NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(Unaudited)
NOTE
1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Corporate
Structure
Groove
Botanicals, Inc. (the "Company"), (formerly known as Avalon Oil & Gas, Inc.), was originally incorporated in Colorado
in April 1991 under the name Snow Runner (USA), Inc. The Company was the general partner of Snow Runner (USA) Ltd.; a Colorado
limited partnership to sell proprietary snow skates under the name "Sled Dogs" which was dissolved in August 1992. In
late 1993, the Company relocated its operations to Minnesota and in January 1994 changed our name to Snow Runner, Inc. In November
1994 we changed our name to the Sled Dogs Company. On November 5, 1997, we filed for protection under Chapter 11 of the U.S. Bankruptcy
Code. In September 1998, we emerged from protection of Chapter 11 of the U.S. Bankruptcy Code. In May, 1999, we changed our state
of domicile to Nevada and our name to XDOGS.COM, Inc. On July 22, 2005, the Board of Directors and a majority of the Company's
shareholders approved an amendment to our Articles of Incorporation to change the Company's name to Avalon Oil & Gas, Inc.,
and to increase the authorized number of shares of our common stock from 200,000,000 shares to 1,000,000,000 shares par value
of $0.001, and engage in the acquisition of producing oil and gas properties. On November 16, 2011, a majority of the Company's
shareholders approved an amendment to our Articles of Incorporation to increase the authorized number of shares of our common
stock from 1,000,000,000 shares to 3,000,000,000 shares par value of $0.001. This amendment was not filed with
the Nevada Secretary of State.
On
June 4, 2012 the Board of Directors approved an amendment to our Articles of Incorporation to a reverse split of the issued and
outstanding shares of Common Stock of the Corporation (“Shares”) such that each holder of Shares as of the record
date of June 4, 2012 shall receive one (1) post-split Share on the effective date of June 4, 2012 for each three hundred (300)
Shares owned. The reverse split was effective on July 23, 2012. On September 28, 2012, we held a special
meeting of Avalon’s shareholders and approved an amendment to the Company’s Articles of Incorporation such that the
Company would be authorized to issue up to 200,000,000 shares of common stock. We filed an amendment with the Nevada
Secretary of State on April 10, 2013, to increase our authorized shares to 200,000,000.
On
March 21, 2018 the Board of Directors and a majority of the Company's shareholders approved an amendment to our Articles of Incorporation
to change the Company's name to Groove Botanicals, Inc. We filed an amendment to our Articles of Incorporation with the State
of Nevada on May 18, 2018.
Principles
of consolidation
The
condensed consolidated financial statements include the accounts of the Company and the Company’s subsidiary’s Oiltek,
Inc., AFS Holdings, Inc., and Weyer Partners, LLC. All significant inter-company items have been eliminated in consolidation.
Basis
of Preparation of Financial Statements
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the instructions to Form 10-Q. They do not include
all of the information and footnotes required by Accounting Principles generally accepted accounting principles in United States
America (“US GAAP”) for complete financial statements and related notes. The accompanying unaudited condensed
consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements
of the Company and notes thereto for the year ended March 31, 2017.
In
the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (which
include only normal recurring adjustments) necessary to present fairly the balance sheets of Groove Botanicals, Inc. and subsidiaries
as of December31, 2017 and the results of their operations for the three months and nine months ended December 31, 2017 and 2016,
and cash flows for the nine months ended December 31, 2017 and 2016, and are not necessarily indicative of the results to be expected
for the entire year.
GROOVE
BOTANICALS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(Unaudited)
Going
Concern
The
Company has minimal revenues from our remaining oil and gas assets. We are in need additional cash resources to maintain our operations.
The company has incurred a loss of $34,328,577 from inception through December 31, 2017. The Company has a working capital deficit
of $1,163,589 and total deficit of $1,128,731 at December 31, 2017. The company has 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
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.
If
we do not have sufficient working capital to pay our operating costs for the next 12 months, we will require additional funds
to pay our legal, accounting and other fees associated with our Company and our filing obligations under United States federal
securities laws, as well as to pay our other accounts payable generated in the ordinary course of our business. Once these costs
are accounted for, we will focus on the manufacture and sale of our CBD skincare products.
Any
failure to raise money will have the effect of delaying the timeframes in the business plan as set forth above, and the Company
may have to push back the dates of such activities.
The
financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets
and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred losses
and further losses are anticipated as a result of the development of business which raises substantial doubt about the Company’s
ability to continue as a going concern within the next twelve months from the issuance date of this report. The ability
to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining financing
necessary to meet the Company’s obligations and repay its liabilities arising from normal business operations when they
come due. Management intends to finance operating costs over the next twelve months with existing cash on hand and loans from
directors and/or private placement of the Company’s common stock.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles generally accepted in the United
States of America requires us to make estimates and assumptions that affect the amounts reported in the condensed consolidated
financial statements and accompanying notes. Actual results could differ from those estimates and assumptions.
GROOVE
BOTANICALS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(Unaudited)
Cash
and Cash Equivalents
Cash
and cash equivalents consist of cash. The Company maintains its cash balances at several financial institutions. Accounts at the
institutions are insured by the Federal Deposit Insurance Corporation up to $250,000.
Fair
Value of Financial Instruments
The
Company's financial instruments are cash and cash equivalents, accounts payable, notes payable and long-term debt. The recorded
values of cash and cash equivalents, and accounts payable approximate their fair values based on their short-term nature. The
recorded values of notes payable and long-term debt approximate their fair values, as interest approximates market rates.
Oil
and Natural Gas Properties
The
Company follows the full cost method of accounting for natural gas and oil properties. Under the full cost concept,
all costs incurred in acquiring, exploring, and developing properties cost center are capitalized when incurred and are amortized
as mineral reserves in the cost center are produced, subject to a limitation that the capitalized costs not exceed the value of
those reserves. The unamortized costs relating to a property that is surrendered, abandoned, or otherwise disposed
of are accounted for as an adjustment of accumulated amortization, rather than as a gain or loss that enters into the determination
of net income, until
all
of the properties constituting the amortization base are disposed of, at which point gain or loss
is recognized. All acquisition, exploration, and development costs are capitalized. The Company capitalizes all internal costs,
including: salaries and related fringe benefits of employees directly engaged in the acquisition, exploration and development
of natural gas and oil properties, as well as other identifiable general and administrative costs associated with such activities. During
the three and nine month period ended December 31, 2017, no acquisition costs were capitalized. Oil and natural gas properties
are reviewed for recoverability at least annually or when events or changes in circumstances indicate that its carrying value
may exceed future undiscounted cash inflows. For the three and nine months ended December 31, 2017 and 2016, the company impaired
$0 and $0 in Oil and Gas Properties.
Property
and Equipment, net
Property
and equipment is reviewed for recoverability when events or changes in circumstances indicate that its carrying value may exceed
future undiscounted cash inflows. As of December 31, 2017 and March 31, 2017, the Company had not identified any such impairment.
Repairs and maintenance are charged to operations when incurred and improvements and renewals are capitalized.
Property
and equipment are stated at cost. Depreciation is calculated using the straight-line method for financial reporting purposes and
accelerated methods for tax purposes.
Their
estimated useful lives are as follows:
|
Office
Equipment:
|
|
|
5-7
Years
|
|
|
Vehicles
|
|
|
5
Years
|
|
Asset
Retirement Obligations
In
accordance with the provisions of Financial Accounting Standards Board “FASB” Accounting Standard Codification “ASC”
410-20-15, “Accounting for Asset Retirement Obligations”, the Company records the fair value of its liability for
asset retirement obligations in the period in which it is incurred and a corresponding increase in the carrying amount of the
related long live assets. Over time, the liability is accreted to its present value at the end of each reporting period, and the
capitalized cost is depreciated over the useful life of the related assets. Upon settlement of the liability, the Company will
either settle the obligation for its recorded amount or incur a gain or loss upon settlement. The Company's asset retirement obligations
relate to the plugging and abandonment of its oil properties.
GROOVE
BOTANICALS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(Unaudited)
Stock
Based Compensation
Share
awards granted to employees and independent directors are accounted for under ASC 718, "Share-Based Payment". ASC 718-10
eliminates accounting for share-based compensation transaction using the intrinsic value method and requires instead that such
transactions be accounted for using a fair-value-based method. The Company has elected to adopt the provisions of ASC 718-10 effective
January 1, 2006, under the modified prospective transition method, in which compensation cost was recognized beginning with the
effective date (a) based on the requirements of ASC 718-10 for all share-based payments granted after the effective date and (b)
based on the requirements of ASC 718-10 for all awards granted to employees prior to the effective date of ASC 718-10 that remain
unvested on the effective date.
The
Company records share-based compensation expense for awards granted to non-employees in exchange for services at fair value in
accordance with the provisions of ASC 505-50, "Equity Based" payment to non-employees. For the awards granted to non-employees,
the Company will record compensation expenses equal to the fair value of the share options at the measurement date, which is determined
to be the earlier of the performance commitment date or the service completion date.
Earnings
(loss) per Common Share
ASC
260-10-45, “Earnings Per Share”, requires presentation of "basic" and "diluted" earnings per share
on the face of the statements of operations for all entities with complex capital structures. Basic earnings per share are computed
by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share
reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted
during the period. Dilutive securities having an anti-dilutive effect on diluted earnings per share are excluded from the calculation.
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.
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.
GROOVE
BOTANICALS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(Unaudited)
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 is 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.
Revenue
Recognition
In
accordance with the requirements ASC topic 605 "Revenue Recognition", revenues are recognized at such time as (1) persuasive
evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the seller's price to the buyer
is fixed or determinable and (4) collectability is reasonably assured. Specifically, oil and gas sales are recognized as income
at such time as the oil and gas are delivered to a viable third party purchaser at an agreed price. Interest income is recognized
as it is earned.
Recently
Issued Accounting Policies
In
May 2014, the FASB issued ASU 2014-9, "Revenue from Contracts with Customers (Topic 606)," which supersedes the revenue
recognition requirements in ASC Topic 605, "Revenue Recognition," and most industry-specific guidance. ASU 2014-9 is
based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-9 also requires
additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts.
ASU 2014-9 applies to all contracts with customers except those that are within the scope of other topics in the FASB ASC. The
new guidance is effective for interim and annual reporting periods beginning after December 15, 2017 for public companies. Early
adoption is not permitted. Entities have the option of using either a full retrospective or modified retrospective approach to
adopt ASU 2014-9.
Additionally,
in March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus agent considerations
(reporting revenue gross versus net), which clarifies the implementation guidance on principal versus agent considerations on
such matters. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying performance
obligations and licensing, which clarifies guidance related to identifying performance obligations and licensing implementation
guidance contained in the new revenue recognition standard. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts
with Customers (Topic 606): Narrow-scope improvements and practical expedients, which addresses narrow-scope improvements to the
guidance on collectability, non-cash consideration, and completed contracts at transition. Additionally, the amendments in this
update provide a practical expedient for contract modifications at transition and an accounting policy election related to the
presentation of sales taxes and other similar taxes collected from customers. In December 2016, the FASB issued ASU No. 2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which clarifies the guidance or corrects
unintended application of guidance.
The
Company completed its assessment of the new accounting standard and does not expect the adoption of this standard to have a material
impact to our revenue recognition based on our existing contracts with customers. We adopted the new standard during the first
quarter of 2018 using the modified retrospective approach and there will be no material impact to our previously recorded revenue
under the new standard.
GROOVE
BOTANICALS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(Unaudited)
NOTE
2: PROPERTY AND EQUIPMENT, NET
A
summary of property and equipment at December 31, 2017 and March 31, 2017 is as follows:
|
|
|
December
31, 2017
|
|
March
31,
2017
|
|
Office
Equipment
|
|
$
|
41,778
|
|
|
$
|
41,778
|
|
|
Vehicles
|
|
|
22,657
|
|
|
|
22,657
|
|
|
|
|
|
64,435
|
|
|
|
64,435
|
|
|
Less:
Accumulated depreciation
|
|
|
(58,773
|
)
|
|
|
(55,374
|
)
|
|
Total
|
|
$
|
5,662
|
|
|
$
|
9,061
|
|
Depreciation
expense for the three months periods ended December 31, 2017 and 2016 was $1,133 and $1,133, respectively.
Depreciation
expense for the nine months periods ended December 31, 2017 and 2016 was $3,399 and $3,399, respectively.
NOTE 3:
OIL AND GAS PROPERTY ACTIVITY
Producing
oil and gas properties consist of the following at December 31, 2017 and March 31, 2017:
|
|
|
December
31, 2017
|
|
March
31,
2017
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
Lincoln
County, Oklahoma
|
|
$
|
111,402
|
|
|
$
|
111,402
|
|
|
Lipscomb
County, Texas
|
|
|
—
|
|
|
|
250,082
|
|
|
Miller
County, Arkansas
|
|
|
139,909
|
|
|
|
139,909
|
|
|
Ward
Petroleum Assets
|
|
|
290,500
|
|
|
|
290,500
|
|
|
Kensington
Energy Assets
|
|
|
120,000
|
|
|
|
120,000
|
|
|
Other
Properties
|
|
|
325,185
|
|
|
|
325,185
|
|
|
Total
Properties
|
|
|
986,996
|
|
|
|
1,237,078
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
retirement cost, net
|
|
|
29,712
|
|
|
|
31,884
|
|
|
Property
impairments
|
|
|
(401,636
|
)
|
|
|
(635,154
|
)
|
|
Less:
Depletion
|
|
|
(601,297
|
)
|
|
|
(599,223
|
)
|
|
Net
|
|
$
|
13,775
|
|
|
$
|
34,585
|
|
For
the three month periods ended December 31, 2017 and 2016, depletion per Bbl was $1.30 and $8.81.
For
the nine month periods ended December 31, 2017 and 2016, depletion per Bbl was $1.30 and $8.81.
NOTE
4: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities consisted of the following:
|
|
|
December
31,
2017
|
|
March
31,
2017
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
157,091
|
|
|
$
|
132,746
|
|
|
Accrued
interest
|
|
|
77,864
|
|
|
|
75,713
|
|
|
Total
|
|
$
|
234,955
|
|
|
$
|
208,459
|
|
GROOVE
BOTANICALS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(Unaudited)
NOTE
5: NOTES PAYABLE
Notes
Payable are summarized as follows:
|
|
|
December
31,
2017
|
|
March
31,
2017
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
Notes
payable – long-term portion
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Notes
payable – current portion
|
|
|
149,200
|
|
|
|
149,200
|
|
|
Total
|
|
$
|
149,200
|
|
|
$
|
149,200
|
|
The
maturity of notes payable, amount of $9,200, has been extended until April 1, 2018. The outstanding principal balance and all
outstanding interest was converted into 1,850,000 shares in subsequent three months.
The
note payable in the amount of $50,000, issued on November 11, 2008, and its accrued interest, and the $30,000 note payable, issued
in the amount of $50,000 on January 27, 2009, and its accrued interest, were settled on March 9, 2018 for $2,500 plus the issuance
of 600,000 shares of Common Stock
The
principal and accrued interest on $60,000 notes payables were settled in March 20, 2018 for $5,000.
NOTE 6:
RELATED PARTY TRANSACTIONS
Notes
Payable
On
April 21, 2011, Mr. Rodriguez advanced the Company $35,000. As of December 31, 2017 and March 31, 2017, amount outstanding is
$20,000. This note is non-interest bearing and is due on demand.
Series
A Convertible Preferred Stock issued to Related Party
Refer
to Notes 8, STOCKHOLDERS’ EQUITY, for details of series A convertible preferred stock issued to related party transactions.
GROOVE
BOTANCALS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(Unaudited)
Employment
Agreements
In
2017, Mr. Rodriguez, our President, was under an employment agreement dated April 1, 2015 that expires on March 31, 2019, The
Company charged to operations the amount of $12,000 and $36,000 for the three and nine month periods ended December 31, 2017 and
December 31, 2016, of which $7,520 and $23,545 was paid to him during the three month and nine month periods ending December 31,
2017, and $12,450 and $21,750 during the three and nine month periods ending December 31 2016, respectively. As of
December 31, 2017, and March 31, 2017, the balances of accrued and unpaid salaries were $232,017 and $219,562.
NOTE
7: INCOME TAXES
Deferred
income taxes result from the temporary difference arising from the use of accelerated depreciation methods for income tax purposes
and the straight-line method for financial statement purposes, and an accumulation of Net Operating Loss carry-forwards for income
tax purposes with a valuation allowance against the carry-forwards for book purposes.
In
assessing the value of deferred tax assets, management considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Included in deferred tax assets are Federal and State net operating loss carry forwards
of $34,328,577, which will expire beginning in 2028. The ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in
making this assessment. Based upon our cumulative losses through December 31, 2017, we have provided a valuation allowance reducing
the net realizable benefits of these deductible differences to $0 at December 31, 2017. The amount of the deferred
tax asset considered realizable could change in the near term if projected future taxable income is realized. Due to
significant changes in the Company's ownership, the Company's future use of its existing net operating losses may be limited.
|
|
|
December
31,
2017
|
|
March
31,
2017
|
|
|
|
(Unaudited)
|
|
|
|
U.S.
Federal statutory graduated rate
|
|
|
35.00
|
%
|
|
|
35.00
|
%
|
|
State
income tax rate, net of federal benefit
|
|
|
6.47
|
%
|
|
|
6.47
|
%
|
|
Net
rate
|
|
|
41.47
|
%
|
|
|
41.47
|
%
|
|
Net
operating loss used
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Net
operating loss for which no tax benefits is currently available
|
|
|
(41.47
|
)%
|
|
|
(41.47
|
)%
|
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
NOTE
8: STOCKHOLDERS' DEFICIT
Preferred
Stock
Series
A Convertible Preferred Stock Issued to Related Party
The
company is authorized 1,000,000 shares of preferred stock, par value of $0.10 per share. The 100 shares of Series A Convertible
Preferred Stock Issued to Related Party (“Series A Convertible Preferred Stock”) were issued on June 3, 2002 as payment
for $500,000 in promissory notes, are convertible into the number of shares of common stock sufficient to represent forty
percent (40%) of the fully diluted shares outstanding after their issuance The holder of these shares of Series A Convertible
Preferred Stock is our President, Kent Rodriguez. The Series A Convertible Preferred Stock pays an eight percent (8%) dividend.
The dividends are cumulative and payable quarterly. 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. The Series A Convertible Preferred
Stock provides for voting rights on an "as converted to common stock" basis.
During
the years ended March 31, 2017 and 2016, the Company incurred $40,000 in series A convertible preferred stock dividends, respectively.
The
holders of the Series A Convertible Preferred Stock have the right to convert each share of preferred stock into a sufficient
number of shares of common stock to equal 40% of the then fully-diluted shares outstanding. Fully diluted shares outstanding is
computed as the sum of the number of shares of common stock outstanding plus the number of shares of common stock issuable upon
exercise, conversion or exchange of outstanding options, and warrants. In the event that the Company does not have an adequate
number of shares of Common Stock authorized, upon a conversion request, only the maximum allowable number of shares of Series
A convertible preferred stock shall convert into Common Stock and the remaining shares of Series A convertible preferred Stock
shall convert upon lapse of the applicable restrictions.
On
January 12, 2018, our Board of Directors agreed to amend Designation of the Series A Convertible Preferred Stock be amended by
changing the ratio for conversion, in Article IV, subparagraph (a), from .4% to .51% so that upon conversion the number of shares
of common stock to be exchanged shall equal 51% of then issued and outstanding common stock.
GROOVE
BOTANCIALS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(Unaudited)
As
of December 31, 2017, the Company has 100 shares of Series A convertible preferred stock issued and outstanding.
During
the three months ended December 31, 2017 and 2016, the Company incurred $10,000 and $10,000 in Series A Convertible Preferred
Stock dividends, paid $0 and $0 for the three months ended December 31, 2017 and 2016. During the nine months ended December 31,
2017 and 2016, the Company incurred $30,000 and $30,000 in Series A Convertible Preferred Stock dividends, and paid $0 and
$1,000 for the nine months ended December 31, 2017 and 2016. As of December 31, 2017 and March 31, 2017, the accrued balance due
Mr. Rodriguez was $106,450 and $76,450 respectively. The liquidation preference of Series A Convertible Preferred Stock as of
December 31, 2017 and March 31, 2017 was $606,450 and $576,450 or $6,064.50 and $5,764.50 per share.
Dividends
payable for Series A convertible preferred stock at December 31, 2017 and March 31, 2017 were $106,450 and $76,450, respectively.
Series
B Preferred Stock
In
March, 2013, our Board of Directors authorized the issuance of 2,000 shares of Series B Preferred Stock, (the "Series B Preferred
Stock"). The face amount of share of the Series B Preferred Stock is $1,000. As of December 31, 2017
and March 31, 2017, the Company has 1,983 and 1,983 shares of Series B preferred stock respectively issued and outstanding.
The
Series B Preferred Stock accrues dividends at the rate of 9% per annum on the original purchase price for the shares. These dividends
are payable annually, beginning in January 2014. We are prohibited from paying any dividends on our Common Stock until all accrued
dividends are paid on our Series B Preferred Stock. The Series B Preferred Stock ranks junior to the Series A Convertible
Preferred Stock owned by our President and Chief Executive Officer, as to Dividends and to a distribution of assets in the event
of a liquidation of assets.
The
Holders of Series B Preferred Stock do not have any voting rights and their consent is not required to take any sort of corporate
action.
During
the nine month periods ended December 31, 2017 and December 31, 2016, the Company did not issue any Series B Preferred Stock.
During
the three month periods ended December 31, 2017 and 2016, the Company incurred $44,622 and $44,622 in dividends on Series B preferred
stock. The Company did not pay any dividends for the three or nine months period ended December 31, 2017 and December
31, 2016.
During
the nine month periods ended December 31, 2017 and 2016, the Company incurred $133,866 and $133,866 in dividends on Series B preferred
stock. Dividends payable for Series B Preferred Stock at December 31, 2017 and March 31, 2017 were $477,392 and $343,526
respectively. The liquidation preference of Series B Preferred Stock as of December 31, 2017 and March 31, 2017 was $2,460,392
and $2,326,526 or $1,240,74 and $1,173.24 per share, respectively.
Total
dividends payable from both Series A and Series B preferred shares at December 31, 2017 and March 31, 2017 were $583,842 and $419,976
respectively.
AFS
Holdings, Inc. Series A Preferred Stock
On
October 5, 2015, the Articles of Incorporation of AFS were amended to authorize the issuance of 5,000,000 shares of Preferred
Stock, par value $0.001, of which 1,000 shares are designated as Series A Preferred Stock. As of December 31, 2017 and March 31,
2017, the Company has 200 shares of Series A preferred stock respectively, issued and outstanding.
AFS
Series A Preferred Stock accrues dividends at the rate of 12% per annum on the original purchase price for the shares. These dividends
are payable annually in cash or the AFS Common Stock at the discretion of the Board of Directors, beginning in March 2016. AFS
is prohibited from paying any dividends on AFS Common Stock until all accrued dividends are paid on our Series A preferred Stock.
Upon liquidation, the Series A Preferred Stock shareholders shall be entitled to the stated value of each shares held, in addition
to accrued and unpaid dividends, as long as AFS possesses the funds necessary to make payments. AFS may, at any time, redeem the
shares of Series A Preferred Stock without the prior written consent of the Series A Preferred Stock shareholders. The Series
A Preferred Stock ranks senior to AFS Common Stock in a distribution of assets in the event of a liquidation of assets.
During
the three months ended December 31, 2017, the Company did not issue any Series A Preferred Stock. During the three months ended
December 31, 2016, AFS issued issued 50 shares of its Series A Preferred Stock for consulting services and 100 shares for $100,000
in cash to an unaffiliated third parties.
During
the three month periods ended December 31, 2017 and 2016, the Company incurred $6,000 and $2,037 in dividends on Series A preferred
stock. The Company did not pay any dividends for the three or nine months periods ended December 31, 2017 and December
31, 2016.
During
the nine month periods ended December 31, 2017 and 2016, the Company incurred $18,000 and $5,037 in dividends on Series A preferred
stock. Dividends payable for Series A Preferred Stock at December 31, 2017 and March 31, 2017 were $32,037 and $14,037 respectively.
The liquidation preference of Series A Preferred Stock as of December 31, 2017 and March 31, 2017 was $232,037 and $214,037 or
$1,160.19 and $1,070.19 per share, respectively.
GROOVE
BOTANCIALS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(Unaudited)
Common
Stock
We
did not issue any common stock for the three and nine month periods ended December 31, 2017 and December 31, 2016.
Our
subsidiary AFS, Inc., issued 825,000 Shares of common stock to 100,000 to our President, 25,000 shares to each of our directors,
50,000 shares to a holder of our Series A Preferred Stock for consulting services rendered, 100,000 shares for consulting services
rendered and 500,000 shares to a consultant for services rendered., during the three month period ending December 31, 2016.
Warrants
There
are no warrants outstanding as of December 31, 2017 and March 31, 2017.
NOTE
9: TECHNOLOGY LICENSE AGREEMENTS
On
December 1, 2014, the Company entered into an exclusive license agreement for anti-corrosion technology from Ronald Knight in
exchange for three hundred thousand (300,000) shares of our common stock. This license calls for an earned royalty of three percent
(3.00%) on sales of licensed products and services as they may relate to corrosion prevention and maintenance of sump pumps at
gasoline and diesel dispensing locations, including, but not limited to gas stations, convenience stores, trucking companies,
bus companies, and any other locations where gasoline and/or diesel is dispensed. We did not have any revenue for the period from
December 1, 2014 through December 31, 2016.
This
agreement was terminated on August 7, 2017.
NOTE
10: LOSS PER SHARE
ASC
260-10-45 requires a reconciliation of the numerator and denominator of the basic and diluted earnings per share (EPS) computations.
We have included the basic and diluted earnings per share (EPS) computation for the three and nine months periods ended December
31, 2017 and 2016.
Basic
and diluted earnings per share for each of the periods presented is calculated as follows:
|
|
|
For
the nine months ended December 31,
|
|
For
the nine months ended December 31,
|
|
|
|
2017
|
|
2016
|
|
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
Net
loss
|
|
$
|
(79,603
|
)
|
|
$
|
(153,291
|
))
|
|
Less: Preferred
stock dividends
|
|
|
(181,866
|
)
|
|
|
(168,891
|
)
|
|
Net
loss attributable to common shareholders (numerator for basic loss per share)
|
|
|
(261,469
|
)
|
|
|
(322,182
|
)
|
|
Weighted
average number of common shares outstanding - Basic
|
|
|
18,198,062
|
|
|
|
18,198,062
|
|
|
Effect
of diluted securities:
|
|
|
|
|
|
|
|
|
|
Series
A Convertible Preferred Stock Issued to Related Party
|
|
|
—
|
|
|
|
—
|
|
|
Weighted
average number of common shares outstanding - Diluted
|
|
|
18,198,062
|
|
|
|
18,198,062
|
|
|
Loss
per share- Basic
|
|
$
|
(0.014
|
)
|
|
$
|
(0.018
|
)
|
|
Loss
per share- Diluted
|
|
$
|
(0.014
|
)
|
|
$
|
(0.018
|
)
|
|
|
|
For
the three months ended December 31,
|
|
For
the three months ended December 31,
|
|
|
|
2017
|
|
2016
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
Net
loss
|
|
$
|
(16,565
|
)
|
|
$(92,705)
|
|
Less:
Preferred stock dividends
|
|
|
(60,622
|
)
|
|
(56,655)
|
|
Net
loss attributable to common shareholders (numerator for basic earnings per share)
|
|
|
(77,187
|
)
|
|
(149,360)
|
|
Weighted
average number of common shares outstanding - Basic
|
|
|
18,198,062
|
|
|
18,198,062
|
|
Effect
of diluted securities:
|
|
|
|
|
|
Series
A Convertible Preferred Stock Issued to Related Party
|
|
|
—
|
|
|
—
|
|
Weighted
average number of common shares outstanding Diluted
|
|
|
18,198,062
|
|
|
18,198,062
|
|
Loss
per share- Basic
|
|
$
|
(0.004
|
)
|
|
$(0.008)
|
|
Loss
per share- Diluted
|
|
$
|
(0.004
|
)
|
|
$(0.008)
|
GROOVE
BOTANICALS, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2017
(Unaudited)
For
the three months ending December 31, 2017 and December 31, 2016, the diluted earnings per share calculation did not include the
effect of the shares resulted from assumed conversion of the Series A convertible preferred stock and the shares convertible from
convertible notes payable with the principal amount of $149,200 and the related accrued interest, because the effect is anti-dilutive,
as the Company incurred a loss during the periods.
For
the nine months ending December 31, 2017 and December 31, 2016, the diluted earnings per share calculation did not include the
effect of the shares resulted from assumed conversion of the Series A convertible preferred stock and the shares convertible from
convertible notes payable with the principal amount of $149,200 and the related accrued interest, because the effect is anti-dilutive,
as the Company incurred a loss during the periods.
The
holders of the Series A Convertible Preferred Stock have the right to convert each share of preferred stock into a sufficient
number of shares of common stock to equal 40% of the then fully-diluted shares outstanding. Fully diluted shares outstanding is
computed as the sum of the number of shares of common stock outstanding plus the number of shares of common stock issuable upon
exercise, conversion or exchange of outstanding options, and warrants. In the event that the Company does not have an adequate
number of shares of Common Stock authorized, upon a conversion request, only the maximum allowable number of shares of Series
A convertible preferred stock shall convert into Common Stock and the remaining shares of Series A convertible preferred Stock
shall convert upon lapse of the applicable restrictions.
On
January 12, 2018, our Board of Directors agreed to amend Designation of the Series A Convertible Preferred Stock be amended by
changing the ratio for conversion, in Article IV, subparagraph (a), from .4% to .51% so that upon conversion the number of shares
of common stock to be exchanged shall equal 51% of then issued and outstanding common stock.
NOTE
11: COMMITMENTS AND CONTINGENCIES
Commitments
and contingencies through the date of these financial statements were issued have been considered by the Company and none were
noted which were required to be disclosed.
NOTE
12: SUBSEQUENT EVENTS
The
company has reviewed the subsequent event through the date of this report. Below are our subsequent events:
On
January 12, 2018, our Board of Directors agreed to amend Designation of the Series A Convertible Preferred Stock be amended by
changing the ratio for conversion, in Article IV, subparagraph (a), from .4% to .51% so that upon conversion the number of shares
of common stock to be exchanged shall equal 51% of then issued and outstanding common stock.
On
January 29, 2018 the Company executed a Promissory Note between the Company and Carebourn Capital, LLC in the amount of $230,000.
On December 18, 2018, the maturity date of this note was extended until July 31, 2019.
On
March 9, 2018, we issued 600,000 shares of Common Stock and $2,500 in cash for settlement of two promissory notes payable in the
amount of $80,000, plus $69,279 in accrued interest. The shares were valued at $12,000 or $0.02 per share. The value of the shares
was based on the closing bid price of the Company's common stock on the date the Agreement was executed by the Company.
On
March 19, 2018 we issued 2,015,000 to our Series B Preferred Stock shareholder’s for all accrued interest from the date
of issuance to March 31, 2018 on their Series B Preferred Stock. The shares were valued at $43,300 or $0.02 per share and were
valued based on the closing bid price of the Company's common stock on the date the shares were issued. $481,714 was treated as
a gain from this transaction.
The
principal and accrued interest on $60,000 notes payables were settled in March 20, 2018 for $5,000.
On
March 21, 2018 the Board of Directors and a majority of the Company's shareholders approved an amendment to our Articles of Incorporation
to change the Company's name to Groove Botanicals, Inc. We filed an amendment to our Articles of Incorporation with the State
of Nevada on May 18, 2018. 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.
On
March 26, 2018 we issued 300,000 shares of our Common Stock to our directors for their services. The shares were valued at $6,000
or $0.02 per share and were valued based on the closing bid price of the Company's common stock on the date the shares were issued.
On
March 26, 2018 we issued 4,800,000 to seven Consultants for services rendered. The shares were valued at $96,000 or $0.02 per
share and were valued based on the closing bid price of the Company's common stock on the date the shares were issued.
The
maturity of notes payable, amount of $9,200, has been extended until April 1, 2018. The outstanding principal balance and all
outstanding interest was converted into 1,850,000 shares in subsequent three months.
On
July 7, 2018, we issued 700,000 shares of our common stock to a consultant. We valued the shares at $14,000 or $0.02 per share.
The value of the shares was based on the closing bid price of the Company's common stock on the date the Agreement was executed
by the Company.
On
August 29, 2018, we issued 1,000,000 shares of our common stock to a consultant. We valued the shares at $30,000 or $0.03 per
share. The value of the shares was based on the closing bid price of the Company's common stock on the date the Agreement was
executed by the Company.
On
October 4, 2018, we issued 1,100,000 shares of our common stock to a holder of 368 shares of our Series B Preferred Stock for
accrued interest for the period from April 1, 2018 to March 31, 2019. We valued the shares at $66,000 or $0.06 per shares. The
value of the shares was based on the closing bid price of the Company's common stock on the date the Agreement was executed by
the Company.
