GROOVE BOTANICALS INC. 10-K

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES (a) Principal Market or Markets Effective with the close of business on June 19, 1997, our Common Stock was delisted from the NASDAQ Small Cap Market. In June of 1997, our Common Stock began trading on the NASD Over-the-Counter Bulletin Board ("OTCBB"). Beginning in April 2010 our Common Stock began trading on the electronic OTCQB and OTCBB market. Since August 2016 our Common Stock has traded on the OTC Pink Sheets. Market makers and other dealers provided bid and ask quotations of our Common Stock. We trade under the symbol "GRVE". The table below represents the range of high and low bid quotations of our Common Stock as reported during the reporting period herein. The following bid price market quotations represent prices between dealers and do not include retail markup, markdown, or commissions; hence, they may not represent actual transactions. Per Share Common Stock Bid Prices by Quarter For the Two Most Recent Fiscal Years High Low Quarter Ended March 31, 2017 $ 0.04 $ 0.02 Quarter Ended December 31, 2016 $ 0.06 $ 0.03 Quarter Ended September 30, 2016 $ 0.05 $ 0.04 Quarter Ended June 30, 2016 $ 0.06 $ 0.04 Quarter Ended March 31, 2015 $ 0.04 $ 0.02 Quarter Ended December 31, 2015 $ 0.07 $ 0.02 Quarter Ended September 30, 2015 $ 0.10 $ 0.04 Quarter Ended June 30, 2015 $ 0.06 $ 0.04 As of December 17, 2018, 28,293,062 shares of our Common Stock were outstanding and the number of holders of record of our Common Stock at that date was approximately 985. However, we estimate that there are a significantly greater number of shareholders because a substantial number of our shares are held in nominee names by brokerage firms. (b) Dividends No dividends on the Common Stock were paid by us during the fiscal year ended March 31, 2017, or the fiscal year ended March 31, 2016, nor do we anticipate paying dividends on Common Stock in the foreseeable future. Holders of Common Stock are entitled to receive such dividends as may be declared by our Board of Directors. (c) Securities Authorized for Issuance Under Equity Compensation Plans. We have not established an Equity Compensation Plan and have not authorized the issuance of any securities under such plan. (d) Preferred Stock. Our Articles of Incorporation authorize us to issue up to 1,000,000 shares of $0.10 par value preferred stock, with such classes, series and preferences as our Board of Directors may determine from time to time. In June 2002, our Board of Directors authorized the issuance of 100 shares of Series A Convertible Preferred Stock (the "Series A Preferred Stock"). Our Board further agreed to issue all of the Series A Preferred Stock to our Chairman and President, Kent Rodriguez, in satisfaction of $500,000 in loans made by Mr. Rodriguez. 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. The Series A Preferred Stock accrues dividends at the rate of 8% per annum on the original purchase price for the shares. If declared by the Board of Directors, these dividends are payable quarterly, beginning in September 2002. We are prohibited from paying any dividends on our Common Stock until all accrued dividends are paid on our Series A Preferred Stock. If we liquidate or dissolve, and after payment of our debts, the holders of the Series A Preferred Stock are entitled to a preference payment before we make any distributions to our Common Stockholders. The preference amount is equal to the original purchase price for the Series A Preferred shares plus accrued, but unpaid dividends. As of March 31, 2017, the liquidation preference is $576,450, or $5,764.50 per share. The Series A Preferred Stock is convertible at any time into 51% of the then outstanding shares of Common Stock and securities convertible into Common Stock on a fully diluted basis. However, conversion is limited to the number of shares of Common Stock available for issuance under our articles of incorporation. Regardless of whether or not the Series A Preferred Stock has been converted to our Common Stock, the Series A Preferred Stockholder is entitled to vote, at all times, on an as-if converted basis. The Preferred Stockholder, Mr. Rodriguez, has the right to vote the Series A Preferred Stock together with his other holdings in the Company. 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. There are currently 1,983 shares of Series B Preferred Stock outstanding. As of March 31, 2017, the liquidation preference is $2,326,526, or $1,173.24 per share. On March 14, 2014, we filed an amendment with the Nevada Secretary of State increasing the interest rate on the Series B Preferred Shares to nine percent (9.00%), effective on April 1, 2014 and changing the payment date to from January 15th of each year to April 1st. The next interest payment on the Series B Preferred Stock will be on April 1, 2018. The Series B Preferred Stock accrues dividends at the rate of 9% per annum on the original purchase price for the shares. If declared by the Board of Directors, 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 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. 7 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. 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. As of March 31, 2017, the liquidation preference is $214,037, or $1,070.19 per share. RECENT SALES OF UNREGISTERED SECURITIES The Company did not sell any unregistered securities between January 1, 2017 and March 31, 2017: During the twelve months ended March 31, 2017 and 2016, the Company incurred $178,488 and $165,038 in dividends on Series B preferred stock. During the twelve months ended March 31, 2017 and 2016, the Company incurred $11,037 and $3,000 in dividends on AFS Series A Preferred Stock. 8 All other unregistered securities sold by the Company during the past three years, but prior to January 1, 2017, have been included in the Company's 10-Q filings. All of the unregistered securities sold were issued directly by the Company, and no commissions or fees were paid in connection with any of these transactions. The transactions were private, and the Company endeavored to comply both with Regulation D, and also Section 4(2) of the Securities Act of 1933, as amended, as exemption(s) from registration. The Company exercised reasonable care to assure that the purchasers of the securities are not underwriters and were "accredited investors" under Regulation D and/or sophisticated investors. ITEM 6. SELECTED FINANCIAL DATA Not applicable. ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION RESULTS OF OPERATIONS AND PLAN OF OPERATION The following discussion and analysis should be read in conjunction with our 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 year ended March 31, 2017 compared to the year ended March 31, 2016 Revenues Revenues for the year ended March 31, 2017 were $57,021, an increase of $4,088 compared to revenue of $52,933 for the year ended March 31, 2016. Revenue from the sale of oil and gas increased as a result of a consulting income received. Concentration of customers For the year ended March 31, 2017, four customers, Scissortail Energy, Avalon 2015-1 LP, Lexinta SA and Ward Petroleum, individually accounted for 23%, 18%, 18% and 12% of the Company’s revenues, respectively. Except for the aforementioned customers, there was no other single customer who accounted for more than 10% of the Company’s revenues for the year ended March 31, 2017. For the year ended March 31, 2016, three customers, KROG Partners, Scissortail Energy and Ward Petroleum, individually accounted for 28%, 20% and 16% of the Company’s revenues, respectively. Except for the aforementioned customers, there was no other single customer who accounted for more than 10% of the Company’s revenues for the year ended March 31, 2016. Lease Operating Expenses During the year ended March 31, 2017, our lease operating expenses were $51,996 an increase of $1,233 compared to $50,763 for the year ended March 31, 2016. The increase was due to workover costs on the Lincoln County, Oklahoma properties. Selling, General, and Administrative Expenses Selling, general and administrative expenses for the year ended March 31, 2017 were $183,774 a decrease of $605,062 compared to selling, general and administrative expenses of $788,836 during the year ended March 31, 2016. Selling, general and administrative expenses for 2017 consisted primarily non-cash consulting services of payroll and related costs of $48,000; travel and entertainment expenses of $16,546; office expenses of $70,848 and consulting fees in the amount of $94,970. The decrease was primarily due to non-cash consulting services of $154,546, $12,450 in legal and accounting fees and the write off of the $279,400 balance in deposits year for the ended March 31, 2016. 9 Bad Debt Expense We did not have any bad debt expese for the year ended March 31, 2017. Bad debt expense for the year ended March 31, 2016 was 58,741. Impairment Expense Impairment expense for the year ended March 31, 2017 was $25,620. Impairment expense for the year ended March 31, 2016 was $1,839,941. The impairment expense was due to the reduction in the market price for oil and natural gas, the loss of economic value of the Company’s non-proven properties and the impairment of the Company’s intellectual properties. Stock-based Compensation The stock-based compensation for the years ended March 31, 2017 and March 31, 2016 were $53,300 and $0, respectively. Depreciation, Depletion, and Amortization Depreciation, Depletion, and Amortization were $32,807 for the year ended March 31, 2017 a decrease of $52,090 compared to $84,897 for the year ended March 31, 2016. The decrease was due to the impairment of $1,839,941 in oil and gas and intellectual property assets for the year ended March 31, 2016. Gain on Settlement of Debt, Notes Payable and Accrued Interest, and Miscellaneous Income During the year ended March 31, 2017, the Company did not have a gain on the settlement of debt. During the year ended March 31, 2016, we had a net gain on the settlement of debt in the amount of $283,014. We had $5,489 in miscellaneous income for the year ended March 31, 2017. We did not have any miscellaneous income for the year ended March 31, 2016. Interest Expense, net of Interest Income Interest expense, net of interest expense of $11,506 for the year ended March 31, 2017, a decrease of $5,197 compared to interest expense, net of $16,703 for the year ended March 31, 2016. This decrease is due to a reduction in the outstanding principal balances of notes payable. Net (Loss) For the reasons stated above, our net loss for the year ended March 31, 2017, was $243,193, compared to a net loss of $2,503,934 during the year ended March 31, 2016. Liquidity and Capital Resources 10 Going Concern The Company has minimal revenues from our remaining oil and gas assets. We are in need of additional cash resources to maintain our operations. As of March 31, 2017, the Company had a working capital deficit of $937,578, had incurred losses since inception of $34,047,136, and have not yet received any revenue from the sale our CBD skincare products. These factors raise substantial doubt about its ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent on its ability to raise additional capital or obtain necessary debt financing. The Company is presently dependent on its controlling shareholder to provide us funding for its daily operation and expenses, including professional fees 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 following 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. 11 Our cash and cash equivalents were $104,574 on March 31, 2017, compared to $108,220 on March 31, 2016. We met our liquidity needs through the issuance of our common stock, preferred stock, and notes payable for cash and from the revenue derived from our oil and gas operations. 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, or generate revenues from the sale of our CBD skincare products, and to achieve profitability, none of which can 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. Ultimately, our success is dependent upon our ability to generate revenues from the sale of our CBD skin care products. Operating activities Net cash used by operating activities for the year ended March 31, 2017 was $103,646, compared to $348,922 used in the year ended March 31, 2016. The Company had a net loss of $243,193 for the year ended March 31, 2017, compared to a net loss of $2,503,934 for the year ended March 31, 2016. Investing activities We did not receive any note payments for the year ended March 31, 2017. We received note repayments of $1,429 during the year ended March 31, 2016. Financing activities Our financing activities for the year ended March 31, 2017 provided cash of $100,000 as compared to $320,000 for the year ended March 31, 2016. We plan to raise additional capital during the coming fiscal year. Cash generated by financing activities consisted of $100,000 from the issuance of AFS Series A Preferred Stock. Critical Accounting Policies The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based on information available. These estimates and assumptions affect the reporting amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. A summary of the significant accounting policies is described in Note 1 to the financial statements. Recently enacted accounting standards In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which was subsequently modified in August 2015 by ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date. The core principle of ASU No. 2014-09 is that companies should recognize revenue when the transfer of promised goods or services to customers occurs in an amount that reflects what the company expects to receive. It requires additional disclosures to describe the nature, amount, timing and uncertainty of revenue and cash flows from contracts with customers. In 2016, the FASB issued additional ASUs that clarify the implementation guidance on principal versus agent considerations (ASU 2016-08), on identifying performance obligations and licensing (ASU 2016-10), and on narrow-scope improvements and practical expedients (ASU 2016-12) as well as on the revenue recognition criteria and other technical corrections (ASU 2016-20). These new standards will identify performance obligations and narrow aspects on achieving core principle. The Company is currently evaluating the impact the adoption of this guidance may have on its financial statements. The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies (“EGCs”) can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. Therefore, the Company will not be subject to the same new or revised accounting standards as public companies that are not EGCs. The Company anticipates adopting this new guidance on January 1, 2019 with the modified retrospective approach and plans on giving additional updates on its progress and further conclusions. 12 In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which requires that equity investments, except for those accounted for under the equity method or those that result in consolidation of the investee, be measured at fair value, with subsequent changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. It also impacts the presentation and disclosure requirements for financial instruments. It is effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, while for EGCs the amendment will become effective for fiscal years beginning after December 15, 2018. Early adoption is permitted only for certain provisions. The Company is in the process of evaluating the impact of adoption of this guidance on the Company’s consolidated financial statements and will adopt this guidance since January 1, 2019. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements. Material Commitments We have no material commitments during the next twelve (12) months. Purchase of Significant Equipment During the twelve months ended March 31, 2017 and March 31, 2016, we used $0 for the purchase of equipment. ITEM 8. FINANCIAL STATEMENTS. Our audited Financial Statements begin on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 13