10-Q: Groove Botanicals Faces Going Concern Amid Losses

Groove Botanicals, Inc. reported increased net losses and a significant accumulated deficit, raising substantial doubt about its ability to continue as a going concern.

Summary

• Reported a net loss of $38,170 for the three months ended June 30, 2025, an increase from $36,539 in the same period of 2024.
• Net loss attributable to common shareholders increased to $92,787 for the three months ended June 30, 2025, compared to $91,156 in the prior year, primarily due to preferred stock dividends.
• Accumulated deficit reached $35,289,368 as of June 30, 2025, up from $35,196,581 on March 31, 2025.
• Cash balance slightly increased to $2,737 as of June 30, 2025, from $2,042 on March 31, 2025.
• Total current liabilities grew to $1,206,334 as of June 30, 2025, from $1,114,381 on March 31, 2025, driven by increases in accounts payable, related party payables, and dividends payable.
• The company has not generated any revenue since its inception and does not expect to generate revenue from product sales in the near future.
• Plans to assemble a portfolio of early-stage EV Battery Technologies from universities in Norway, Sweden, and Finland, and seek grants for commercialization.
• Does not currently own any patents or technologies related to the EV battery industry.

Sentiment

Score: 1

Explanation: The company is in severe financial distress, with recurring losses, a substantial accumulated deficit, and a 'going concern' warning. It has no revenue, minimal cash, and relies on related party financing. Its new business model is early-stage, unproven, and lacks proprietary technology, with no guaranteed path to acquisition or commercialization. Internal controls are also noted as ineffective.

Positives

• Net cash used in operating activities slightly decreased to $19,786 for the three months ended June 30, 2025, from $20,744 in the prior year.
• Rent expense decreased from $4,644 in 2024 to $3,600 in 2025.

Negatives

• Incurred recurring net losses since inception, with a net loss of $38,170 for the three months ended June 30, 2025.
• Accumulated deficit of $35,289,368 as of June 30, 2025.
• Total current assets decreased to $3,686 as of June 30, 2025, from $4,520 on March 31, 2025.
• Total liabilities increased to $1,206,334 as of June 30, 2025.
• Total stockholders' deficit increased to $1,202,648 as of June 30, 2025.
• Significant related party payables totaling $641,314 as of June 30, 2025.
• Dividends payable, including related party dividends, totaled $491,557 as of June 30, 2025.
• Internal controls over financial reporting were not effective due to inadequate segregation of duties and lack of a formal audit committee with a financial expert.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern due to recurring net losses and limited capital.
• Does not currently own any patents or technologies related to the EV battery industry, and the process to acquire them can be costly and is not guaranteed.
• Requires substantial additional funds for operations, debt service, and business objectives, with no assurance that financing will be available on favorable terms.
• Potential for dilution of existing stockholders' ownership interest if additional funds are raised by issuing equity securities.
• Potential for limitations on operations and senior rights for new securities if additional funds are raised by issuing debt or other equity instruments.
• Internal controls are ineffective due to a lack of segregation of duties (sole officer) and the absence of a formal audit committee with a financial expert.

Future Outlook

The company plans to assemble a portfolio of early-stage EV Battery Technologies from universities in Norway, Sweden, and Finland, and seek grants from the State of Minnesota Department of Economic Development to find corporate partners for commercialization. It anticipates capital needs between $500,000 and $5,000,000, varying based on growth strategies, and intends to raise equity or debt financing. The company does not currently own any patents or technologies in the EV battery industry and acknowledges the acquisition process can be costly and is not guaranteed.

Management Comments

• Management believes that the technologies available in the specialized energy industry present a stable business model with high growth potential and is actively working towards an impactful acquisition in this space.
• Management acknowledges that the company has incurred recurring net losses since inception and has raised limited capital, which raises substantial doubt regarding its ability to continue as a going concern.
• Management is taking steps to provide necessary capital, including focusing on the new business model and raising equity or debt financing.
• Management has concluded that disclosure controls and procedures were not effective as of June 30, 2025, due to inadequate segregation of duties and the lack of a formal audit committee with a financial expert.
• Management has engaged an outside accounting consultant to assist in financial statement preparation to mitigate material weaknesses in internal controls.

Industry Context

Groove Botanicals' pivot towards early-stage EV battery technologies aligns with the global push for sustainable energy and electric vehicle adoption. This sector is characterized by rapid innovation, significant R&D investment, and a competitive landscape dominated by established players and well-funded startups. The company's strategy to acquire university-developed technologies and seek government grants is a common approach for early-stage ventures in deep tech, aiming to de-risk development and attract corporate partners. However, the lack of existing patents and the capital-intensive nature of the industry pose significant challenges for a company with a history of unsuccessful ventures and current financial distress.

Comparison to Industry Standards

• The company has no revenue and is in the very early stages of its new business model, making direct financial comparisons to established EV battery technology companies like Tesla, Panasonic, or LG Energy Solution impossible.
• Unlike well-capitalized startups in the EV battery space (e.g., QuantumScape, Solid Power), Groove Botanicals lacks significant proprietary technology, substantial funding, or a proven track record in this highly competitive and capital-intensive industry.
• The company's current cash position of $2,737 and total assets of $3,686 are negligible compared to the multi-million or billion-dollar valuations and R&D budgets typical for companies aiming to commercialize advanced battery technologies.

Management Changes

Corporate Governance

Related Party Transactions

• Related party payables totaled $641,314 as of June 30, 2025, consisting of funds contributed by management for financing operations and compensation.
• Accrues $48,000 annually in wages payable to CEO Kent Rodriguez under an employment agreement extended to March 31, 2026.
• Accrued $10,000 in preferred dividends from Series A preferred shares to CEO Kent Rodriguez for the three months ended June 30, 2025.
• Accrued $8,299 in preferred dividends from Series B preferred shares for the benefit of CEO Kent Rodriguez (who holds 18.6% of Series B shares) for the three months ended June 30, 2025.
• Received $22,677 in proceeds from a related party in the form of unsecured advances during the three months ended June 30, 2025.
• Repaid $2,196 to a related party to reduce unsecured advances payable during the three months ended June 30, 2025.

Stakeholder Impact

• **Shareholders**: Face significant dilution risk from potential future equity raises. Common shareholders are experiencing increasing net losses attributable to them and hold a substantial accumulated deficit. The Series A Preferred Stock held by the CEO has significant liquidation preference and voting control (51%).
• **Creditors**: Related party payables are substantial, indicating reliance on insider financing. The 'going concern' warning suggests heightened risk for any external creditors.
• **Employees**: The company relies on a sole officer and director, Kent Rodriguez, for day-to-day operations, indicating a very lean structure with limited employment opportunities beyond key management.

Next Steps

• Assemble a portfolio of early-stage EV Battery Technologies from universities in Norway, Sweden, and Finland.
• Seek grants from the State of Minnesota Department of Economic Development.
• Find and identify corporate partners to commercialize EV battery technologies.
• Acquire patents and technologies related to the EV battery industry.
• Raise equity or debt financing to fund operations and business objectives.
• Evaluate processes and procedures to implement changes for more effective internal controls over financial reporting, including potentially hiring additional staff for segregation of duties and expanding the board to include independent members.

Key Dates

Recommendation

The company is in a precarious financial position, marked by persistent net losses, a massive accumulated deficit, and a 'going concern' warning from its auditors. It generates no revenue, has minimal cash reserves, and is heavily reliant on related party financing. The pivot to EV battery technology is highly speculative, with no current patents or guaranteed acquisitions, and the industry is capital-intensive and competitive. Internal control weaknesses further compound the risk. Given the severe financial distress, lack of a viable business model, and high operational risks, the stock represents a strong sell.

Keywords

EV Battery Technology, Early-stage, Going Concern, SEC Filing, Quarterly Report, Financial Performance, Accumulated Deficit, Related Party Transactions, Corporate Governance, Start-up