1606 Corp 10-Q for FY2022 Q2
1606 Corp. (CBDW)
About this 10-Q
1606 Corp filed this 10-Q on August 15, 2022, covering the quarter ended June 30, 2022 (FY2022 Q2).
Headline figures
Quarter ended June 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $4382
- down 42.3% from $7596 a year earlier
- Net loss
- $121.57K
- compared with a net loss of $85.93K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended
Commission File No.
(Name of small business issuer in its charter) |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(
(Issuer’s telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☐ | Smaller reporting company | ||
| Emerging growth company | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of August 11, 2022, the Company had
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, of Part I of this report include forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by forward-looking statements.
In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “proposed,” “intended,” or “continue” or the negative of these terms or other comparable terminology. You should read statements that contain these words carefully, because they discuss our expectations about our future operating results or our future financial condition or state other “forward-looking” information. There may be events in the future that we are not able to accurately predict or control. Before you invest in our securities, you should be aware that the occurrence of any of the events described in this Quarterly Report could substantially harm our business, results of operations and financial condition, and that upon the occurrence of any of these events, the trading price of our securities could decline and you could lose all or part of your investment. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, growth rates, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this Quarterly Report to conform these statements to actual results.
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION |
|
|
| |
|
|
|
|
|
Item 1. | Financial Statements |
|
| |
|
| 4 |
| |
|
| 5 |
| |
|
| 6 |
| |
|
| 7 |
| |
|
| 8 |
| |
|
|
|
|
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| 13 |
| |
| 15 |
| ||
| 15 |
| ||
|
|
|
|
|
|
|
| ||
|
|
|
|
|
| 17 |
| ||
| 17 |
| ||
| 17 |
| ||
| 17 |
| ||
| 17 |
| ||
| 17 |
| ||
| 18 |
| ||
| 19 |
| ||
| 3 |
| Table of Contents |
1606 CORP.
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS |
| June 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Current Assets: |
|
|
|
|
|
| ||
Cash |
| $ |
|
| $ |
| ||
Accounts receivable |
|
|
|
|
|
| ||
Inventory |
|
|
|
|
|
| ||
Total Assets |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Note Payable to related party |
| $ |
|
| $ |
| ||
Current portion of long-term Note Payable to related party |
|
|
|
|
|
| ||
Total current liabilities |
|
|
|
|
|
| ||
Note Payable to related party - long-term, net of current portion |
|
|
|
|
|
| ||
Total liabilities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undesignated preferred stock, par value $ |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Class A convertible preferred Stock, par value $ |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Common stock, par value $ |
|
|
|
|
|
| ||
Additional paid-in capital |
|
|
|
|
|
| ||
Accumulated deficit |
|
| ( | ) |
|
| ( | ) |
Total stockholders' deficit |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Total Liabilities and stockholders' deficit |
| $ |
|
| $ |
| ||
|
| $ | - |
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 4 |
| Table of Contents |
1606 CORP.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Revenues, net of discounts |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before Income tax |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and diluted |
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
| ||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 5 |
| Table of Contents |
1606 Corp.
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY AND PARENT'S NET INVESTMENT
(unaudited)
|
| Preferred Stock |
|
| Common Stock |
|
| Additional Paid-in |
|
| Net Parent |
|
| Accumulated |
|
| Total Stockholders' (Deficit) |
| ||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Investment |
|
| Deficit |
|
| Total |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance, December 31, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ | ( | ) |
|
| ( | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2022 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2022 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers from parent |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2021 |
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | ||||
Issuance of note to former parent, SinglePoint |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||
Preferred stock distributed in connection with spinoff, April 7, 2021 |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||||
Preferred stock canceled |
|
| ( | ) |
|
| ( | ) |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Common stock distributed in connection with spinoff, April 7, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
| |||
Common stock issued for cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Common stock DTCC correction |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 6 |
| Table of Contents |
1606 CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
|
| Six Months Ended June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Acquisition expense from related party |
|
|
|
|
|
| ||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| ( | ) |
|
|
| |
Note payable from related party - current |
|
|
|
|
|
|
| |
Inventory |
|
| ( | ) |
|
|
| |
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Advance from (to) parent |
|
|
|
|
|
| ||
Note Payable to Shareholder |
|
|
|
|
|
| ||
Proceeds from sale of common stock |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Net cash provided provided by financing activities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Net Change in Cash |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Cash, beginning of the period |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Cash, end of the period |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flows Information: |
|
|
|
|
|
|
|
|
Note payable to related party for purchase of assets |
| $ |
|
| $ |
| ||
Preferred stock issued in connection with the spin-off |
| $ |
|
| $ |
| ||
Preferred stock cancelled |
| $ |
|
| $ | ( | ) | |
Common stock issued in connection with the spin-off |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 7 |
| Table of Contents |
1606 Corp.
Notes to the Condensed Financial Statements
NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Corporate History
1606 Corp. (“1606” or the “Company”) was formed in February 2021 and was a division of SinglePoint Inc. (“SinglePoint”) until April 2021, when SinglePoint spun off 1606 whereby each holder of common stock and Class A Preferred Stock of SinglePoint received one share of unregistered and restricted common stock and Class A Preferred Stock of the Company for each such shared owned of SinglePoint.
Business
1606 is an early-stage sales marketing company focused on the domestic hemp cigarette (aka pre-roll) market. The Company currently sells hemp products through individual online sales and used to distribute hemp products to distributors, convenience stores, and smoke shops in multiple states. The Company’s 1606 Original brand launched in December 2019, with its pre-roll cigarette sales beginning in January 2021.
Going Concern
The financial statements have been prepared assuming that the Company will continue as a going concern. As of June 30, 2022, the Company has yet to achieve significant profitable operations and is dependent on its ability to raise capital from stockholders or other sources to sustain operations and to ultimately achieve viable operations. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s ability to continue in existence is dependent on the Company’s ability to develop the Company’s business and to achieve profitable operations. Since the Company does not anticipate achieving profitable operations and/or adequate cash flows in the near term, management will continue to pursue additional equity financing through private placements of the Company’s common stock.
NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly the Company’s financial position as of June 30, 2022 and December 31, 2021, and the results of the Company’s operations for the interim periods presented. We follow the same accounting policies when preparing quarterly financial data as we use for preparing annual data. These statements should be read in conjunction with the financial statements and the notes included in our latest annual report on Form 10-K for the year ended December 31, 2021, and our other reports on file with the Securities and Exchange Commission (“SEC”).
For the three months ended March 31, 2021, the Company is being presented as a carve out of SinglePoint which includes 1606 Corp. and certain other accounts of SinglePoint and collectively presents the Company on a standalone basis.
Management believes the assumptions underlying the Company’s standalone financial statements are reasonable. Nevertheless, the financial statements may not include all of the actual expenses that would have been incurred had the Company operated as a standalone company during the periods presented, and may not reflect the Company’s results of operations, financial position and cash flows had the Company operated as a standalone company during the periods presented. Actual costs that would have been incurred if the Company had operated as a standalone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas.
| 8 |
| Table of Contents |
Basis of Presentation (continued)
SinglePoint used a centralized approach to cash management and financing its operations, including the operations of the Company. Accordingly, none of the cash and cash equivalents of SinglePoint have been allocated to the Company in the financial statements. Transactions between SinglePoint and the Company are accounted for through Parent’s Net Investment.
The expenses of the Company for the three months ended March 31, 2021, have been allocated by management between the Company and SinglePoint based either on specific attribution of those expenses or, where necessary and appropriate, based on management’s best estimate of an appropriate proportional allocation.
Use of Estimates
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results may differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with an original maturity of three months or less.
Accounts Receivable and Credit Policy
Trade receivables due from customers are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. Management of the Company considers all receivables collectable. Uncollectable accounts are charged to expense when the account is determined to be uncollectable. The allowance is provided based upon a review of the individual accounts outstanding, prior history of uncollectable accounts receivable and existing economic conditions. At June 30, 2022, and December 31, 2021, the allowance for doubtful accounts balance is $
Inventory
Inventories are valued at the lower of cost (first in, first out basis) or market, and consist primarily of hemp products. The Company’s inventory as of June 30, 2022, December 31, 2021, consisted of finished hemp products. At each balance sheet date, the Company evaluates inventories for excess quantities, obsolescence, or shelf-life expiration. This evaluation includes analysis of historical sales levels by product, projections of future demand, the risk of technological or competitive obsolescence for products. To the extent that management determines there are excess or obsolete inventory or quantities with a shelf life that is too near its expiration for the Company to reasonably expect that it can sell those products prior to their expiration, the Company adjusts the carrying value to estimated net realizable value.
Revenue Recognition
The Company derives its revenues primarily from the sale of hemp products. The Company adopted ASC 606 for all applicable contracts using the modified retrospective method, which would have required a cumulative-effect adjustment, if any, as of the date of adoption. The adoption of ASC 606 did not have a material impact on the Company’s financial statements as of the date of adoption. As a result, a cumulative-effect adjustment was not required.
Revenues are recognized when control of these products is transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products. Sales and other taxes the Company collect concurrent with revenue-producing activities are excluded from revenue. Any shipping and handling fees charged to customers are reported within revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. The Company does not have any significant financing components as payment is received at or shortly after the point of sale. Costs incurred to obtain a contract will be expensed as incurred when the amortization period is less than a year.
Cost of Goods Sold and Selling, General and Administrative Expenses
Costs associated with the production and procurement of product are included in cost of goods sold, including shipping and handling costs such as inbound freight costs, purchasing and receiving costs, inspection costs and other product procurement related charges. All other expenses are included in selling, general and administrative expenses, as the predominant expenses associated therewith are general and administrative in nature.
| 9 |
| Table of Contents |
Income taxes
Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement and tax bases of assets and liabilities at the applicable tax rates. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates.
Tax benefits are recognized from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by a tax authority and based upon the technical merits of the tax position. The tax benefit recognized in the financial statements for a particular tax position is based on the largest benefit that is more likely than not to be realized upon settlement. An unrecognized tax benefit, or a portion thereof, is presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed.
Net Loss Per Common Share
| a. | Basic loss per share data is computed using the weighted-average number of shares of common stock outstanding during the period. Diluted loss per share data is computed using the weighted-average number of common and dilutive common-equivalent shares outstanding during the period. Dilutive common-equivalent shares consist of shares that would be issued upon the exercise of stock options and other common stock equivalents, computed using the treasury stock method, and are excluded from the calculation of weighted average dilutive common shares, to the extent they are issued and outstanding, because their effect would be anti-dilutive. The number of potentially dilutive shares excluded from the calculation of diluted earnings per share were |
| b. | At June 30, 2022, |
Basic loss per share data for each period presented is computed using the weighted-average number of shares of common stock outstanding during each such period. Diluted loss per share data is computed using the weighted-average number of common and dilutive common-equivalent shares outstanding during each period. Dilutive common-equivalent shares consist of: (a) shares that would be issued upon the exercise of stock options and warrants, computed using the treasury stock method; and (b) shares of non-vested restricted stock. There are no shares that are excluded from the calculation of weighted average dilutive common shares.
Selling and Marketing
Selling and Marketing costs are expensed as incurred and are reported under selling, general and marketing in the accompanying statements of operations. Such costs were $
Fair value measurements
Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. The basis for fair value measurements for each level within the hierarchy is described below:
Level 1 — Quoted prices for identical assets or liabilities in active markets.
Level 2 — Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 — Valuations derived from valuation techniques in which one or more significant inputs to the valuation model are unobservable.
| 10 |
| Table of Contents |
The Company considers the carrying amounts of its financial instruments (cash and accounts receivable) in the balance sheet to approximate fair value because of the short-term or highly liquid nature of these financial instruments.
Segment reporting
The Company operates in one business segment. As a result, the Company’s operations are a single reportable segment, which is consistent with the Company’s internal management reporting.
Subsequent Events
The Company has evaluated all subsequent events from June 30, 2022, through the date of filing of this report. See Note 6 for disclosure of subsequent events.
Recent Accounting Pronouncements
On December 22, 2017, the U.S. government enacted significant changes to federal tax law following the passage of the Tax Cuts and Jobs Act (“the Act”). Following the enactment of the Act, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”). The Company follows the guidance in SAB 118, which provides additional clarification regarding the application of US GAAP in situations where the Company does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Act for the reporting period in which the Act was enacted. SAB 118 provides for a measurement period beginning in the reporting period that includes the Act’s enactment date and ending when the Company has obtained, prepared, and analyzed the information needed in order to complete the accounting requirements but in no circumstances should the measurement period extend beyond one year from the enactment date.
NOTE 3 – RELATED PARTY TRANSACTIONS
Related Party Transactions
During the three and six months ended June 30, 2022, the Company borrowed $
In June 2021, the Company entered into an Asset Purchase Agreement with SinglePoint to purchase certain assets in exchange for the issuance of a promissory note (the “Note”) for $
On April 28, 2021, the Company sold a total of
NOTE 4 – CAPITAL STOCK
Capital Stock
The Company’s authorized capital stock consists of
Common Stock
| 11 |
| Table of Contents |
Preferred Stock
As of June 30, 2022, the Company had
The Class A Preferred Stock has the following material rights and preferences (as is more fully set forth in Certificate of Designation of the Class A Preferred Stock).
Ranking
The Class A Preferred Stock ranks, as to dividends and upon liquidation, senior and prior to the Common Stock of the Company.
Liquidation
In the event of liquidation, dissolution or winding up of the Company, the holders of the Class A Preferred Stock are entitled, out of the assets of the Company legally available for distribution, to receive, before any payment to the holders of shares of Common Stock or any other class or series of stock ranking junior, and amount per share equal to $
Voting
Conversion
NOTE 5 – COMMITMENTS AND CONTINGENCIES
Legal Proceedings and Other Claims
From time to time, we are a party to claims and actions for matters arising out of our business operations. We regularly evaluate the status of the legal proceedings and other claims in which we are involved to assess whether a loss is probable or there is a reasonable possibility that a loss, or an additional loss, may have been incurred and determine if accruals are appropriate. If accruals are not appropriate, we further evaluate each legal proceeding to assess whether an estimate of possible loss or range of possible loss can be made for disclosure. Although the outcome of claims and litigation is inherently unpredictable, we believe that we have adequate provisions for any probable and estimable losses. It is possible, nevertheless, that our consolidated financial position, results of operations or liquidity could be materially and adversely affected in any particular period by the resolution of a claim or legal proceeding. Legal expenses related to defense, negotiations, settlements, rulings, and advice of outside legal counsel are expensed as incurred
Employment Agreement
In May 2021 the Company entered into an employment agreement with Mr. Lambrecht. The agreement provides that Mr. Lambrecht would serve as
In June 2021 the Company entered into an employment agreement with Austen Lambrecht, who is a son of the Company’s CEO. The agreement provided that Austen Lambrecht would serve as
| 12 |
| Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Plan of Operation
The Company was incorporated in Nevada in February 2021 and was spun-off from Singlepoint Inc. in April 2021. For the three months ended March 31, 2021, the Company is being presented as a carve out of SinglePoint Inc. which includes 1606 Corp. and certain other accounts of SinglePoint Inc. and collectively presents the Company on a standalone basis. Management believes the assumptions underlying the Company’s standalone financial statements are reasonable. Nevertheless, the financial statements may not include all of the actual expenses that would have been incurred had the Company operated as a standalone company during the periods presented, and may not reflect the Company’s results of operations, financial position and cash flows had the Company operated as a standalone company during the periods presented. Actual costs that would have been incurred if the Company had operated as a standalone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas
We achieved our goal of offering a nicotine- and tobacco-free alternative to cigarettes and vaping products using industrial grade hemp, and promoting health benefits such as pain management, reduced anxiety and enhanced wakefulness. Smokable hemp is an alternative for customers that currently smoke or want to quit smoking nicotine. All of our hemp cigarettes are manufactured with 100% premium hemp flower and are nicotine-free, tobacco-free and organically grown – free of pesticides and other contaminants. Our key customers comprise distributors and retail customers, including convenience stores, smoke shops and individual purchasers.
We are focused on increasing our retail footprint concentrating on regional expansion in addition to continuing to grow our online presence and retail distribution network. We sell our products directly online through our website, www.1606hemp.com, and ship them directly to anywhere within the United States. Our products are also sold in approximately 300 retail stores.
Results of Operations
Comparison of the Three Months Ended June 30, 2022 with the Three Months June 30, 2021
Net Revenue. For the three months ended June 30, 2022, we generated revenues of $4,382 as compared to $7,596 for the three months ended June 30, 2021. The decrease revenue was due primarily to decrease sales of hemp cigarettes.
Cost of Revenues. For the three months ended June 30, 2022 and 2021, cost of revenue was $1,472 and $5,512, respectively. The decrease was due primarily to lower sales.
Gross Profit. As a result of the foregoing, our gross profit was $2,910 for the three months ended June 30, 2022, compared with $2,084 for the three months ended June 30, 2021.
Operating Expenses. For the three months ended June 30, 2022 and 2021, total operating expenses were $124,481 and $88,017. The increase was primarily due higher professional and legal expenses related to regulatory filings and potential listing of our common stock.
Net Loss. For the three months ended June 30, 2022 and 2021, net loss was $121,571 and $85,933, respectively. The increase in net loss was primarily due to higher professional and legal expenses.
Comparison of the Six Months Ended June 30, 2022 with the Six Months June 30, 2021
Net Revenue. For the six months ended June 30, 2022, we generated revenues of $9,302 as compared to $23,192 for the six months ended June 30, 2021. The decrease revenue was due primarily to decrease sales of hemp cigarettes.
Cost of Revenues. For the six months ended June 30, 2022 and 2021, cost of revenue was $3,236 and $17,365, respectively. The decrease was due primarily to lower sales.
Gross Profit. As a result of the foregoing, our gross profit was $6,066 for the six months ended June 30, 2022, compared with $5,827 for the six months ended June 30, 2021.
| 13 |
| Table of Contents |
Operating Expenses. For the six months ended June 30, 2022 and 2021, total operating expenses were $267,337 and $106,461. The increase was primarily due higher professional and legal expenses related to regulatory filings and potential stock listing.
Net Loss. For the six months ended June 30, 2022 and 2021, net loss was $267,337 and $100,634, respectively. The increase in net loss was primarily due to higher professional and legal expenses.
Liquidity and Capital Resources
As of June 30, 2022, the Company has yet to achieve profitable operations, and while the Company hopes to achieve profitable operations in the future, if not it may need to raise capital from stockholders or other sources to sustain operations and to ultimately achieve viable operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s principal sources of liquidity have been cash provided by operating activities, as well as its ability to raise capital. The Company’s operating results for future periods are subject to numerous uncertainties and it is uncertain if the Company will be able to become profitable and continue growth for the foreseeable future. If management is not able to increase revenue and/or manage operating expenses, the Company may not be able to achieve profitability. The Company’s ability to continue in existence is dependent on the Company’s ability to achieve profitable operations.
To continue operations for the next 12 months we will have a cash need of approximately $400,000. Should we not be able to fulfill our cash needs through the increase of revenue we will need to raise money through outside investors through convertible notes, debt or similar instrument(s). The Company plans to pay off current liabilities through sales and increasing revenue through sales of Company services and or products, or through financing activities as mentioned above, although there is no guarantee that the Company will ultimately do so.
Advances from Officer
During the six months ended June 30, 2022, the Company borrowed an additional $195,000, in a series of payments, from the Chief Executive Officer in exchange for the issuance of an amended promissory note dated June 30, 2022 in the aggregate principal amount of $535,050. The note does not bear interest and is due in a lump sum payment on May 31, 2023.
Operating Activities
Cash used in operating activities – Net cash used in operating activities was $330,255 for the six months ended June 30, 2022, primarily as a result of our net loss of $267,337 and an increase in inventory of $62,408. Net cash used in operating activities was $61,025 for the six months ended June 30, 2021, primarily as a result of our net loss of $100,634.
Investing Activities
Cash flow provided by (used in) investing activities –None.
Financing Activities
Cash flow from financing activities – During the six months ended June 30, 2022, our financing activities provided cash of $340,000 consisting of borrowings from our Chief Executive Officer. During the six months ended June 30, 2021, our financing activities provided cash of $80,648 primarily from sale of common stock.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Notes to the Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. Estimates are used for, but not limited to, contingencies and taxes. Actual results could differ materially from those estimates. The following critical accounting policies are impacted significantly by judgments, assumptions, and estimates used in the preparation of the Consolidated Financial Statements.
Loss Contingencies
The Company is subject to various loss contingencies arising in the ordinary course of business. The Company considers the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as its ability to reasonably estimate the amount of loss in determining loss contingencies. An estimated loss contingency is accrued when management concludes that it is probable that an asset has been impaired, or a liability has been incurred and the amount of the loss can be reasonably estimated. The Company regularly evaluates current information available to us to determine whether such accruals should be adjusted.
| 14 |
| Table of Contents |
Income Taxes
The Company recognizes deferred tax assets (future tax benefits) and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities. The deferred tax assets and liabilities represent the expected future tax return benefits or consequences of those differences, which are expected to be either deductible or taxable when the assets and liabilities are recovered or settled.
Recent Accounting Pronouncements
See Note 2 of the consolidated financial statements for discussion of Recent Accounting Pronouncements.
Off-Balance Sheet Arrangements
We are not currently a party to, or otherwise involved with, any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Recently Adopted Accounting Standards
None.
Purchase of Significant Equipment
We have not previously, nor do we intend to purchase any significant equipment during the next twelve months.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We have performed an evaluation under the supervision and with the participation of our management, including our President and Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of our disclosure controls and procedures, (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2022. Based on that evaluation, our management, including our President and CEO and CFO, concluded that our disclosure controls and procedures were not effective as of June 30, 2022 to provide reasonable assurance that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer, as appropriate to allow timely decisions regarding required disclosure due to the material weaknesses described below.
Based on our evaluation under the framework described above, our management concluded that we had “material weaknesses” (as such term is defined below) in our control environment and financial reporting process consisting of the following as of the Evaluation Date:
| 1) | lack of a functioning audit committee resulting in ineffective oversight in the establishment and monitoring of required internal control and procedures; and |
|
|
|
| 2) | inadequate segregation of duties consistent with control objectives. |
| 15 |
| Table of Contents |
A “material weakness” is defined under SEC rules as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls.
A system of controls, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Changes in Internal Control over Financial Reporting
None.
| 16 |
| Table of Contents |
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Except as discussed below are not presently a party to any material litigation, nor to the knowledge of management is any litigation threatened against us, which may materially affect us.
Item 1A. Risk Factors
The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
| 17 |
| Table of Contents |
Item 6. Exhibits
Exhibit Number |
| Name of Exhibit |
|
|
|
|
|
|
|
|
|
101.INS |
| XBRL Instance Document |
101.SCH |
| XBRL Taxonomy Extension Schema |
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase |
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase |
101.LAB |
| XBRL Taxonomy Extension Label Linkbase |
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase |
________________
(1) Filed herewith. In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act or deemed to be incorporated by reference into any filing under the Exchange Act or the Securities Act except to the extent that the registrant specifically incorporates it by reference.
| 18 |
| Table of Contents |
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
| 1606 Corp. |
| |
|
|
|
|
Dated: August 15, 2022 | By: | /s/ Gregory Lambrecht |
|
|
| Gregory Lambrecht |
|
|
| Chief Executive Officer, Chief Financial Officer, Director |
|
| 19 |
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECURITIES EXCHANGE ACT OF 1934
RULE 13a-14(a) OR 15d-14(a)
I, Gregory Lambrecht, certify that:
| 1. | I have reviewed this Form 10-Q for 1606 Corp. for the quarter ended June 30, 2022; |
|
|
|
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
|
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
|
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
|
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
|
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
|
|
|
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on the most recent evaluation of internal control over financial reporting, to the registrant’s other certifying officer and registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
|
|
|
|
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
| 1606 Corp. |
| |
|
|
|
|
|
| Date: August 15, 2022 | By: | /s/ Gregory Lambrecht |
|
|
| Name: | Gregory Lambrecht |
|
|
| Title: | CEO |
|
|
|
| (Chief Executive Officer) |
|
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECURITIES EXCHANGE ACT OF 1934
RULE 13a-14(a) OR 15d-14(a)
I, Gregory Lambrecht, certify that:
| 1. | I have reviewed this Form 10-Q for 1606 Corp. for the quarter ended June 30, 2022; |
|
|
|
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
|
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
|
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
|
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
|
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
|
|
|
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s other certifying officer and registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
|
|
|
|
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
| 1606 Corp. |
| |
|
|
|
|
|
| Date: August 15, 2022 | By: | /s/ Gregory Lambrecht |
|
|
| Name: | Gregory Lambrecht |
|
|
| Title: | Chief Financial Officer |
|
|
|
| (Principal Financial Officer) |
|
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Chief Executive Officer and Chief Financial Officer of 1606 Corp., hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to their knowledge, the Quarterly Report on Form 10-Q of 1606 Corp. for quarter ended June 30, 2022, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of 1606 Corp.
| Date: August 15, 2022 | By: | /s/ Gregory Lambrecht |
|
|
|
| Gregory Lambrecht |
|
|
|
| Chief Executive Officer |
|
|
|
| (Principal Executive Officer) |
|
|
|
|
|
|
|
| By: | /s/ Gregory Lambrecht |
|
|
|
| Gregory Lambrecht |
|
|
|
| Chief Financial Officer |
|
|
|
| (Principal Financial Officer) |
|
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to 1606 Corp. and will be retained by 1606 Corp. and furnished to the Securities and Exchange Commission or its staff.