10-Q: Groove Botanicals Reports Net Income of $24,206 for Q3 2023, Despite Ongoing Going Concern Concerns

Sentiment:

Quarterly Report 14 February 2024 5:09 PM

Groove Botanicals, Inc. reported a net income of $24,206 for the quarter ended December 31, 2023, a significant improvement from the net loss of $41,055 in the same period of 2022, while still facing substantial doubt about its ability to continue as a going concern.

Capital raiseThe company anticipates needing between $500,000 and $5,000,000 in capital for its growth strategies.The company plans to raise additional capital during the current fiscal year 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.

Better than expectedThe company reported a net income of $24,206 for the quarter ended December 31, 2023, compared to a net loss of $41,055 for the same period in 2022, indicating a better than expected result.

Summary

Groove Botanicals, Inc. reported a net income of $24,206 for the three months ended December 31, 2023, compared to a net loss of $41,055 for the same period in 2022.
The company's operating expenses for the quarter were $55,472, up from $37,615 in the prior year.
The increase in operating expenses was primarily due to higher legal and professional fees, which rose from $7,504 to $34,525.
The company recorded a gain on debt settlement of $82,178 due to the retirement of $100,000 in convertible debt with a cash payment of $40,000 and the write-off of $22,178 in accrued interest.
For the nine months ended December 31, 2023, the company's net loss was $80,345, compared to a net loss of $118,911 for the same period in 2022.
The company's accumulated deficit was $34,660,846 as of December 31, 2023.
The company's cash and cash equivalents were $2,150 as of December 31, 2023, down from $4,566 as of March 31, 2023.
The company's auditors have expressed substantial doubt about its ability to continue as a going concern.
The company is planning to focus on assembling a portfolio of early-stage EV Battery Technologies and seek grants to commercialize these technologies.
The company anticipates needing between $500,000 and $5,000,000 in capital for its growth strategies.

Sentiment

Score: 4

Explanation: The document shows a mixed picture. While there's a positive shift to net income in Q3, the company's going concern status, low cash reserves, and material weaknesses in internal controls raise significant concerns. The shift to EV technology is a positive long term move but is not yet generating revenue.

Positives

The company achieved a net income of $24,206 for the quarter ended December 31, 2023, a significant improvement from the net loss of $41,055 in the same period of 2022.
The company recorded a gain on debt settlement of $82,178, which positively impacted the net income.
The company has a new business model focused on EV battery technologies, which could lead to future revenue generation.

Negatives

The company's auditors have expressed substantial doubt about its ability to continue as a going concern.
The company's cash position is very low at $2,150 as of December 31, 2023.
The company has a significant accumulated deficit of $34,660,846.
The company's operating expenses increased to $55,472 for the quarter, primarily due to higher legal and professional fees.
The company has a working capital deficit of $649,484 as of December 31, 2023.

Risks

The company's ability to continue as a going concern is highly dependent on its ability to raise additional capital.
The company's new business model is in its early stages, and there is no guarantee of success.
The company's lack of internal controls over financial reporting could lead to material misstatements in its financial statements.
The company is dependent on its controlling shareholder for funding, and there is no guarantee that this funding will continue.
The company 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.

Future Outlook

The company plans to focus on assembling a portfolio of early-stage EV Battery Technologies and seek grants from the State of Minnesota Department of Economic Development to find and identify corporate partners to commercialize these technologies. The company anticipates needing between $500,000 and $5,000,000 in capital for its growth strategies.

Management Comments

Management believes that the consolidated financial statements included in this report present fairly, in all material respects, the company's financial position, results of operations, and cash flows for the periods presented, in conformity with accounting principles generally accepted in the United States.
Management is committed to maintaining a strong internal control environment and allocating the necessary resources to remediate the identified material weaknesses.
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.

Industry Context

The company's shift towards EV battery technology aligns with the growing global focus on renewable energy and electric vehicles. However, the company faces significant competition in this sector and will need to secure patents and partnerships to succeed.

Comparison to Industry Standards

Groove Botanicals' financial performance is significantly below industry standards for established oil and gas companies, as it has no revenue from operations and is incurring losses.
The company's transition to EV battery technology is a departure from its historical operations, making direct comparisons to other oil and gas companies less relevant.
The company's financial position is weak compared to other early-stage technology companies, with a very low cash balance and a substantial accumulated deficit.
The company's reliance on related-party funding is not uncommon for early-stage companies but poses a risk if that funding is not sustained.
The company's lack of internal controls is a significant concern and is not typical for publicly traded companies, even smaller ones.
The company's going concern warning is a serious issue and is not typical for companies with a stable financial position.

Related Party Transactions

The company had related party payables of $411,442 outstanding as of December 31, 2023.
The company received accumulated advances for operational shortfalls of $76,393 from a related party during the nine months ended December 31, 2023.
On June 3, 2022, the company received a loan from a related party in the amount of $125,000.

Stakeholder Impact

Shareholders face significant risk due to the company's going concern status and need for additional capital.
Employees are at risk due to the company's financial instability.
Customers and suppliers are not directly impacted at this time, as the company is in a development phase.
Creditors face risk due to the company's low cash reserves and high debt levels.

Next Steps

The company plans to focus on assembling a portfolio of early-stage EV Battery Technologies.
The company will seek grants from the State of Minnesota Department of Economic Development.
The company will seek to identify corporate partners to commercialize these technologies.
The company plans to raise additional capital through debt and equity financing.

Key Dates

Date	Description
2018-01-30	Issuance date of a $230,000 Convertible Promissory Note.
2020-04-01	Employment agreement with CEO Kent Rodriguez commenced.
2021-03-05	Issuance date of a $40,000 Convertible Promissory Note.
2021-06-03	Settlement agreement reached regarding the $230,000 convertible note.
2021-07-23	Issuance date of a $45,000 convertible promissory note.
2021-10-01	Issuance date of a $50,000 convertible promissory note.
2022-03-07	Issuance date of a $60,000 convertible promissory note.
2022-06-03	Amendment of the settlement agreement and receipt of a $125,000 loan from a related party.
2023-01-23	Agreement to settle two outstanding convertible notes for $40,000.
2023-03-28	Agreement to settle a $45,000 convertible note for $5,000.
2023-04-01	Dividends began to accrue on the Series A and Series B Preferred Stock.
2023-09-14	Form 10 filed with the Securities and Exchange Commission.
2023-11-13	Form 10 became effective.
2023-12-20	Issuance of 1,000,000 shares of common stock for $20,000.
2023-12-31	End of the quarterly period covered by this report.
2024-01-01	Expected adoption date of ASC 2020-06.
2024-02-13	Date of outstanding share count.
2024-02-14	Date of report.

Keywords

EV Battery Technology, Going Concern, Debt Settlement, Net Income, Financial Reporting, Capital Raise, Convertible Debt, Operating Expenses, Preferred Stock, Common Stock

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