CBDW 10-Q
1606 Corp. (CBDW)
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)
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 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 14, 2024, 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.
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TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
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Unregistered Sales of Equity Securities and Use of Proceeds. |
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| 3 |
| Table of Contents |
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
1606 CORP.
CONDENSED BALANCE SHEETS
|
| June 30, |
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| December 31, |
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Assets |
| 2024 |
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| 2023 |
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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 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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Long Term Debt |
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Note payable to shareholder |
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Total Long Term Debt |
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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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Class B 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’ Deficit |
| $ |
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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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| Six Months Ended |
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| June 30, |
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| 2024 |
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| 2023 |
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| 2024 |
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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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Interest expense |
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Change in fair value of derivative liabilities |
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Total other expenses |
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Loss from operations before income taxes |
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Provision for income taxes |
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Net Loss |
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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 June 30, 2023 |
| Class A Convertible |
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| Class B 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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| Amount |
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| Capital |
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| Deficit |
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| Deficit |
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Balance as of March 31, 2023 |
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| $ | ( | ) | ||||||||
Share conversions |
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| - |
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Common stock issued for cash |
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| - |
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Net loss |
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| - |
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| - |
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| - |
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Balance as of June 30, 2023 |
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Three Months Ended June 30, 2024 |
| Class A Convertible |
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| Class B Convertible |
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| Additional |
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| Total |
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| Preferred Stock |
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| Preferred Stock |
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| Common stock |
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| Paid in | Accumulated | Stockholders' |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Amount |
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| Capital |
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| Deficit |
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| Deficit |
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Balance as of March 31, 2024 |
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Share conversions |
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| - |
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Common stock issued for services |
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Common stock issued note conversion |
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| - |
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Settlement of derivative liability |
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| - |
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| - |
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| - |
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Net loss |
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| - |
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| - |
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| - |
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Balance as of June 30, 2024 |
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| 6 |
| Table of Contents |
Six Months Ended June 30, 2023 |
| Class A Convertible |
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| Class B Convertible |
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| Additional |
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| Total |
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| Preferred Stock |
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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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| Stockholders' |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Capital |
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| Deficit |
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| Deficit |
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Balance as of December 31, 2022 |
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| - |
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| $ |
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Share conversions |
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| - |
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Preferred stock issued for services |
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| - |
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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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| - |
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| - |
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| - |
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Balance as of June 30, 2023 |
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| - |
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| $ |
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Six Months Ended June 30, 2024 |
| Class A Convertible |
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| Class B Convertible |
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| Additional |
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| Total |
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| Preferred Stock |
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| Preferred Stock |
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| Common stock |
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| Paid in | Accumulated | Stockholders' |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Capital |
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| Deficit |
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| Deficit |
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Balance as of December 31, 2023 |
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| $ |
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| - |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ | ( | ) | ||||||
Share conversions |
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| - |
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Common stock issued for cash |
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| - |
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| - |
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Common stock issued for services |
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| - |
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| - |
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Common stock issued note conversion |
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| - |
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| - |
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Preferred stock issued for services |
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| - |
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Settlement of derivative liability |
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| - |
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| - |
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| - |
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| ( | ) |
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| ( | ) | ||||
Net loss |
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| - |
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| - |
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| - |
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| ( | ) |
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| ( | ) | ||||
Balance as of June 30, 2024 |
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| $ |
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| $ |
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| $ |
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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.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
|
| Six Months Ended |
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| Six Months Ended |
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| June 30, |
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| June 30, |
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| 2024 |
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| 2023 |
| ||
Cash Flows from Operating Activities |
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Net loss |
| $ | ( | ) |
| $ | ( | ) |
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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Amortization of debt discount |
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Change in fair value of derivative liabilities |
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Write-off of investments |
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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 & other current assets |
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Accounts payable and accrued liabilities |
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Accrued expenses |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
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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
The Company is an AI Chatbot company specializing in merchandizing bot specifically built for the CBD industry and AI Chatbots for public companies.
Going Concern
The accompanying condensed financial statements have been prepared assuming the Company will continue as a going concern. As of June 30, 2024, 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 June 30, 2024 and December 31, 2023, 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, 2023, and our other reports on file with the Securities and Exchange Commission (“SEC”).
Management believes the assumptions underlying the Company’s standalone condensed 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 condensed 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 condensed financial statements, and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results may differ from those estimates.
Cash
Cash consists of highly liquid investments with an original maturity of three months or less.
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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, 2024 and December 31, 2023, the allowance for doubtful accounts balance is $
Inventory
Inventories are valued at the lower of cost or net realizable value, and consist primarily of hemp products. The Company’s inventory as of June 30, 2024 and 2023 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 net realizable value. No such adjustments were deemed necessary during the periods presented.
Revenue Recognition
The Company, which has adopted ASC 606 “Revenue from Contracts with Customers”, derives its revenues primarily from the sale of hemp products at a point in time. 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 and the Company's performance obligations have been met. 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.
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 June 30, 2024 and December 31, 2023,
Selling and Marketing
Selling and marketing costs are expensed as incurred and are reported under selling, general and administrative in the accompanying condensed statements of operations. Selling, general and administrative costs were $
Fair Value Measurement
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.”
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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 June 30, 2024 or December 31, 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 June 30, 2024:
Balance - December 31, 2023 |
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During 2023 and 2024, 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 subsequently issued resulted in derivative liabilities.
At June 30, 2024, 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 $
At December 31, 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 $
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.
Income Taxes
In December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which will require the Company to disclose specified additional information in its income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. ASU 2023-09 will also require the Company to disaggregate its income taxes paid disclosure by federal, state and foreign taxes, with further disaggregation required for significant individual jurisdictions. The Company will adopt ASU 2023-09 in its fourth quarter of 2026. ASU 2023-09 allows for adoption using either a prospective or retrospective transition method.
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.
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NOTE 3 – RELATED PARTY TRANSACTIONS
Related Party Transactions
During the six months ended June 30, 2024, a total of
During the six months ended June 30, 2024, a total of
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
Promissory Notes Payable - Related Party
During the six months ended June 30, 2024 and 2023, 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 $
Convertible Notes Payable
From January 19, 2024, to June 21, 2024, the Company issued five notes payable which, upon an event of default, 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 $
During the six months ended June 30, 2024, the Company made payments on convertible notes payable and a note payable, resulting in a settlement of derivative liabilities totaling $
During the six months ended June 30, 2024, the Company amortized $
Scheduled maturities of debt remaining as of June 30, 2024 for each respective fiscal year end are as follows:
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NOTE 5 - CAPITAL STOCK
Capital Stock
As of June 30, 2024, the Company’s authorized capital stock consists of
As of June 30, 2024, there were
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Common Stock
During the six months ended June 30, 2024, the Company issued
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Class A Preferred Stock
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 six months ended June 30, 2024, a total of
During the six months ended June 30, 2024,
As of June 30, 2024, the Company had
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 $1.00.
Voting
Conversion
Series B Super Voting Preferred Stock
The Series B preferred stock has certain material rights and preferences (as is more fully set forth in the Certificate of Designation of the Series B Preferred Stock).
During the six months ended June 30, 2024, a total of 90 shares of Class A preferred stock was issued to the two members of the Company’s Board of Directors.
As of June 30, 2024, the Company had
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Dividends
There will be no dividends due or payable on the Series B Preferred Stock.
Liquidation Rights
Upon the occurrence of a “Liquidation Event,” the holders of Series B Preferred Stock are entitled to receive net assets on a pro-rata basis. Each holder of Series B Preferred Stock is entitled to receive ratably any dividends declared by the Board, if any, out of funds legally available for the payment of dividends. “Liquidation Event” means (i) the liquidation, dissolution or winding-up, whether voluntary or involuntary, of the Company, (ii) the purchase or redemption by the Company of shares of any class of stock or the merger or consolidation of the Company with or into any other corporation or corporations, or (iii) the sale, license or lease of all or substantially all, or any material part of, the Company’s assets.
Conversion Rights
The shares of Series B Preferred Stock are not convertible into shares of the Company’s Common Stock.
Voting Rights
If at least one share of Series B Preferred Stock is issued and outstanding, then the total aggregate issued shares of Series B Preferred Stock at any given time, regardless of their number, shall have voting rights equal to 10 times the sum of: i) the total number of shares of Common Stock which are issued and outstanding at the time of voting, plus ii) the total number of votes of all other series of Preferred Stocks which are issued and outstanding at the time of voting.
Each individual share of Series B Preferred Stock shall have the voting rights equal to:
[ten times the sum of: {all shares of Common Stock issued and outstanding at the time of voting + the total number of votes of all other series of Preferred Stocks which are issued and outstanding at the time of voting}]
Divided by:
[the number of shares of Series B Preferred Stock issued and outstanding at the time of voting]
With respect to all matters upon which stockholders are entitled to vote or to which stockholders are entitled to give consent, the holders of the outstanding shares of Series B Preferred Stock shall vote together with the holders of Common Stock without regard to class, except as to those matters on which separate class voting is required by applicable law or the Articles of Incorporation or Bylaws.
NOTE 6 - 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 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
Effective February 28, 2024, the Company entered into the Employment Agreement with Gregory Lambrecht, the Company’s Chief Executive Officer (the “CEO Agreement”). The term of the CEO Agreement is three years from the effective date, and will renew for six month periods automatically unless terminated by either party providing 90 days of prior written notice or for “Cause,” as defined in the CEO Agreement. Pursuant to the CEO Agreement, Mr. Lambrecht is entitled to an annual salary of $
Effective May 28, 2024, Gregory Lambrecht resigned as the Chief Executive Officer, Chief Financial Officer, and Chairman of the Board of the Company.
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Effective February 28, 2024, the Company entered into the Employment Agreement with Austen Lambrecht, the Company’s Vice President (the “VP Agreement”). The term of the VP Agreement is three years from the effective date, and will renew for six month periods automatically unless terminated by either party providing 90 days of prior written notice or for “Cause,” as defined in the VP Agreement. Pursuant to the VP Agreement, Mr. Lambrecht is entitled to an annual salary of $
Effective May 28, 2024, the Board of Directors of the Company (with Austen Lambrecht abstaining) appointed Austen Lambrecht as Chief Executive Officer (Principal Executive Officer), Chief Financial Officer (Principal Financial and Accounting Officer), and Chairman of the Board of the Company.
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 ($
NOTE 7 – SUBSEQUENT EVENTS
Management of the Company has performed a review of all events and transactions occurring after June 30, 2024 for items that would require adjustment to or disclosure in the accompanying condensed financial statements. Noting a $
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Plan of Operation
1606 Corp., a Nevada corporation (the “Company”), was incorporated in Nevada in February 2021 and spun-off from Singlepoint Inc. in April 2021. Management believes the assumptions made to carve out the Company’s underlying standalone financial statements from the consolidated Singlepoint results prior to the April 2021 spin-off are reasonable. Nevertheless, the financial statements may not include all the actual expenses that would have been incurred had the Company operated as a standalone company during the period prior to the spin-off. 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.
In August 2023, we achieved our goal of creating a chatbot using AI technology to be placed on CBD retailers’ and brands’ websites. This chatbot is able to answer questions specifically tailored to the CBD industry and can be trained on client specific questions as well as trained to accommodate other industries. In addition to the ability to answer questions, the bot can use answers and customer feedback to recommend a product from the list uploaded by the client.
On August 17, 2023, we 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, we 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, we announced that the beta version of our ChatCBDW bot was live on our site as well as cool blue Distributions website. We are working towards getting CBD brands and retailers to sign up for the bot on a monthly basis.
We are focused on signing business to use the chatbot with a monthly recuring licensing fee model. We are using a combination of our website, online ads, and email campaigns targeted towards CBD brands and retailers, we have cultivated considerable interest in 1606 and our AI Chatbot technology.
We are also using ISO’s or independent sales organizations to sell the Chatbot or include it in a package deal with their products. These ISO’s include but are not limited to CBD Distributors, website designers and builders, and payment processing services within and outside the CBD industry.
Results from Operations – For the three months ended June 30, 2024, as compared to June 30, 2023
Net Revenue. For the three months ended June 30, 2024 and 2023, we generated revenues of $0 and $304, respectively.
Cost of Goods Sold. For the three months ended June 30, 2024 and 2023, cost of revenue was $0 and $3,556, respectively.
Gross Profit. As a result of the foregoing, we had a gross profit of $0 for the three months ended June 30, 2024, compared with a negative gross profit of $3,252 for the three months ended June 30, 2023.
Operating Expenses. For the three months ended June 30, 2024 and 2023, total operating expenses were $288,739 and $527,891, respectively. The decrease was primarily due to lower legal and professional expenses, lower wages, and write-off of investments during the three months ended June 30, 2023; there was no such write-off during the three months ended June 30, 2024.
Net Loss. For the three months ended June 30, 2024 and 2023, net loss was $339,192 and $533,664, respectively. The decrease in net loss was primarily due to lower operating expenses as discussed above.
Results from Operations – For the six months ended June 30, 2024, as compared to June 30, 2023
Net Revenue. For the six months ended June 30, 2024 and 2023, we generated revenues of $7,195 and $1,474, respectively.
Cost of Goods Sold. For the six months ended June 30, 2024 and 2023, cost of goods sold was $7,313 and $4,781, respectively.
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Gross Loss. As a result of the foregoing, we had a gross loss of $118 for the six months ended June 30, 2024, compared with a gross loss of $3,307 for the six months ended June 30, 2023.
Operating Expenses. For the six months ended June 30, 2024 and 2023, total operating expenses were $686,660 and $818,027, respectively. The decrease was primarily due to lower legal and professional expenses, lower wages, and write-off of investments during the six months ended June 30, 2023; there was no such write-off during the six months ended June 30, 2024.
Net Loss. For the six months ended June 30, 2024 and 2023, net loss was $625,629 and $826,376, respectively. The decrease in net loss was primarily due to lower operating expenses as discussed above.
Liquidity and Capital Resources
As of June 30, 2024, we have yet to achieve profitable operations, and while we hope to achieve profitable operations in the future, if not, we 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 our ability to continue as a going concern. Our principal sources of liquidity have been cash provided by operating activities, as well as our ability to raise capital. Our operating results for future periods are subject to numerous uncertainties and it is uncertain if we 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, we may not be able to achieve profitability. Our ability to continue in existence is dependent on our 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). Our plans to pay off current liabilities through sales and increasing revenue through sales of our services and or products, or through financing activities as mentioned above, although there is no guarantee that we will ultimately do so.
Operating Activities
Net cash used in operating activities was $447,034 for the six months ended June 30, 2024, primarily as a result of our net loss of $625,629 and change in fair value of derivative liabilities of $369,573, offset by shares issued for services provided of $103,400 amortization of debt discount of $217,628, and net changes in operating assets and liabilities of $227,140.
Net cash used in operating activities was $424,092 for the six months ended June 30, 2023, primarily as a result of our net loss of $826,376, reduced by $193,003 for non-cash expense associated with grants of our common and Class A Preferred shares and $65,000 for the write-off of investments.
Investing Activities
There was no cash used in investing activities during the six months ended June 30, 2024.
Net cash used in investing activities during the six months ended June 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 5 of the Notes to 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.
Financing Activities
During the six months ended June 30, 2024, our financing activities provided cash of $473,097 primarily from the sale of the Company’s common stock and issuance of convertible notes.
During the six months ended June 30, 2023, our financing activities provided cash of $432,500 primarily from the sale of the Company’s common stock.
Critical Accounting Policies
The preparation of condensed 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 condensed financial statements and the reported amounts of revenues and expenses during the reporting period. Notes to Financial Statements describes the significant accounting policies and methods used in the preparation of the Condensed 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 Condensed Financial Statements.
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Loss Contingencies
We are subject to various loss contingencies arising in the ordinary course of business. We consider the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as our 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. We regularly evaluate current information available to us to determine whether such accruals should be adjusted.
Income Taxes
We recognize 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 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)), we are not required to provide the information required by this Item as we are 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, 2024. Based on that evaluation, our management, including our President and CEO, who also serves as our CFO, concluded that our disclosure controls and procedures were not effective as of June 30, 2024 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. |
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 June 30, 2024, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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| Table of Contents |
PART II–OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Common Stock
During the three months ended June 30, 2024, the Company issued 400,000 shares of Common Stock to GHS Investments, LLC as commitment shares.
Convertible Promissory Notes
During the three months ended March 31, 2024, we issued two convertible promissory notes in the aggregate principal amount of $157,200 to 1800 Diagonal Lending LLC and 104 LLC.
The securities above were issued in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D under the Securities Act, based in part on the representations of the investors. No commissions were paid in connection with the sales of the securities above.
Item 6. Exhibits.
Exhibit Number |
| Name of Exhibit |
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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
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. |
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Dated: August 14, 2024 | By: | /s/ Austen Lambrecht |
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| Austen Lambrecht |
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| Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial and Accounting Officer) |
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