company had accounts payable and accrued liabilities
of $
NOTE 7 – RELATED PARTY TRANSACTIONS
The Company had a related party payables of $
On June 3, 2022, the Company received a loan from a related party in the amount
of $
10
During the nine months ended December 31, 2023, the Company
received accumulated advances for operational shortfalls of $
NOTE 8 – CONVERTIBLE NOTES PAYABLE
| (a) | The convertible notes payable consisted of a $ |
| (b) | The convertible notes payable also consists of a $ |
| (c) | On July 23, 2021, the Company issued a convertible promissory note in the amount of $ |
11
| (d) | On October 1, 2021, the Company issued a convertible promissory
note in the amount of $ |
| (e) | On March 7, 2022, the Company issued a convertible promissory note in the amount of $ |
The Company had convertible notes payable of $
| December 31, 2023 |
March 31, 2023 |
|||||||
| Beginning Balance | $ | $ | ||||||
| Repayments in cash | ( |
( |
) | |||||
| Extinguishment under settlement agreement | ( |
( |
) | |||||
| Amortization of discounts | ||||||||
| Convertible notes payable, net (Ending Balance) | $ | $ | ||||||
Below is the summary of the principal balance and debt discounts as of December 31, 2023:
| Convertible Promissory Note Holder |
Start Date | End Date | Initial Note Principal Balance | Debt Discounts as of Issuance |
Amortization | Debt Discounts as of December 31, 2023 and March 31, 2023 | ||||||
| Robert Hymers III | $ |
$ |
($ |
|||||||||
| Robert Hymers III | $ |
$ |
($ |
|||||||||
| Total | ||||||||||||
| Remaining note principal balance | $ | |||||||||||
| Total convertible promissory notes, net | $ | |||||||||||
NOTE 9 – PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of Preferred Stock. We have authorized shares of Series A Preferred Stock and shares of Series B Preferred Stock, respectively, both with a par value of $. As of December 31, 2023 and March 31, 2023, there were and shares issued and outstanding for Series A Preferred Stock and Series B Preferred Stock, respectively.
12
Series A Preferred Stock holds designations of cash
dividends at the rate of 8% of the amount per share of Series A Preferred Stock per annum in the form of “Preferred Dividends”,
voting rights on an as-converted to Common Stock basis, liquidation preferences, and conversion rights in which each share of Series A
Preferred Stock shall, upon conversion, represent 0.51% of the then “Fully-Diluted Shares Outstanding” of the Company. 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 0.4% to 0.51% so that upon conversion the number of shares of common stock
to be exchanged shall equal 51% of then issued and outstanding common stock. In addition, on January 12, 2018, the Company and the Series
A Holder agreed to forgive all accrued interest to date on the Series A, and to pause any accruals until April 1, 2023. The Series A Convertible
Preferred Stock carries liquidating preference, over all other classes of stock, equal to the amount paid for the stock plus any unpaid
dividends. Currently the value of the liquidation preference is $
Series B Preferred Stock holds designations of being ranked
junior to the Series A Preferred Stock, cash dividends at the rate of 9% of the amount per share of Series B Preferred Stock per annum
in the form of “Preferred Dividends”, a dividend received deduction for federal income tax purposes, liquidation preferences
ranked junior to the Series A Preferred Stock, redemption of the Series B Preferred Stock by the Company at 105% of the Stated Value,
plus accrued and unpaid Dividends, if prior to the two year anniversary of the Issuance Date, or at 100% of the State Value, plus accrued
and unpaid Dividends, if on or after the two year anniversary of the Issuance Date, no voting rights, and right to notice of certain corporate
action. All accrued dividends on the Series B has been settled through March 31, 2023, and none currently remains outstanding. Dividends
began to accrue on the Series B Preferred Stock as of April 1, 2023. During the three and nine months ended December 31, 2023, the holder
of the Series B preferred shares accrued $
NOTE 10 – COMMON STOCK
The Company is authorized to issue shares of Common Stock, with a par value of $.
On April 8, 2022, the Company issued shares
of common stock, 250,000 each to two separate parties, of which it had previously committed in exchange for $
On April 8, 2022, the Company issued shares
of common stock, of which it had previously committed in exchange for $
On April 15, 2023, the Company issued shares of common stock in exchange for consulting services. These shares were valued at $ per shares per their corresponding consulting agreement.
On December 20, 2023, the Company issued
shares of common stock in exchange for $
The Company had and shares of common stock issued and outstanding as of December 31, 2023, and March 31, 2023, respectively.
NOTE 11 – DERIVATIVE FINANCIAL INSTRUMENTS
Our Company evaluates all
of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.
For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair
value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations.
The fair value of derivative instruments is recorded and shown separately under liabilities. Changes in the fair value of derivatives
liability are recorded in the consolidated statement of operations under other (income) expense. For stock-based derivative financial
instruments, the Company uses Black-Scholes Option Pricing model to value the derivative instruments at inception and on subsequent valuation
dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity,
is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or
non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance
sheet date. As of December 31, 2023, and March 31, 2023, the Company had
13
NOTE 12: COMMITMENTS AND CONTINGENCIES
As of December 31, 2023, the
In the normal course of business, we are subject to potential claims and disputes related to our business, including disputes with third parties over financing arrangements, as well as over service agreements with contractors. Some of these matters may be covered by our insurance and risk management programs or may result in claims or adjustments with our carriers. Management does not believe that the outcome of any of the legal proceedings to which the Company is a party will have a material adverse effect on its financial position or results of operations.
On January 30, 2018, the Company issued a $
On June 3, 2022, the Company satisfied the convertible
debt and related contingent liability mentioned in the preceding paragraph in the amounts of $
NOTE 13 – SUBSEQUENT EVENTS
Management has evaluated subsequent events pursuant to the requirements of ASC Topic 855 and has determined that no material subsequent events exist through the date of this filing apart from the following:
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains predictions, estimates and other forward-looking statements relating to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “intends,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these terms or other comparable terminology. Forward-looking statements involve known and unknown risks, uncertainties and other factors including the risks set forth in the section entitled “Risk Factors” in our Form 10 as filed with the Securities and Exchange Commission (the “SEC”) on April 18, 2023 and our Form 10-K/A as filed on November 6, 2023, that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements.
Forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Report. You should read this Report with the understanding that our actual future results may be materially different from what we expect.
All forward-looking statements speak only as of the date on which they are made. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made, except as required by federal securities and any other applicable law.
The management’s discussion and analysis of our financial condition and results of operations are based upon our condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements for the three and nine months ended December 31, 2023, and the notes thereto appearing elsewhere in this Report and the Company’s audited financial statements for the fiscal year ended March 31, 2023 included in our Form 10 as filed with the Securities and Exchange Commission (the “SEC”) on November 6, 2023.
General Overview
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 July 31, 1998, the Corporation split their shares One (1) for Fifty-Four (54). In May 1999, we changed our state of domicile to Nevada and our name to XDOGS.COM, Inc. On August 24, 2000, the Corporation split their shares One (1) for Five (5) and changed our name from XDOGS.COM to XDOGS, Inc. We changed our symbol from XDGS to XDGI. On June 22, 2005, the Corporation changed our name from XDOGS, Inc. to Avalon Oil and Gas, Inc. We changed our symbol from XDGI to AOGS. 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. On May 15, 2007, the Corporation split their shares One (1) for Twenty (20). We changed our symbol from AOGS to AOGN. 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 July 23, 2012, the Corporation split their shares One (1) for Three Hundred (300). On May 14, 2018, the Corporation changed our name from Avalon Oil and Gas, Inc., to Groove Botanicals, Inc. We changed our symbol from AOGN to GRVE. On August 2, 2021, we filed a Form 15-12B to suspend our duty to file reports under sections 13 and 15(d) of the securities exchange act of 1934. We filed a Form 10 Registration Statement, as amended, on September 14, 2023 which became effective on November 13, 2023.
15
Present Operations
We plan to assemble a portfolio of early-stage EV Battery Technologies developed from Universities in Norway, Sweden and Finland, and seek grants from the State of Minnesota Department of Economic Development to find and identify corporate partners to commercialize these technologies and ultimately produce revenues for the Company. The Company does not currently own any patents or technologies related to the EV battery industry, and the process to acquire patents and technologies can be costly, and as such, the Company is not guaranteed to acquire any such patents.
As the Company continues its business development and asset acquisitions, the Company anticipates our capital needs to be between $500,000 and $5,000,000 (varying based on growth strategies).
Employees
We have one full time employee, our President, Kent Rodriguez and a part time administrative assistant. The Board retains consultants and advisors on as needed basis. They are compensated with cash and also with the issuance of the Company’s common stock.
Facilities
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 $1,200.
Results of Operations
Overview
RESULTS OF OPERATIONS AND PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and notes related thereto. The discussion of results, causes and trends should not be construed to infer conclusions that such results, causes or trends necessarily will continue in the future.
For the three months ended December 31, 2023 and 2022
Revenue
During the three months ended December 31, 2023 and 2022 the Company did not report any revenue from operations.
Operating Expenses
| Three Months ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Expenses: | ||||||||
| Selling, General and Administrative Expenses | $ | 16,303 | $ | 15,467 | ||||
| Rent | 4,644 | 4,644 | ||||||
| Legal and Professional Expenses | 34,525 | 7,504 | ||||||
| Consulting Expense | — | 10,000 | ||||||
| Total Operating Expenses | $ | 55,472 | $ | 37,615 | ||||
16
During the three months ended December 31, 2023 and 2022 the Company incurred operating expenses of $55,472 and $37,615 respectively. Selling, general and administrative expenses for the three months ended December 31, 2023 were $16,303 an increase of $836, compared to selling, general and administrative expenses of $15,467 during the three months ended December 31, 2022. Selling, general and administrative expenses for the three months ended December 31, 2023, consisted primarily of payroll and related costs of $12,000, and other selling, general, and administrative expenses of $4,303. Selling, general and administrative expenses for the three months ended December 31, 2022 consisted primarily of payroll and related costs of $12,000 and administrative expenses of $3,467. The slight increase was primarily due to an increase in other general, and administrative expenses in the three months ended December 31, 2023 including Edgar filing fees and other reporting costs, when compared with the three months ended December 31, 2022. Legal fees and professional fees were substantially increased from $7,504 in the three months ended December 31, 2022 to $34,525 in the three months ended December 31, 2023 predominantly as a result of fees associated with review engagements performed by our independent registered accounting firm with respect to our quarterly reporting requirements. Rent expense over the comparative three months were consistent at $4,644 and $4,644, respectively for the three months ended December 31, 2023 and 2022. There were no consulting expenses in the three months ended December 31, 2023 as compared to $10,000 in consulting fees in the prior comparative three month period ended December 31, 2022.
Other Income/(Expense)
During the three months ended December 31, 2023 the Company recorded other income of $79,678 as compared to other expense of $3,440 in the three months ended December 31, 2022.
Amortization of Debt Discount
Amortization of debt discounts for the comparative three-month periods ended December 31, 2023, and 2022 totaled $0 and $7,561, respectively. The Company fully amortized remaining debt discounts during the fiscal year ended March 31, 2023.
Gain on Settlement of Debt
Gain on settlement of debt for the comparative three-month periods ended December 31, 2023 and 2022 were $82,178 and $0, respectively, as the Company fulfilled the terms of a prior negotiated debt settlement agreement in the current three month period and retired $100,000 in convertible debt with a cash payment of $40,000, and wrote off previously accrued interest of $22,178.
Change in Derivative Liability
The Company recorded a gain of $7,811 with respect to the change in derivative liabilities for the three months ended December 31, 2022, with no comparative results in the three months ended December 31, 2023.
Interest Expense
Interest expense for the comparative three months ended December 31, 2023 and 2022 totaled $2,500 and $3,690, respectively. The decrease to interest expense was directly related to a reduction to the principal balances of certain convertible debt period over period.
Net Loss
For the reasons stated above, we reported net income of $24,206 for the three months ended December 31, 2023 compared to a net loss of $41,055 during the three months ended December 31, 2022.
17
For the nine months ended December 31, 2023 and 2022
Revenue
During the nine months ended December 31, 2023 and 2022 the Company did not report any revenue from operations.
Operating Expenses
| Nine Months ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Expenses: | ||||||||
| Selling, General and Administrative Expenses | $ | 52,496 | $ | 54,706 | ||||
| Rent | 13,932 | 13,152 | ||||||
| Legal and Professional Expenses | 58,595 | 45,673 | ||||||
| Consulting Expense | 30,000 | 10,000 | ||||||
| Total Operating Expenses | $ | 155,023 | $ | 123,531 | ||||
During the nine months ended December 31, 2023 and 2022 the Company incurred operating expenses of $155,023 and $123,531 respectively. Selling, general and administrative expenses for the nine months ended December 31, 2023 were $52,496 a decrease of $2,210, compared to selling, general and administrative expenses of $54,706 during the nine months ended December 31, 2022. Selling, general and administrative expenses for the nine months ended December 31, 2023, consisted primarily of payroll and related costs of $36,000, and other selling, general, and administrative expenses of $16,496. Selling, general and administrative expenses for the nine months ended December 31, 2022 consisted primarily of payroll and related costs of $36,000 and administrative expenses of $18,706. The decrease was primarily due to a decrease in other general, and administrative expenses in the nine months ended December 31, 2023, when compared with the nine months ended December 31, 2022. Legal and professional fees increased from $45,673 in the nine months ended December 31, 2022 to $58,595 in the nine months ended December 31, 2023 predominantly as a result of fees associated with review engagements performed by our independent registered accounting firm with respect to our quarterly reporting requirements. Rent expense over the comparative nine months remained relatively consistent at $13,932 and $13,152, respectively for the nine months ended December 31, 2023 and 2022. Consulting expense for the nine months ended December 31, 2023 and 2022 totaled $30,000 and $10,000 respectively. Consulting expenses in the current nine months ended December 31, 2023 related to stock based compensation to a consultant by way of the issuance of 1,000,000 shares of common stock valued at $30,000.
Other Income/(Expense)
During the nine months ended December 31, 2023 the Company recorded other income of $74,678 as compared to other income of $4,620 in the nine months ended December 31, 2022.
Amortization of Debt Discount
Amortization of debt discounts for the comparative nine-month periods ended December 31, 2023, and 2022 totaled $0 and $69,451, respectively. The Company fully amortized remaining debt discounts during the fiscal year ended March 31, 2023.
Gain on Settlement of Debt
Gain on settlement of debt for the comparative nine-month periods ended December 31, 2023 and 2022 were $82,178, including forgiveness of previously accrued interest of $22,178 up to settlement date, and $25,000, respectively. The gain on settlement of debt for each of the nine-month periods ended December 31, 2023 and 2022 was due to settlements of convertible debts at less than face value.
Change in Derivative Liability
The Company recorded a gain of $60,567 with respect to the change in derivative liabilities for the nine months ended December 31, 2022, with no comparative results in the nine months ended December 31, 2023.
18
Interest Expense
Interest expense for the comparative nine months ended December 31, 2023 and 2022 totaled $7,500 and $11,496, respectively. The decrease to interest expense was directly related to a reduction to the principal balances of certain convertible debt period over period.
Net Loss
For the reasons stated above, our net loss for the nine months ended December 31, 2023 totaled $80,345, compared to a net loss of $118,911 during the nine months ended December 31, 2022.
Statement of Cash Flows
Nine months ended December 31, 2023 and 2022
The following table summarizes our cash flows for the comparative nine-month periods presented:
| December 31, 2023 | December 31, 2022 | |||||||
| Net cash used in operating activities | $ | (56,758 | ) | $ | (75,280 | ) | ||
| Net cash used in investing activities | — | — | ||||||
| Net cash provided by financing activities | 54,342 | 54,727 | ||||||
| Decrease in cash | (2,416 | ) | (20,553 | ) | ||||
| Cash end of period | $ | 2,150 | $ | 27,980 | ||||
Operating activities
Net cash used by operating activities for the nine months ended December 31, 2023 was $56,758 compared to $75,280 used in the nine months ended December 31, 2022.
Investing activities
There was not cash used by or provided by investing activities in the nine months ended December 31, 2023 and 2022.
Financing activities
Our financing activities for the nine months ended December 31, 2023, provided cash of $54,342 as compared to cash from financing activities of $54,727 for the nine months ended December 31, 2022. We received $76,393 from a related party, offset by repayments to related parties of $2,051 in the nine months ended December 31, 2023, sold shares of common stock for proceeds of $20,000 and made repayments to settle certain convertible debt of $40,000. In the comparative nine months ended December 31, 2022 we received cash from related party of $158,000, offset by repayments to related party of $11,236, and made payments to reduce convertible debt of $64,650 and payments to reduce contingent liabilities of $70,350. We plan to raise additional capital during the current fiscal year.
Liquidity and Capital Resources
We are in need of additional cash resources to maintain our operations. As of December 31, 2023 and March 31, 2023, the Company had a working capital deficit of $649,484 and $455,285, respectively, and has incurred losses since inception of $34,660,846. These factors raise substantial doubt about its ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent on its ability to raise additional capital or obtain necessary debt financing. The Company is presently dependent on its controlling shareholder to provide us funding for its daily operation and expenses, including professional fees and fees charged by regulators, although he is under no obligation to do so. Our auditors express substantial doubt about our ability to continue as a going concern. The Company intends to meet the cash requirements for the next 12 months from the issuance date of this report through a combination of debt and equity financing by way of private placements, friends, family and business associates. The Company currently does not have any arrangements in place to complete any private placement financings and there is no assurance that the Company will be successful in completing any such financings on terms that will be acceptable to it.
19
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 assembling a portfolio of early-stage EV Battery Technologies developed by Universities in Norway, Sweden and Finland
Any failure to raise money will have the effect of delaying the timeframes in the business plan as set forth above, and the Company may have to push back the dates of such activities.
The financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred losses and further losses are anticipated as a result of the development of business which raises substantial doubt about the Company’s ability to continue as a going concern within the next twelve months from the issuance date of this report. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining financing necessary to meet the Company’s obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand and loans from directors and/or private placement of the Company’s common stock.
Our cash and cash equivalents were $2,150 on December 31, 2023, compared to $4,566 on March 31, 2023. We met our liquidity needs through the issuance of our common stock and notes payable for cash.
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, which can’t 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.
Going Concern
The accompanying consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the consolidated financial statements, the Company has incurred recurring net losses since its inception and has raised limited capital. The Company had a net loss of $80,345 and $118,911 for the nine months ended December 31, 2023, and December 31, 2022, respectively. The Company's accumulated deficit was $34,660,846 and $34,416,648 as of December 31, 2023, and March 31, 2023, respectively. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustment relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company is taking certain steps to provide the necessary capital to continue its operations. These steps include but are not limited to: 1) focus on our new business model and 2) raising equity or debt financing. Our auditors express substantial doubt about our ability to continue as a going concern.
Off-Balance Sheet Arrangements
None.
Critical Accounting Estimates
We have adopted various accounting policies that govern the application of accounting principles generally accepted in the United States in the preparation of our financial statements. Our significant accounting policies are described in Note 3 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. Certain accounting policies involve significant judgments and assumptions by our management that can have a material impact on the carrying value of certain assets and liabilities. We consider such accounting policies to be our critical accounting policies. The judgments and assumptions used by our management in these critical accounting policies are based on historical experience and other factors that our management believes to be reasonable under the circumstances. Because of the nature of these judgments and assumptions, actual results could differ significantly from these judgments and estimates, which could have a material impact on the carrying values of our assets and liabilities and our results of operations. Our critical accounting policies are described below.
20
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Specifically, such estimates were made by the Company for the valuation of derivative liability, stock compensation and beneficial conversion feature expenses. Actual results could differ from those estimates.
Recently Adopted Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations.
In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20 that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock. Two methods of transition were permitted upon adoption: full retrospective and modified retrospective. The Company has yet to adopt ASC 2020-06, and expects to adopt this policy on January 1, 2024. The accounting impact will be a reclassification from Additional Paid-In Capital to Retained Earnings.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company and are not required to provide this information.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Due to the inherent limitations of control systems, not all misstatements may be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Controls and procedures can only provide reasonable, not absolute, assurance that the above objectives have been met.
As of December 31, 2023, we carried out an evaluation, with the participation of our management, including our principal executive officer and our principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were not effective, as of December 31, 2023.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness, as of December 31, 2023, of our internal control over financial reporting based on the framework in 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under this framework, our management concluded that our internal control over financial reporting was not effective as of December 31, 2023 due to material weaknesses in our internal control over financial reporting described below.
21
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has concluded that material weaknesses existed as of December 31, 2023, as described below:
| • | lack of segregation of duties due to a lack of accounting staff and resources with appropriate knowledge of U.S. GAAP and SEC reporting and compliance requirements; and (ii) a lack of sufficient documented financial closing policies and procedures. |
The material weaknesses did not result in any restatements of condensed consolidated financial statements previously reported by us, there were no changes in previously released financial results and management concluded that the consolidated financial statements included in this report present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented, in conformity with accounting principles generally accepted in the United States.
Management has, and will continue to, allocate resources as available to its remediation plan, which include (i) the establishment of additional internal procedures with respect to the documentation of budget and forecasting process with respect to material assumptions or determinations, (ii) the implementation of additional processes to bolster accuracy of underlying assumptions and (iii) the implementation of more detailed month end and quarter close procedures for installation at our operating subsidiary location to enhance procedures currently in place. Management is committed to maintaining a strong internal control environment and allocating the necessary resources to remediate the identified material weaknesses.
Changes in Internal Control over Financial Reporting
There was no change in our system of internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended December 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
22
PART II
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A – RISK FACTORS
Please refer to the disclosure contained in “Risk Factors” in our Form 10 as filed with the SEC on September 14, 2023, as amended November 6, 2023. The risks described in the Form 10 are not the only risks that the Company faces. Additional risks and uncertainties not currently known to the Company, or that the Company currently deems to be immaterial, also may have a material adverse impact on the Company’s business, financial condition, or results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended December 31, 2023, the Company sold 1,000,000 shares of common stock at $0.02 per share for cash proceeds of $20,000.
The securities sale referenced above was exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(a)(2) of the Securities Act as not involving a public offering and Regulation D, thereunder. The sale was made without any form of general solicitation to sophisticated investors and with full access to any information requested by the investor regarding us and the securities purchased.
There were no other sales of equity securities during the period covered by this Report that were not registered under the Securities Act and/or were not previously reported in a Current Report on Form 8-K filed by the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
N/A
ITEM 5. OTHER INFORMATION
None.
23
ITEM 6. EXHIBITS
| Exhibit Number | Exhibit Description | |
| 3.1(a) | Articles of Incorporation* | |
| 3.1(b) | Articles of Merger* | |
| 3.1(c) | Agreement and Plan of Merger* | |
| 3.1(d) | Amended Articles of Incorporation* | |
| 3.1(e) | Amended and Restated Certificate of Incorporation of the Registrant* | |
| 3.2 | Bylaws of the Registrant* | |
| 4.1(a) | Certificate of Designation of Series and Determination of Rights and Preferences of Series A Convertible Preferred Stock* | |
| 4.1(b) | Certificate of Designation* | |
| 4.1(c) | Amendment to Certificate of Designation After Issuance of Class or Series dated 3/14/2014* | |
| 4.1(d) | Amendment to Certificate of Designation After Issuance of Class or Series dated 01/12/2018* | |
| 10.1 | Convertible Promissory Note Between Groove Botanicals, Inc. and Robert L. Hymers, III Dated March 5, 2021* | |
| 10.2 | Convertible Redeemable Note Between Groove Botanicals, Inc. and Robert L. Hymers, III Dated March 7, 2022 * | |
| 10.3 | Letter Agreement Between Groove Botanicals, Inc. and Robert L. Hymers, III Dated July 18, 2022 * | |
| 31.1 | Certification of the Chief Executive and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1 | Certification of the Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer) pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) | |
| 101 | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2023, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Other Comprehensive Income, (iii) Condensed Consolidated Statements of Stockholders’ Equity (Deficit), (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags. | |
| 101.INS | INLINE XBRL INSTANCE DOCUMENT (THE INSTANCE DOCUMENT DOES NOT APPEAR IN THE INTERACTIVE DATA FILE BECAUSE ITS XBRL TAGS ARE EMBEDDED WITHIN THE INLINE XBRL DOCUMENT) | |
| 101.SCH | INLINE XBRL TAXONOMY EXTENSION SCHEMA | |
| 101.CAL | INLINE XBRL TAXONOMY EXTENSION CALCULATION LINKBASE | |
| 101.DEF | INLINE XBRL TAXONOMY EXTENSION DEFINITION LINKBASE | |
| 101.LAB | INLINE XBRL TAXONOMY EXTENSION LABEL LINKBASE | |
| 101.PRE | INLINE XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE | |
| 104 | COVER PAGE INTERACTIVE DATA FILE (FORMATTED AS INLINE XBRL AND CONTAINED IN EXHIBIT 101) | |
________________
* Incorporated by reference to a previously filed exhibit or report.
24
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Groove Botanicals, Inc. | |||
| Date: February 14, 2024 | By: | /s/ Kent Rodriguez | |
| Kent Rodriguez | |||
| Chief Executive Officer | |||
| Chief Financial and Accounting Officer | |||
25