10-Q: Groovy Co. Q3 Sees Asset Exchange, Blockchain Pivot

Groovy Company, Inc. reported a significant non-cash gain from an asset exchange with Pineapple Express Cannabis Company, shifting its focus to blockchain-based securities tokenization despite ongoing operating losses and internal control deficiencies.

Summary

• Groovy Company, Inc. (the "Company") completed an Exchange Agreement with Pineapple Express Cannabis Company (PNXP) on February 19, 2025, exchanging all its assets for an 87% controlling interest in PNXP.
• A non-cash gain of $7,772,404 was recognized from the PNXP Share Purchase Agreement for the nine months ended September 30, 2025, significantly reducing the accumulated deficit from $(11,339,099) to $(3,642,435).
• The Company's net income for the nine months ended September 30, 2025, was $7,429,220, compared to a net loss of $(1,765,492) for the same period in 2024, primarily driven by the non-cash gain.
• Despite the accounting gain, the Company reported a net loss from operations of $(343,184) for the nine months ended September 30, 2025, and generated zero revenue for the three months ended September 30, 2025.
• Cash and cash equivalents remain critically low at $3,133 as of September 30, 2025, with net cash used in operating activities totaling $(1,491,656) for the nine-month period.
• Management has concluded that there is substantial doubt about the Company's ability to continue as a going concern due to insufficient ongoing revenue and operating losses.
• The Company's disclosure controls and procedures, as well as internal control over financial reporting, were deemed ineffective as of September 30, 2025, citing material weaknesses including the lack of an Audit Committee, inappropriate cash controls, and insufficient information technology controls.
• The Company's current business model focuses on developing OTCM Protocol, a blockchain-based platform for tokenizing illiquid US OTC and global securities, utilizing Solana blockchain infrastructure.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a highly concerning report. While the strategic pivot to blockchain tokenization and the non-cash gain on the asset exchange are notable, the severe going concern risk, minimal operational revenue, significant cash burn, and identified material weaknesses in internal controls overshadow any potential positives, indicating extreme operational fragility.

Positives

• A significant non-cash gain of $7,772,404 was recognized from the Share Purchase Agreement with Pineapple Express Cannabis Company, which substantially reduced the accumulated deficit.
• Total liabilities decreased dramatically from $8,418,961 at December 31, 2024, to $202,158 at September 30, 2025, improving the balance sheet structure.
• The Company has pivoted to a strategic focus on blockchain-based infrastructure for securities markets, specifically tokenization of illiquid securities, which targets a perceived gap in global markets.
• Operating expenses for the nine months ended September 30, 2025, decreased to $353,360 from $534,779 in the prior year, indicating some cost management.

Negatives

• The Company reported zero revenue for the three months ended September 30, 2025, and minimal revenue of $11,676 for the nine-month period, indicating a lack of sustainable operational income.
• Net cash used in operating activities significantly increased to $(1,491,656) for the nine months ended September 30, 2025, from $(166,260) in the prior year, highlighting severe cash burn.
• Cash and cash equivalents are critically low at $3,133 as of September 30, 2025, raising immediate liquidity concerns.
• Management has concluded that there is substantial doubt about the Company's ability to continue as a going concern.
• Disclosure controls and procedures were deemed ineffective, and material weaknesses in internal control over financial reporting were identified, including the absence of an independent Audit Committee, inadequate cash controls, and insufficient IT controls.
• The Company's total assets decreased from $247,038 at December 31, 2024, to $3,133 at September 30, 2025, following the asset exchange.

Risks

• Substantial doubt exists about the Company's ability to continue as a going concern due to insufficient ongoing revenue and persistent operating losses.
• The Company requires additional capital resources to fund operating losses and cannot provide assurance that such financing will be obtainable on satisfactory terms or at all.
• The regulatory environment for tokenized securities is evolving and uncertain; future regulatory developments could require costly modifications to operations or limit the Company's ability to offer services.
• The Company operates in a highly competitive market for securities tokenization services, facing larger and more established competitors like Securitize.
• The Company has a limited operating history and is in a start-up stage, making it difficult to evaluate its future performance.
• Compliance with Section 404 of the Sarbanes-Oxley Act of 2002 will require significant management time, potentially impeding business plan implementation and operational speed.
• Material weaknesses in internal control over financial reporting, including the lack of an Audit Committee, inadequate cash controls, and insufficient IT controls, pose risks to financial reporting reliability.

Future Outlook

The Company anticipates continued development of its blockchain-based platform, OTCM Protocol, to address liquidity constraints in global securities markets. Management believes its focus on illiquid securities, lower cost structure, and proprietary technology provide competitive advantages. However, the Company acknowledges the need for additional financing to fund operating losses and cannot guarantee future results or the adequacy of available cash resources. The regulatory environment for tokenized securities is expected to continue evolving, potentially requiring modifications to operations.

Management Comments

• Management believes that current trends toward lower capital investment in start-up companies pose the most significant challenge to the Company's success over the next year and in future years.
• Management's plan to obtain additional resources includes obtaining capital from management and significant stockholders sufficient to meet minimal operating expenses.
• Management has concluded that conditions raise substantial doubt about the Company's ability to continue as a going concern.
• Management will have to spend additional time on policies and procedures to ensure compliance with various regulatory requirements, especially Section 404 of the Sarbanes-Oxley Act of 2002, which could limit time for business plan implementation.

Industry Context

StockSavvy.ai notes that Groovy Company, Inc. is attempting to carve out a niche in the burgeoning, yet highly regulated, blockchain-based securities tokenization market. Its focus on illiquid OTC and global securities addresses a real market need, as many traditional securities lack accessible liquidity. The choice of Solana for its high throughput and low costs aligns with industry trends favoring efficient blockchain infrastructure. However, the market is dominated by more established players like Securitize, which boasts over $4 billion in tokenized assets and strong institutional ties, indicating a significant competitive hurdle for Groovy Company. The evolving regulatory landscape for tokenized securities, as highlighted by the SEC's January 2026 guidance, presents both opportunities and compliance challenges for all participants in this space.

Comparison to Industry Standards

• Groovy Company's reported $11,676 in revenue for the nine months ended September 30, 2025, is negligible compared to industry leader Securitize, which has tokenized over $4 billion in assets, highlighting Groovy Company's nascent stage and minimal market penetration.
• The Company's reliance on the Solana blockchain for its high transaction throughput (up to 65,000 transactions per second) and low transaction costs (fractions of a cent) positions it favorably against older, slower blockchain infrastructures, but this is a technological advantage, not a financial performance benchmark.
• The CEDEX exchange's 24-hour, seven-day-a-week trading model for tokenized securities offers a significant operational advantage over traditional equity markets with limited trading hours, potentially attracting investors seeking continuous liquidity, though its actual trading volume is not disclosed for comparison.

Management Changes

Corporate Governance

Legal Proceedings

• As of the date of this Quarterly Report, there are no pending legal proceedings to which the Company is a party that are believed to have a material adverse effect on its financial condition or results of operations.

Related Party Transactions

• Employment agreements were executed on July 1, 2025, with key employees who are also officers and directors: Mr. Berge Abajian, Mr. Patrick Mokros, and Mr. Franjose Yglesias, each for a ten-year term with an annual salary of $150,000.
• Accrued compensation due to officers and directors was $112,500 as of September 30, 2025, down from $562,500 at December 31, 2024.
• Notes payable to related parties (advances from Chief Executive Officers) totaled $9,021 as of September 30, 2025, down from $70,433 at December 31, 2024, with a 0.00% annual interest rate.

Stakeholder Impact

• Shareholders face significant risk due to the Company's going concern uncertainty, potential for further dilution from future capital raises, and the ineffectiveness of internal controls.
• Employees, particularly management, have secured long-term employment agreements, but the Company's overall financial instability could impact job security for other personnel.
• Creditors, especially related parties, are providing support through advances, but the Company's ability to repay obligations is uncertain without additional financing.
• Customers (potential issuers and traders on the platform) may face risks related to the stability and long-term viability of the platform given the Company's financial health and control deficiencies.

Next Steps

• Continue to maintain and develop the Groovy Platform as a Service (PaaS) for Pineapple Express Cannabis Company.
• Ongoing development and operation of OTCM Protocol, a blockchain-based platform for securities tokenization.
• Engage with regulators, including the SEC Crypto Task Force, to clarify the regulatory framework for tokenized securities.
• Seek additional capital resources from management, significant stockholders, or other financing sources to fund operations.

Key Dates

Recommendation

A seasoned investor would view Groovy Company, Inc. as an extremely high-risk investment with a strong sell recommendation. The explicit 'substantial doubt about the Company's ability to continue as a going concern,' coupled with critically low cash, persistent operating losses, and zero revenue in the most recent quarter, indicates severe financial distress. While the non-cash gain from the asset exchange improved the accumulated deficit, it does not address the fundamental operational cash burn. Furthermore, the identified material weaknesses in internal controls and ineffective disclosure procedures signal significant governance and financial reporting risks. Despite an interesting strategic pivot into blockchain tokenization, the company's current financial and operational foundation is too weak to warrant any investment, making it a speculative bet with a high probability of capital loss.

Keywords

blockchain, tokenization, securities, OTC markets, Solana, FinTech, cryptocurrency, Web3, Pineapple Express Cannabis Company, Groovy Platform, OTCM Protocol