1606 Corp 10-Q for FY2023 Q3
1606 Corp. (CBDW)
About this 10-Q
1606 Corp filed this 10-Q on November 15, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $80
- down 97.9% from $3762 a year earlier
- Net loss
- $503.81K
- compared with a net loss of $119K 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) |
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(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(
(Issuer’s telephone number)
Securities registered pursuant to section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered |
Not applicable | Not applicable | Not applicable |
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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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
The number of shares outstanding of the registrant’s common stock on November 14, 2023, was
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.
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TABLE OF CONTENTS
| 3 |
| Table of Contents |
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
1606 CORP.
CONDENSED BALANCE SHEETS
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| September 30, |
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| December 31, |
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Assets |
| 2023 |
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| 2022 |
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Current Assets |
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Cash |
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Accounts receivable |
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Notes receivable |
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Inventory |
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Prepaids and other current assets |
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Total Current Assets |
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Total Assets |
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Liabilities and Stockholders’ Deficit |
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Current Liabilities |
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Accounts payable and accrued liabilities |
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Accrued interest |
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Note payable to shareholder |
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Note payable to related party |
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Convertible notes, net of discount |
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Derivative liability |
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Total Current Liabilities |
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Total Liabilities |
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Stockholders’ Deficit |
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Undesignated preferred stock, par value $ |
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Class A convertible preferred stock, par value $ |
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Common stock, par value $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total Stockholders’ Deficit |
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Total Liabilities and Stockholders’ Equity |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
| 4 |
| Table of Contents |
1606 CORP.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
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| Three Months Ended |
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| Three Months Ended |
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| Nine Months Ended |
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| September 30, |
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| 2023 |
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| 2022 |
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Revenue, net of discounts |
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Cost of goods sold |
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Gross profit (loss) |
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Operating Expenses |
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Selling, general and administrative |
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Write-off of investments |
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Total operating expenses |
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Operating loss |
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Other Expenses |
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Change in fair value of derivative liabilities |
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Total other expenses |
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Loss before income taxes |
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Provision for income taxes |
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Net Loss |
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| $ | ( | ) |
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Net loss per share – basic and diluted |
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Weighted average common shares – basic and diluted |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
| 5 |
| Table of Contents |
1606 Corp.
CONDENSED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(unaudited)
Three Months Ended September 30, 2022 |
| Class A Convertible |
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| Additional |
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| Total |
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| Preferred Stock |
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| Common Stock |
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| Paid in |
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| Accumulated |
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| Shares |
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| Amount |
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Balance as of June 30, 2022 |
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Net loss |
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| - |
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Balance as of September 30, 2022 |
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Three Months Ended September 30, 2023 |
| Class A Convertible |
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| Additional |
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| Total |
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| Preferred Stock |
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| Common Stock |
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| Paid in |
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| Accumulated | Stockholders’ |
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| Shares |
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| Amount |
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Balance as of June 30, 2023 |
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Common stock issued for cash |
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Common stock issued for services |
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Net loss |
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Balance as of September 30, 2023 |
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Nine Months Ended September 30, 2022 |
| Class A Convertible |
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| Additional |
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| Total |
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| Preferred Stock |
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| Shares |
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| Amount |
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| Capital |
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| Deficit |
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Balance as of December 31, 2021 |
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Net loss |
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| - |
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| - |
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Balance as of September 30, 2022 |
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Nine Months Ended September 30, 2023 |
| Class A Convertible |
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| Additional |
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| Total |
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| Preferred Stock |
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| Common Stock |
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| Paid in |
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| Accumulated | Stockholders’ |
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| Shares |
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Balance as of December 31, 2022 |
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Share conversions |
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Preferred stock issued for services |
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Common stock issued for cash |
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Common stock issued for services |
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Net loss |
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Balance as of September 30, 2023 |
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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)
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| Nine Months Ended |
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| Nine Months Ended |
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| September 30, |
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| September 30, |
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| 2023 |
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| 2022 |
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Cash Flows from Operating Activities |
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Net loss |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Shares issued for services provided |
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Write-off of investments |
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Amortization of debt discount |
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Change in fair value of derivative liabilities |
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Financing costs |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventory |
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Prepaids and other current assets |
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Accounts payable and accrued liabilities |
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Accrued interest |
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Net cash used in operating activities |
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Cash Flows from Investing Activities |
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Increase in operating companies |
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Investment in note receivable |
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Net cash used in investing activities |
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Cash Flows from Financing Activities |
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Proceeds from note payable to shareholder |
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Proceeds from convertible notes |
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Proceeds from sale of common stock |
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Net cash provided by financing activities |
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Net decrease in cash |
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Cash, beginning of period |
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Cash, end of period |
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Supplemental disclosures of cash items |
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Interest paid |
| $ |
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| $ |
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Income tax paid |
| $ |
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| $ |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
| 7 |
| Table of Contents |
1606 Corp.
Notes to Condensed Financial Statements
Note 1 - Description of Business
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 or Class A preferred stock of the Company for each such share owned of Singlepoint.
Business
1606 Corp. is an early-stage sales marketing company focused on the domestic hemp cigarette (aka “pre-roll”) market. The Company currently sells its hemp products through individual online sales.
Going Concern
The accompanying condensed financial statements have been prepared assuming the Company will continue as a going concern. As of September 30, 2023, 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 condensed 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 its ability to develop its 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 September 30, 2023 and December 31, 2022, 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, 2022, and our other reports on file with the Securities and Exchange Commission (“SEC”).
Management believes the assumptions underlying the Company’s standalone financial statements are reasonable. Nevertheless, the accompanying condensed financial statements may not include all 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.
Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (“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.
| 8 |
| Table of Contents |
Cash
Cash consists 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 September 30, 2023 and December 31, 2022, the allowance for doubtful accounts balance is $
Inventory
Inventories are valued at the lower of cost or market, and consist primarily of hemp products. The Company’s inventory as of September 30, 2023, and December 31, 2022 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 and the risk of technological or competitive obsolescence for products. To the extent that management determines there is 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 of this inventory to the lower of cost or market . No such adjustments were deemed necessary during the periods presented.
Investments
Investments are recorded at cost and evaluated for impairment each balance sheet date. During the nine months ended September 30, 2023, the Company wrote-off investments of $
Revenue Recognition
The Company, which has adopted ASC 606 “Revenue from Contracts with Customers”, derives its revenues primarily from the sale of hemp products. Revenues are recognized when control of these products is transferred to 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 collects 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.
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.
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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
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
At September 30, 2023 and 2022,
Selling and Marketing
Selling and marketing costs are expensed as incurred and are reported under selling, general and administrative in the accompanying statements of operations. Such costs were $
Fair value measurements
ASC Topic 820, “Fair Value Measurement”, requires that certain financial instruments be recognized at their fair values at our balance sheet dates. However, other financial instruments, such as debt obligations, are not required to be recognized at their fair values, but GAAP provides an option to elect fair value accounting for these instruments. GAAP requires the disclosure of the fair values of all financial instruments, regardless of whether they are recognized at their fair values or carrying amounts in our balance sheets. For financial instruments recognized at fair value, GAAP requires the disclosure of their fair values by type of instrument, along with other information, including changes in the fair values of certain financial instruments recognized in income or other comprehensive income. For financial instruments not recognized at fair value, the disclosure of their fair values is provided below under “Financial Instruments.”
Nonfinancial assets, such as property, plant and equipment, and nonfinancial liabilities are recognized at their carrying amounts in the Company’s balance sheets. GAAP does not permit nonfinancial assets and liabilities to be remeasured at their fair values. However, GAAP requires the remeasurement of such assets and liabilities to their fair values upon the occurrence of certain events, such as the impairment of property, plant and equipment. In addition, if such an event occurs, GAAP requires the disclosure of the fair value of the asset or liability along with other information, including the gain or loss recognized in income in the period the remeasurement occurred.
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;
Level 2 - Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; or
Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
The Company did not have any Level 1 or Level 2 assets and liabilities at December 31, 2022 or September 30, 2023. The Derivative liabilities are Level 3 fair value measurements.
The following is a summary of activity of Level 3 liabilities for the period ended September 30. 2023:
Balance - December 31, 2022 |
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Balance – September 30, 2023 |
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Beginning on June 27, 2023, the Company issued note payable agreements which contain conversion provisions meeting the definition of a derivative liability which therefore require bifurcation. Further, pursuant to the Company’s contract ordering policy, equity linked instruments subsequent to June 27, 2023, resulted in derivative liabilities.
At September 30, 2023, the Company estimated the fair value of the conversion feature derivatives embedded in the notes payable and warrants based on assumptions used in the Cox-Ross-Rubinstein binomial pricing model using the following inputs: the price of the Company’s common stock of $
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Segment reporting
The Company operates in a single 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 September 30, 2023, through the date of filing of this report. and determined that there were no events or transactions required recognition or disclosure in the accompanying condensed financial statements.
Recent Accounting Pronouncements
The Company has considered the potential impact of recent accounting pronouncements and has not identified any that are expected to have a material impact on the financial statements.
Note 3 - Related Party Transactions
Related Party Transactions
During the nine months ended September 30, 2023, a total of
During the nine months ended September 30, 2023 and 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 $
Note 4 – Debt
During the nine months ended September 30, 2023, the Company entered into a series of convertible promissory note agreements in the amount of $
From June 27, 2023 to September 6, 2023, the Company issued three convertible notes payable which contain a conversion feature meeting the definition of a derivative liability. Pursuant to the Company’s contract ordering policy, the conversion features were valued at $
Note 5 - Capital Stock
Capital Stock
As of September 30, 2023, the Company’s authorized capital stock consists of
As of September 30, 2023, there were
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Common Stock
During the nine months ended September 30, 2023, the Company issued
During the nine months ended September 30, 2023, the Company issued
Preferred Stock
As of September 30, 2023, the Company had
The Class A preferred stock has certain material rights and preferences (as is more fully set forth in the Certificate of Designation of the Class A Preferred Stock).
During the nine months ended September 30, 2023, a total of
During the nine months ended September 30, 2023,
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
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Note 6 - Commitments and Contingencies
Letter of Intent
Membership Interest Purchase Agreement
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 Agreements
In February 2023, the Company entered into an employment agreement with Austen Lambrecht. The agreement provides that Austen Lambrecht would serve as Vice President for a term of three years at an annual salary of Eighty-Five Thousand Dollars ($
In May 2021, the Company entered into an employment agreement with Greg Lambrecht. The agreement provides that Mr. Lambrecht would serve as Chief Executive Officer Company for a term of three years at an annual salary of Two Hundred Fifty Thousand Dollars ($
Greg Lambrecht has agreed to waive his right to payment of any amounts due but unpaid under his employment contract.
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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 as a spin-off from Singlepoint Inc. in April 2021. We offer nicotine-free and tobacco-free alternatives to traditional cigarettes and vaping products. Our manufacturers use state of the art manufacturing in the United States and a blend of all-natural ingredients to provide smokers aged 21+ an alternative to traditional cigarettes that does not contain nicotine or tobacco, and promote health benefits such as pain management, reduced anxiety and enhanced wakefulness. Our smokable hemp cigarettes are an alternative for customers that currently smoke or want to quit smoking nicotine. All 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.
With our corporate headquarters located in Phoenix, AZ and our executive team experienced in tobacco sales, distribution, commercialization, and marketing, we believe our product “1606 Original Hemp” is positioned to become the market leader in the smokable industrial hemp cigarette marketplace.
We have released four primary flavor variants namely Original, Smooth, Menthol, and Mango. Original is a full-flavored product which has been developed to closely emulate the taste experience of a regular tobacco cigarette. Smooth has been developed to produce a flavor profile which is milder in taste. Menthol has been developed to mimic the taste profile of a mentholated tobacco cigarette. Mango has been developed to produce a product that appeals to consumers that want a flavored product. 1606 will market its products under the 1606 Hemp brand for the Original Hemp product and under Zero for the product that has no Marijuana smell. Through the application of a flavoring treatment, they can completely transform the raw material into a finished product that tastes and smells similar to tobacco when combusted. This material is referred to as Base Cigarette Material (“BCM”). Similarly, to fine-cut tobacco, BCM is derived entirely from plant matter, however BCM is fundamentally different from fine-cut tobacco in that it has no tobacco content whatsoever. As such, BCM contains no nicotine, is non-addictive, and undergoes substantially different processing than fine-cut tobacco. This process forms a significant part of the value of Zero brand and is a closely guarded trade secret.
On August 17, 2023 the Company engaged AR XTLabs to help in development of an AI chatbot specifically designed for the CBD industry. The chatbot offers CBD and wellness merchants the ability to increase sales by providing product recommendations, track user behavior for inventory management, and ChatCBDW can also provide information on products and education around the clock. Our bot was built on Microsoft Azure by AR XTLabs, a state-of-the-art development company in the AI space. ChatCBDW is a proprietary bot fully integrated with ChatGPT, a state-of-the-art language model developed by OpenAI. This integration equips ChatCBDW with natural language processing (NLP) and machine learning capabilities, allowing lifelike conversations and intelligent product recommendations. It’s designed to drive sales, educate audiences on products, and provide analytics on customer preferences and behavior, contributing to inventory management. The chat technology is enhanced through a patent possible process that tailors product recommendations to merchant specifications.
In September 2023, the Company partnered with Cool Blue Distribution, a leading CBD distributor, to better expand our CBD expertise and gain access hundreds of retailers and brands. The Company agreed to install the bot on Cool Blue’s website as the first beta tester of our new chatbot.
On October 31, 2023, the Company announced that the beta version of our ChatCBDW bot was live on our site as well as cool blue Distributions website. The Company is working towards getting CBD brands and retailors to sign up for the bot on a monthly basis.
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Results of Operations
Three Months Ended September 30, 2023 and 2022
Net Revenue. For the three months ended September 30, 2023 and 2022, we generated revenues of $80 and $3,762, respectively. The decrease in revenues was directly related to the decrease in sales of hemp cigarettes.
Cost of Goods Sold. For the three months ended September 30, 2023 and 2022, cost of revenue was $0 and $2,480, respectively.
Gross Profit. As a result of the foregoing, we had a gross profit of $80 for the three months ended September 30, 2023, compared with a gross profit of $1,282 for the three months ended September 30, 2022.
Operating Expenses. For the three months ended September 30, 2023 and 2022, total operating expenses were $461,516 and $120,285, respectively. The increase was primarily due to higher legal and professional expenses related to regulatory filings and listing of our common stock, higher advertising and marketing spend associated with efforts to expand distribution of our product offerings and higher salaries and wages.
Net Loss. For the three months ended September 30, 2023 and 2022, net loss was $503,808 and $119,003, respectively. The increase in net loss was primarily due to higher operating expenses discussed above.
Nine Months Ended September 30, 2023 and 2022
Net Revenue. For the nine months ended September 30, 2023 and 2022, we generated revenues of $1,553 and $13,064, respectively. The decrease in revenues was due primarily to the decrease in sales of hemp cigarettes.
Cost of Goods Sold. For the nine months ended September 30, 2023 and 2022, cost of revenue was $4,781 and $5,716, respectively.
Gross Profit. As a result of the foregoing, we had a negative gross profit of $(3,228) for the nine months ended September 30, 2023, compared with a gross profit of $7,348 for the nine months ended September 30, 2022.
Operating Expenses. For the nine months ended September 30, 2023 and 2022, total operating expenses were $1,159,583 and $393,688, respectively. The increase was primarily due to write-off of investments, higher legal and professional expenses related to regulatory filings and listing of our common stock, higher advertising and marketing spend associated with efforts to expand distribution of our product offerings and higher salaries and wages.
Net Loss. For the nine months ended September 30, 2023 and 2022, net loss was $1,205,183 and $386,340, respectively. The increase in net loss was primarily due to higher operating expenses as discussed above.
Liquidity and Capital Resources
As of September 30, 2023, 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 $1,000,000. 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.
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Advances from Officer
During the nine months ended September 30, 2023, the Company borrowed $20,000 of additional funds from the Chief Executive Officer. Accordingly, the promissory note due to him increased from December 31, 2022 and totals $755,050. The note does not bear interest and is due in a lump sum payment on December 31, 2023.
Operating Activities
Net cash used in operating activities was $591,749 for the nine months ended September 30, 2023, primarily as a result of our net loss of $1,205,183, offset by shares issued for services provided of $218,002, financing costs of $225,952, change in fair value of derivative liabilities of $42,372, $65,000 for the write-off of investments, amortization of debt discount of $31,482, and net changes in operating assets and liabilities of $30,626.
Net cash used in operating activities was $468,000 for the nine months ended September 30, 2022, primarily as a result of our net loss of $386,340, offset by net changes in operating assets and liabilities of $(81,660).
Investing Activities
Net cash used in investing activities during the nine months ended September 30, 2023, totaled $86,500. The Company made preliminary investments of $50,000 and $15,000 in two separate operating companies which were then subsequently written-off (see Note 6 of the Notes to the Condensed Financial Statements for further details). The $21,500 related to additional funds advanced to one of the target companies for which the Company now has Notes Receivable.
There was no cash used in investing activities during the nine months ended September 30, 2022.
Financing Activities
During the nine months ended September 30, 2023, our financing activities provided cash of $607,500, including $412,500 from the sale of our common stock, $175,000 in net proceeds from convertible notes, and $20,000 in proceeds from note payment to shareholder.
For the nine months ended September 30, 2022, our financing activities provided cash of $460,000 resulting from additional borrowings from our Chief Executive Officer.
Critical Accounting Policies
The preparation of 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 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.
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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 notes to the condensed 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 September 30, 2023. 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 September 30, 2023 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.
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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. |
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
There has been no change in the Company’s internal control over financial reporting, as defined in Rules 13a-15(f) of the Exchange Act, during the Company’s quarter ended September 30, 2023, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II–OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the three months ended September 30, 2023, the Company entered into a series of convertible promissory note agreements in the aggregate amount of $198,976. The notes have a 1-year term, bear interest of 8-9%, and have a conversion price equal to 65% of the lowest trading price for the common stock during the ten-day period prior to the conversion date.
Each note was issued without registration under the Securities Act of 1933, as amended (the “Securities Act”), by reason of the exemption from registration afforded by the provisions of Section 4(a)(2) thereof, and Rule 506(b) promulgated thereunder, as a transaction by an issuer not involving any public offering. We paid no selling commissions in connection with the issuances of the notes.
During the three months ended September 30, 2023, the Company issued 1,000,000 shares of its common stock in payment for various services provided. The shares had a fair value of $25,000 based on the closing market price of the common shares on the date of grant.
During the three months ended September 30, 2023, the Company issued 100,000 common shares at $0.50 per share for a total purchase price of $50,000.
The shares above were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(a)(2) thereof as a transaction by an issuer not involving any public offering. We paid no selling commissions in connection with the sales of the shares.
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Item 6. Exhibits.
Exhibit Number |
| Name of Exhibit |
101.INS |
| Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). |
101.SCH |
| Inline XBRL Taxonomy Extension Schema |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase |
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase |
104 |
| Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
________________
(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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| 1606 Corp. |
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Dated: November 14, 2023 | By: | /s/ Gregory Lambrecht |
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| Gregory Lambrecht |
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| Chief Executive Officer, Chief Financial Officer (Principal Executive Officer and Principal Financial and Accounting Officer) |
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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 September 30, 2023; |
| 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: |
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| 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; |
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| 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; |
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| 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 |
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| 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): |
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| 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 |
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| 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. |
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| 1606 Corp. |
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| Date: November 14, 2023 | By: | /s/ Gregory Lambrecht |
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| Name: | Gregory Lambrecht |
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| Title: | CEO |
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| (Chief Executive Officer) |
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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 September 30, 2023; |
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| 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; |
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| 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; |
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| 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: |
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| 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; |
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| 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; |
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| 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 |
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| 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): |
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| 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 |
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| 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. |
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| 1606 Corp. |
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| Date: November 14, 2023 | By: | /s/ Gregory Lambrecht |
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| Name: | Gregory Lambrecht |
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| Title: | Chief Financial Officer |
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| (Principal Financial Officer) |
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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 September 30, 2023, 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: November 14, 2023 | By: | /s/ Gregory Lambrecht |
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| Gregory Lambrecht |
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| Chief Executive Officer |
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| (Principal Executive Officer) |
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| By: | /s/ Gregory Lambrecht | |
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| Gregory Lambrecht | |
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| Chief Financial Officer | |
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| (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.