10-K: Groovy Company 2025 10-K: Blockchain Platform Advances

Groovy Company's 2025 Annual Report details significant progress on its OTCM Protocol blockchain platform, despite ongoing financial challenges and a need for substantial capital.

Summary

• Groovy Company is focused on developing and operating the OTCM Protocol, a Layer-2 blockchain platform on Solana designed to create ST22 Security Tokens for OTC microcap companies, aiming to solve an estimated $50 billion liquidity crisis.
• The OTCM Protocol software platform is 67% complete and has achieved 'Beta Validated' status, processing over $7,000,000 in liquidity across 3 beta issuer implementations (GROO, MSPC, GRLF).
• For the fiscal year ended December 31, 2025, the company reported a net income of $7,449,800, primarily driven by a non-recurring, non-cash gain of $7,809,856 from a Share Purchase Agreement with Pineapple Express Cannabis Company (PNXP).
• Excluding this non-cash gain, the company incurred an operating loss of $(357,386) for FY2025.
• The company had a cash balance of only $77 as of December 31, 2025, and management has concluded there is substantial doubt about its ability to continue as a going concern.
• The OTCM Protocol software platform is recorded as an intangible asset at a fair value of $19,510,400, representing 99.7% of total assets.
• Plans include a $20,000,000 Security Token Offering (STO) under SEC Rule 506(c) and a commercial growth strategy targeting 100 issuer companies in Year 1, scaling to 5,000 by Year 5.
• The company's common stock is currently quoted on the Expert Market tier of OTC Markets Group due to a loss of Rule 15c2-11 eligibility, restricting trading to sophisticated investors.
• Material weaknesses in internal controls over financial reporting were identified, including insufficient accounting staff with U.S. GAAP expertise, absence of formal written accounting policies, and limited segregation of duties.
• Five executive officers (CEO, COO, CTO, Chief Legal Counsel, VP of Issuer Services) have 10-year employment agreements effective January 1, 2026, each with an annual base salary of $150,000 and equity compensation in Series A Preferred Stock.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a high-risk, early-stage venture with significant technological promise but severe financial constraints and operational challenges, including a going concern doubt and unaudited financials.

Positives

• The OTCM Protocol software platform is 67% complete and has successfully processed over $7,000,000 in liquidity during beta testing with three issuer companies.
• The company has a clear strategic vision to address a significant market opportunity by solving the estimated $50 billion liquidity crisis affecting dormant OTC securities.
• The ST22 Security Token framework is designed to comply with the SEC's Category 1 issuer-authorized tokenization framework, aiming for regulatory adherence in a complex digital asset landscape.
• Key executives, including the CEO, COO, and CTO, are committed through long-term 10-year employment agreements, providing leadership stability.
• A robust cybersecurity framework is in place for smart contracts, incorporating 42 security controls, multi-signature governance, 48-hour time-delay mechanisms, and emergency circuit breakers.
• The company reported a net income of $7,449,800 for the fiscal year 2025, although this was largely due to a non-cash gain.

Negatives

• The company has a limited operating history, minimal revenue ($211,877 for FY2025), and an accumulated deficit of $(472,097) as of December 31, 2025.
• Excluding a non-recurring non-cash gain, the company incurred an operating loss of $(357,386) for fiscal year 2025.
• The cash balance was critically low at $77 as of December 31, 2025, leading management to express substantial doubt about the company's ability to continue as a going concern.
• Substantial additional capital ($20,000,000) is required to complete the OTCM Protocol platform and sustain operations, with no assurance of successful fundraising.
• The financial statements included in the Annual Report are unaudited and subject to material adjustment, increasing investor risk.
• Three material weaknesses in internal controls over financial reporting were identified: insufficient accounting staff with U.S. GAAP expertise, absence of formal written accounting policies, and limited segregation of duties.
• The intangible asset (OTCM Protocol software) constitutes 99.7% of total assets, making the company highly susceptible to impairment risk if the platform fails to commercialize.
• The common stock has lost its Rule 15c2-11 eligibility and is quoted on the Expert Market, severely restricting trading activity and limiting investor access.
• The company currently lacks a Chief Financial Officer (CFO) or dedicated Principal Financial Officer, posing financial reporting and compliance risks.
• The Board of Directors does not include any independent directors.

Risks

• The company's limited operating history, minimal revenue, and history of net losses raise substantial doubt about its ability to continue as a going concern.
• Substantial additional capital of $20,000,000 is required to complete the OTCM Protocol platform and sustain operations, with no assurance that the planned Security Token Offering (STO) will be completed on acceptable terms or at all.
• The financial statements are unaudited and subject to material adjustment due to identified material weaknesses in internal controls over financial reporting.
• The intangible asset, valued at $19,510,400 and representing 99.7% of total assets, is subject to impairment risk if the platform fails to achieve commercialization or if market conditions change.
• The intangible asset was received in a related-party transaction from the CTO, which may be subject to additional scrutiny regarding valuation methodology or the arms-length nature of the transaction.
• ST22 Security Tokens are issuer-sponsored tokenized securities subject to the full requirements of federal securities laws; failure to maintain compliance could result in enforcement action, fines, or cessation of operations.
• The regulatory environment for digital assets and tokenized securities is evolving rapidly and unpredictably, potentially requiring significant expenditures or operational changes.
• Compliance with the SEC's Category 1 issuer-authorized tokenization framework is subject to evolving regulatory interpretation, and any adverse determination could materially impair operations.
• The company is subject to anti-money laundering (AML), Know Your Customer (KYC), and sanctions compliance requirements that may be costly to implement and maintain.
• The platform's reliance on the Solana blockchain means disruptions to Solana (outages, forks, vulnerabilities) could materially harm operations.
• Smart contracts may contain vulnerabilities (bugs, logic errors, attack vectors) despite security controls, potentially leading to loss of digital assets, regulatory action, or reputational damage.
• The company is critically dependent on its three co-founders (CEO, COO, CTO), and the loss of any could severely impair operations.
• The software development platform is 67% complete and may not achieve full functionality or commercial viability on schedule or within budget.
• Cybersecurity breaches, data loss, or unauthorized access to systems could harm the business, leading to data loss, theft of digital assets, or regulatory investigation.
• The capital structure includes a large number of authorized but unissued preferred shares, which could result in significant dilution to common stockholders.
• The common stock has lost its Rule 15c2-11 eligibility and is quoted on the Expert Market, significantly restricting trading activity and limiting investor access.
• The COO is also the founder and CEO of Empire Stock Transfer, Inc., a related party serving as the company's transfer agent and custody provider, which presents potential conflicts of interest.
• The market for illiquid OTC securities is subject to regulatory change that could reduce the size of the addressable market.
• Competition from established DeFi protocols, traditional financial institutions, and other blockchain platforms could reduce market share.
• Cryptocurrency and blockchain market conditions are highly volatile and could adversely affect the value of the planned SOL treasury and blockchain assets.
• Operations in Colombia through Santo Blockchain Labs expose the company to foreign regulatory, currency, and operational risks.
• The company does not anticipate paying dividends on its common stock in the foreseeable future.
• The absence of a qualified Chief Financial Officer (CFO) with expertise in both securities accounting and digital assets creates financial reporting and compliance risk.

Future Outlook

The company plans to complete the remaining 33% of the OTCM Protocol software platform, targeting commercial launch in 2026. It intends to raise $20,000,000 through a Regulation D Rule 506(c) Security Token Offering and projects annual SOL treasury staking income of $480,000 to $640,000. The commercial growth strategy targets onboarding 100 issuer companies in Year 1 post-launch, scaling to 5,000 companies by Year 5, with revenue projections growing from approximately $1.1 million to $50.5 million. The company also plans for international expansion across exchanges in Toronto, Shanghai, Hong Kong, Australia, Frankfurt, Mexico, and Brazil. Management intends to evaluate establishing a formal cybersecurity governance committee and a dedicated Chief Information Security Officer (CISO) as the company scales, and will commission a third-party smart contract security audit prior to full commercial launch.

Management Comments

• "Management has evaluated these conditions and concluded there is substantial doubt about the Company's ability to continue as a going concern."
• "We believe our structure is compliant with this framework [SEC Category 1], the application of federal securities laws to tokenized instruments continues to evolve."
• "Our success is critically dependent on the continued service of our three co-founders: Berj Abajian (CEO), Patrick Mokros (COO), and Franjose Yglesias (CTO)."
• "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 intends to remediate these material weaknesses [in internal controls] as the Company grows and resources permit."

Industry Context

StockSavvy.ai notes that Groovy Company is positioning itself in the nascent but rapidly evolving tokenized securities market, aiming to address the significant liquidity challenges faced by OTC microcap companies. Its Layer-2 solution on Solana, coupled with a focus on SEC Category 1 compliance, attempts to bridge traditional finance with blockchain, a trend gaining traction as regulators seek clarity in digital asset markets. The company's reliance on a related-party transfer agent (Empire Stock Transfer) and its early-stage financial profile are common characteristics of innovative ventures in this space, but also present unique risks compared to more established financial infrastructure providers.

Comparison to Industry Standards

• The valuation of the OTCM Protocol software platform at $19,510,400 is based on a replacement cost methodology using 560,000 lines of logical code at $52.00 per line and a 67% completion factor, referencing CISQ/Capers Jones industry benchmarks for 'Complex / High-Quality' software. This rate is conservative compared to the mid-rate of $52.00/LOC at 67% completion which would yield $27,562,800.
• The company's cybersecurity framework, including 42 security controls, multi-signature governance, and formal verification using tools like Kani and Prusti, aligns with best practices for smart contract security, comparable to measures taken by leading DeFi protocols to mitigate vulnerabilities.
• The target of onboarding 100 issuer companies in Year 1 and scaling to 5,000 by Year 5 is ambitious for a new platform, especially when compared to the slower adoption rates seen in traditional securities tokenization platforms like Securitize or Polymath, which have taken years to build significant issuer bases.

Management Changes

Corporate Governance

Legal Proceedings

• A default judgment of $521,256 plus attorneys fees and costs was entered against the company on July 18, 2023, in a lawsuit filed by former employee George Kuper alleging breach of contract.
• This liability was assumed by Pineapple Express Cannabis Company (PNXP) as part of a Share Purchase Agreement on February 19, 2025, and the company has no further liability with respect to this matter as of December 31, 2025.
• The company is not currently involved in any other material legal proceedings.

Related Party Transactions

• Franjose Yglesias (CTO and Director) advanced $44,500 to the company, evidenced by an 8% demand promissory note, with $2,670 accrued interest as of December 31, 2025.
• An Intellectual Property Assignment Agreement dated June 12, 2025, where Franjose Yglesias assigned the OTCM Protocol software platform to the company in exchange for 100,000,000 Series A Preferred Stock shares (net 15,000,000 shares retained after returning 85,000,000 to treasury). The asset was valued at $19,510,400.
• Patrick Mokros (COO and Director) is the founder and CEO of Empire Stock Transfer, Inc., which serves as the company's SEC-registered transfer agent and Series M Preferred Share custodian for the OTCM Protocol's ST22 Security Token framework.
• Employment and Board Service Agreements for CEO Berj Abajian, COO Patrick Mokros, and CTO Franjose Yglesias, effective January 1, 2026, each with an annual base salary of $150,000 and 15,000,000 Series A Preferred Stock shares (vesting over 3 years with a 1-year cliff).
• New executive appointments in February 2026 (Jeff Turner as Chief Legal Counsel, John Morgan as VP of Issuer Services) also received 15,000,000 Series A Preferred Stock shares each.
• The company's board of directors does not include any independent directors.

Stakeholder Impact

• Shareholders face potential significant dilution from future equity financings, including the planned $20,000,000 STO and the issuance of various preferred stock series. The common stock's restricted trading on the Expert Market limits liquidity and access for retail investors. Series A Preferred Stockholders (management) hold controlling voting power.
• Employees, particularly executives, benefit from long-term employment agreements and equity compensation, aligning their interests with the company's long-term success. The company also employs a 12-person software development team in Colombia.
• Customers, specifically OTC issuer companies, stand to benefit from the OTCM Protocol's solution to illiquid securities, potentially gaining access to permanent liquid markets for their shares.
• Creditors face heightened risk due to the company's severe liquidity constraints ($77 cash) and management's explicit 'going concern' doubt, which could impact the company's ability to meet its obligations.

Next Steps

• Complete the remaining 33% of the OTCM Protocol software platform, targeting commercial launch in 2026.
• Execute the $20,000,000 Security Token Offering under SEC Rule 506(c).
• Generate revenue from transaction fees upon platform launch.
• Generate SOL treasury staking income of approximately $480,000 to $640,000 annually.
• File a Form 211 with FINRA to restore Rule 15c2-11 eligibility and reinstate quotation on OTC Pink or OTCQB.
• Recruit a Chief Financial Officer (CFO) with expertise in SEC reporting and digital asset accounting.
• Commission a formal third-party smart contract security audit prior to full commercial launch.
• Engage a qualified penetration testing firm to assess backend infrastructure security on an annual basis following commercial launch.
• Evaluate the establishment of a formal cybersecurity governance committee and dedicated CISO function as the company scales.
• Pursue international expansion across exchanges in Toronto, Shanghai, Hong Kong, Australia, Frankfurt, Mexico, and Brazil.

Key Dates

Recommendation

The company faces severe financial distress, evidenced by a cash balance of only $77 and an explicit 'going concern' warning from management. While the OTCM Protocol shows technological promise and beta progress, its commercial viability is unproven, and it relies heavily on a speculative $20 million STO for future funding. The unaudited financials, material weaknesses in internal controls, lack of a qualified CFO, and restricted trading of common stock on the Expert Market present significant red flags for investors. The substantial non-cash gain that led to reported net income obscures a significant operating loss. These factors indicate extremely high risk and a precarious financial position, making the stock a strong sell for risk-averse investors.

Keywords

blockchain, security token, OTC Markets, Solana, DeFi, tokenization, financial technology, digital assets, SEC compliance, microcap, liquidity, ST22, GROO, Empire Stock Transfer, Regulation D, Rule 506(c)