UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended:
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or |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from: _____________ to _____________ |
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FARMHOUSE, INC.
(Exact name of registrant as specified in its charter)
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NEVADA
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(State or Other Jurisdiction |
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of Incorporation) |
File Number) |
Identification No.) |
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(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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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.
[X]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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). [X]
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 large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer [ ] |
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Accelerated filer [ ] |
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act),
The number of shares of the issuer’s Common Stock outstanding as of August 29, 2022 is
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements and information included in this Quarterly Report on Form 10-Q for the six months ended June 30, 2022 (this “Report”) contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. These statements are based upon beliefs of, and information currently available to management as well as estimates and assumptions made by management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used herein, the words “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “future,” “intend,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to our business, industry, and our operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
CERTAIN TERMS USED IN THIS REPORT
“We,” “us,” “our,” the “Registrant,” the “Company,” and “Farmhouse” are synonymous with Farmhouse, Inc., unless otherwise indicated. WeedClub®, Friends in High Places®, WeedClub Select® and @420® are registered Trademarks of the Company were used throughout this Report.
FARMHOUSE, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
June 30, 2022
I NDEX
PART I – FINANCIAL INFORMATION 3
Item 1. Interim condensed consolidated financial statements 3
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations 21
Item 3. Quantitative and Qualitative Disclosures about Market Risk 33
Item 4. Controls and Procedures 33
PART II – OTHER INFORMATION 34
Item 1. Legal Proceedings 34
Item 1A. Risk Factors 35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 35
Item 3. Defaults Upon Senior Securities 37
Item 4. Mine Safety Disclosures 37
Item 5. Other Information 37
Item 6. Exhibits 37
SIGNATURE 38
CERTIFICATIONS 39
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS .
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FARMHOUSE, INC. AND SUBSIDIARY |
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CONSENSED CONSOLIDATED BALANCE SHEETS |
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June 30, |
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December 31, |
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2022 |
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2021 |
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(unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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Prepaid expenses |
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Total current assets |
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Property and equipment, net |
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Intangible assets |
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Total assets |
$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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Current liabilities: |
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Accounts payable, including bank overdraft of $
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$ |
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$ |
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Accrued legal fees |
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Accrued payroll and payroll taxes |
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Accrued liabilities |
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Accrued interest payable |
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Convertible notes payable |
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Notes payable |
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Due to related parties |
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Total current liabilities |
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Stockholders’ deficit: |
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Preferred stock; $
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Common stock; $
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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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(
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Total liabilities and stockholders’ deficit |
$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements |
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3
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FARMHOUSE, INC. AND SUBSIDIARY |
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
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(unaudited) |
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For the three months ended June 30, |
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For the six months ended June 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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REVENUES |
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Net revenues |
$ |
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$ |
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$ |
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$ |
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Total revenues |
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OPERATING EXPENSES |
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General and administrative |
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Professional fees |
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Depreciation and amortization |
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Total operating expenses |
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LOSS FROM OPERATIONS |
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OTHER INCOME (EXPENSE): |
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Interest expense |
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Total other income (expense) |
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NET LOSS |
$ |
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$ |
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$ |
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$ |
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BASIC AND DILUTED NET LOSS
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$ |
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$ |
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$ |
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$ |
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BASIC AND DILUTED WEIGHTED
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The accompanying notes are an integral part of these condensed consolidated financial statements |
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4
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FARMHOUSE, INC. AND SUBSIDIARY |
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CONSENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT |
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For the three and six months ended June 30, 2022 |
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(unaudited) |
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Common Stock |
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Accumulated |
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Shares |
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Par Value |
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Paid-in Capital |
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Deficit |
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Total |
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Balance at December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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Common stock sold |
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Common stock issued for services |
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Stock-based compensation on RSA's vested |
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Net loss |
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(
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(
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Balance at March 31, 2022 |
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Common stock sold |
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Common stock issued for services |
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Stock-based compensation on RSA's vested |
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Net loss |
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(
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(
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Balance at June 30, 2022 |
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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 condensed consolidated financial statements |
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5
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FARMHOUSE, INC. AND SUBSIDIARY |
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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT |
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For the three and six months ended June 30, 2021 |
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(unaudited) |
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Common Stock |
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Accumulated |
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Shares |
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Par Value |
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Paid-in Capital |
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Deficit |
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Total |
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Balance at December 31, 2020 |
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$ |
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$ |
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$ |
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$ |
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Common stock sold |
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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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Balance at March 31, 2021 |
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(
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(
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Common stock sold |
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Common stock issued for anti-
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(
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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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Balance at June 30, 2021 |
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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 condensed consolidated financial statements |
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6
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FARMHOUSE, INC. AND SUBSIDIARY |
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CONSENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
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For the six months ended June 30, |
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(unaudited) |
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2022 |
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2021 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
$ |
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$ |
(
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Adjustments to reconcile net income (loss) to net cash
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Depreciation and amortization |
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Stock issued for services |
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Stock-based compensation on RSA's vested |
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Changes in operating assets and liabilities: |
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Prepaid expenses |
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(
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(
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Accounts payable |
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Accrued legal fees |
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Accrued payroll and payroll taxes |
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Accrued liabilities |
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Deferred revenue |
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(
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Accrued interest payable |
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Net cash used in operating activities |
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(
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(
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from sale of common stock |
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Proceeds from borrowings on Note Payable |
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Borrowings of related party debt and short-term advances |
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Repayment of related party debt and short-term advances |
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(
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(
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Net cash provided by financing activities |
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NET CHANGE IN CASH |
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CASH AT BEGINNING OF PERIOD |
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CASH AT END OF PERIOD |
$ |
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$ |
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW
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Interest |
$ |
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$ |
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Income taxes |
$ |
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$ |
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NON-CASH INVESTING AND FINANCING ACTIVITIES: |
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Common stock issued for intangible asset |
$ |
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$ |
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Disposal of property and equipment |
$ |
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$ |
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Common stock issued for anti-dilution protection |
$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements |
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7
FARMHOUSE, INC. AND SUBSIDIARIES
NOTES TO QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
NOTE 1 – ORGANIZATION AND OPERATIONS
Organization
The Company was incorporated in June 2013 as Somerset Transition Corporation under the Oklahoma General Corporation Act. The Company was formed to complete a reorganization under Section 1088(g) of the Oklahoma Act, whereby the Company became successor to Transnational Financial Network, Inc., which was originally incorporated in California in 1985. In September 2013, the Company was redomesticated in Maryland and changed its name to Somerset Property, Inc. In July 2017, the Company was redomesticated in Nevada and changed its name to Revival, Inc. In June 2019, the Company changed its name to Farmhouse, Inc. to reflect its new business endeavors.
In August 2019, the Company acquired Farmhouse, Inc., a Washington corporation (“Farmhouse Washington”) as its wholly owned subsidiary (the “Acquisition”). Farmhouse Washington was formed in January 2014 and has developed a social network platform, “The WeedClub® Platform”. At the closing of the Acquisition, all of the issued and outstanding shares of common stock of Farmhouse Washington were exchanged for shares of common stock of the Company on a one-for-one basis. The financial statements of the Company are the continuation of Farmhouse Washington with the adjustment to reflect the capital structure of the Company.
Prior to the Acquisition, in August 2017, Farmhouse Washington formed Farmhouse DTLA, Inc. (“DTLA”) in California as a wholly owned subsidiary. On April 8, 2021, DTLA was awarded a 49% equity interest in a Los Angeles based multi-licensed cannabis retail dispensary, grow, manufacturer and distributor called Los Angeles Farmers, Inc. (“LAFI”). Although ownership percentages over 20% would typically be accounted for using the equity method, the Company is accounting for this investment as an investment in equity securities due to the Company not having significant influence over LAFI. The cost of this investment was expensed during the fiscal year ended December 31, 2017 and, due to uncertainties surrounding the value of LAFI and determining any award of back profits and interest, as well as the pending litigation, no value has been reflected in our unaudited interim condensed consolidated financial statements as of June 30, 2022. See Note 9.
Current Operations
The Company is a technology company with multiple cannabis related divisions and IP, including the WeedClub® Platform, a professional social network platform to the regulated cannabis industry, which enables cannabis and hemp professionals to connect, discover products and services and scale their businesses. Within the WeedClub® Platform, members utilize an increasing set of technology-based tools for discovering professional connections and information. The Company believes it has established itself as the trusted brand to connect the industry through the WeedClub® Platform and its @420 Twitter handle. The Company offers its WeedClub members group opportunities while advertising and consulting revenues are generated via the curated opportunities.
Going Concern and Management’s Plans
The accompanying unaudited interim condensed consolidated financial statements have been presented on the basis that the Company is a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. For the six months ended June 30, 2022, the Company had a net loss from operations of $
8
FARMHOUSE, INC. AND SUBSIDIARIES
NOTES TO QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
and legal and professional expenses. In addition, as of June 30, 2022, the Company had stockholders’ deficit of $
The Company has financed its activities principally from the sale of its common stock and loans from Company officers. The Company intends on financing its future working capital needs from these sources until such time that funds provided by operations are sufficient to fund working capital requirements. Management believes that loans from Company officers and funds raised from the sale of its common stock will allow sufficient capital for operations and to continue as a going concern.
On February 1, 2022, the board of directors (“Board”) authorized an offering of up to 294,118 shares of restricted common stock at $0.85 per share, providing proceeds of up to $250,000, to be offered and sold only to investors that qualify as “accredited investors” as that term is defined in Regulation D. For the six months ended June 30, 2022, the Company sold 69,900 shares of common stock under this offering for proceeds of $59,415. The offering expired on August 1, 2022. See Note 7.
Subsequent to June 30, 2022, the Company received cash proceeds totaling $390,000, including $225,000 of funding under a Litigation Funding Agreement and $165,000 of proceeds from the sale of its domain name “blunt.com.” See Note 12.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist the reader in understanding and evaluating the Company’s unaudited interim condensed consolidated financial statements. These accounting policies conform to Generally Accepted Accounting Principles (“GAAP”) and have been consistently applied in the preparation of these unaudited interim condensed consolidated financial statements.
Principals of Consolidation
The unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries Farmhouse Washington and DTLA (together the “Company”). All material intercompany accounts, transactions, and earnings have been eliminated in the accompanying unaudited interim condensed consolidated financial statements.
Financial Statement Reclassification
Certain amounts from the prior year’s financial statements have been reclassified in these unaudited interim condensed consolidated financial statements to conform to the current year’s classifications.
Cash and Cash Equivalents
Cash and cash equivalents as of June 30, 2022 included cash in banks. The Company considers all highly liquid instruments with maturity dates within 90 days at the time of issuance to be cash equivalents.
9
FARMHOUSE, INC. AND SUBSIDIARIES
NOTES TO QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
Basis of presentation
The accompanying unaudited interim condensed consolidated financial statements contained in this Report have been prepared in accordance with U.S. GAAP and the rules of the Securities and Exchange Commission (“SEC”) for interim financial information and do not include all of the information or disclosures required by U.S. GAAP for annual financial statements. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2021 filed with the Securities and Exchange Commission on April 22, 2022. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein.
Use of Estimates
Operating results for interim periods are not necessarily indicative of the results to be expected for the full year. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Significant estimates include the carrying value of property and equipment and intangible assets, grant date fair value of options, deferred tax assets and any related valuation allowance and related disclosure of contingent assets and liabilities. The Company evaluates its estimates, based on historical experience and on various other assumptions that it believes to be reasonable under the circumstances. Actual results could materially differ from these estimates.
Revenue Recognition
In accordance with ASC No. 606, Revenue Recognition, the Company recognizes revenue from product sales or services rendered when the following five revenue recognition criteria are met: identify the contract with the client, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to performance obligations in the contract and recognize revenues when or as the Company satisfies a performance obligation. The Company generates six types of revenue, including:
(1) Subscription fees . Subscription fees related to the WeedClub portal are received at the time of purchase. The Company’s performance obligation is to provide services over a fixed subscription period, accordingly, the Company recognizes revenue ratably over the subscription period and deferred revenue is recorded for the portion of the subscription period subsequent to each reporting date.
(2) Affiliate advertising . Affiliate advertising revenues result from advertising campaigns and are generally multi-month arrangements. The Company’s performance obligation is met when the Company runs the agreed upon advertisements on its platform, accordingly, the Company recognizes revenue ratably over the campaign period and deferred revenue is recorded for the portion of the campaign period subsequent to each reporting date.
(3) Event Sales . The Company collects payment up front for event ticket sales and sponsorships and records these payments as unearned revenue. The Company’s performance obligation is
10
FARMHOUSE, INC. AND SUBSIDIARIES
NOTES TO QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
met at the time the event takes place, accordingly, the Company recognizes revenue at the time the event takes place.
(4) Referral fees . The Company generates referral fees when a business transaction is consummated between the Company, as referee, and a potential target company. The Company performance obligation is met at the time such business transaction is consummated, accordingly, the Company recognize revenue at that point.
(5) Consulting and Other . The Company generates fees to assist presenting companies with request consulting services in connection with their investment deck and presentation scripts. Such consulting fees are recognized as services are performed.
(6) License revenues . The Company generates revenue from license fees in connection with NFT Art License Agreements, whereby the licensee is granted a limited license from the Company to use one of its licensed NFT’s for the purposes of creating, marketing, and selling a line of cannabis accessory products for retail sale in cannabis dispensaries. The Company’s performance obligation is met over the term of the license agreement, accordingly, the Company recognizes revenue ratably over the term of the license agreement.
Revenues generated for the three and six months ended June 30, 2022 and 2021 were as follows:
|
|
Three months ended June 30, |
|
Six months ended June 30, |
||||||||
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|||||
|
|
(Unaudited) |
|
(Unaudited) |
|
(Unaudited) |
|
(Unaudited) |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription fees |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Affiliate advertising |
|
|
|
|
|
|
|
|
|
|
|
|
Event Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Referral fees |
|
|
|
|
|
|
|
|
|
|
|
|
Consulting and other |
|
|
|
|
|
|
|
|
|
|
|
|
License revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The corresponding costs of revenues associated with affiliate advertising revenues was $
Earnings (Loss) per Common Share
Net income (loss) per common share is computed pursuant to ASC 260-10-45, Earnings per Share – Overall – Other Presentation Matters. Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and potentially outstanding shares of common stock during the period. The weighted average number of common shares outstanding and potentially outstanding common shares assumes that we incorporated as of the beginning of the first period presented.
11
FARMHOUSE, INC. AND SUBSIDIARIES
NOTES TO QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
All dilutive common stock equivalents are reflected in our net income (loss) per share calculations. Anti-dilutive common stock equivalents are not included in our loss per share calculations. As of June 30, 2022 and December 31, 2021, the Company had one convertible note with a principal value of $45,000. This note is convertible at a conversion price the note holder and the Company agree and therefore the number of shares it is convertible into is not determinable.
Recently Issued Accounting Pronouncements
There are no recently issued accounting pronouncements that the Company has not yet adopted that they believe are applicable or would have a material impact on the financial statements of the Company.
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
|
|
June 30, |
|
December 31, |
||
|
2022 |
|
2021 |
|||
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
Computer equipment |
$ |
|
|
$ |
|
|
Less: Accumulated depreciation |
|
(
|
|
|
(
|
|
$ |
|
|
$ |
|
|
Depreciation is computed using the straight-line method based upon the estimated useful lives of the underlying assets, generally three years. Depreciation expense was $
NOTE 4 – CONVERTIBLE NOTES PAYABLE
Convertible note payable is comprised of a promissory note to an unrelated individual in the amount of $
The conversion feature was not accounted for under derivative accounting guidance because the settlement amount is not determinable by an underlying conversion price. Therefore, no derivative was recorded in these unaudited interim condensed consolidated financial statements as of June 30, 2022 and December 31, 2021.
12
FARMHOUSE, INC. AND SUBSIDIARIES
NOTES TO QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
NOTE 5 – NOTES PAYABLE
Notes payable is comprised of the following:
|
|
June 30, |
|
December 31, |
||
|
2022 |
|
2021 |
|||
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
Borrowing under loan agreement, 6% per annum, personally guaranteed. |
$ |
|
|
$ |
|
|
Note payable, 6% per annum, unsecured. |
|
|
|
|
|
|
$ |
|
|
$ |
|
|
On June 16, 2021, the Company entered into a loan agreement, not to exceed $75,000, with an unaffiliated individual (“Lender”) and borrowed $
On August 27, 2021, the Company borrowed $
NOTE 6 – DUE TO RELATED PARTIES
Due to Related Parties totaled $
13
FARMHOUSE, INC. AND SUBSIDIARIES
NOTES TO QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
NOTE 7 – STOCKHOLDERS’ DEFICIT
Authorized Capital
The Company’s authorized capital consists of
Common Stock Offering
On February 1, 2022, the Board authorized an offering of up to 294,118 shares of restricted common stock at $0.85 per share, providing proceeds of up to $250,000, to be offered and sold only to investors that qualify as “accredited investors” as that term is defined in Regulation D. For the six months ended June 30, 2022, the Company sold 69,900 shares of common stock under this offering for proceeds of $59,415. The offering expired on August 1, 2022.
Common stock transactions
A summary of the Company’s common stock transactions for the six months ended June 30, 2022 is as follows:
·
The Company sold
·
The Company issued
As a result of these transactions, the Company has
·
The Company sold
·
The Company issued
·
The Company sold
·
The Company issued
14
FARMHOUSE, INC. AND SUBSIDIARIES
NOTES TO QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
As a result of these transactions, the Company has
Subsequent to June 30, 2022, the Board issued 1,022,000 shares of common stock as Restricted Stock Awards under its 2021 Omnibus Incentive Plan (see Note 8) to Company officers, directors, and consultants. See Note 12.
Shares Reserved
The Company is required to reserve and keep available of its authorized but unissued shares of common stock an amount sufficient to effect shares that could be issued in connection the conversion of the convertible note payable. See Note 4. This note is convertible at a conversion price that the noteholder and the Company agree upon, therefore the number of shares it is convertible into is not determinable. Accordingly, no shares of common stock are reserved for future issuance as of June 30, 2022 and December 31, 2021.
NOTE 8 – STOCK-BASED COMPENSATION
2021 Omnibus Incentive Plan
On May 12, 2021, the Board approved the Farmhouse, Inc. Omnibus Incentive Plan (the “2021 OIP”). The 2021 OIP permits the granting of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units, Other Stock-Based Awards and Cash-Based Awards. The maximum number of shares of common stock that may be issued pursuant to Awards under the 2021 OIP is 3,000,000. Stockholders holding a majority of the Company’s common stock outstanding ratified the 2021 OIP by written consent.
Any options to be granted under the 2021 OIP may be either “incentive stock options,” as defined in Section 422A of the Internal Revenue Code, or “non-statutory stock options,” subject to Section 83 of the Internal Revenue Code, at the discretion of the Board and as reflected in the terms of the written option agreement. The option price shall not be less than 100% of the fair market value of the optioned common stock on the date the option is granted. The option price shall not be less than 110% of the fair market value of the optioned common stock for an optionee holding at the time of grant, more than 10% of the total combined voting power of all classes of stock of the Company. Options become exercisable based on the discretion of the Board and must be exercised within ten years from the date of grant (five years from date of grant for Company employees and directors).
Any restricted stock awards to be granted under the 2021 OIP are issued and measured at fair market value on the date of grant and become vested in various monthly or quarterly installments from the date of grant, subject to the recipient remaining in the Company’s service on specified vesting dates. Vesting of restricted stock awards is based solely on time vesting. Stock-based compensation expense is recognized as the shares vest with a corresponding offset credited to additional paid-in-capital.
15
FARMHOUSE, INC. AND SUBSIDIARIES
NOTES TO QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
Restricted Stock Awards
A summary of the Company’s non-vested restricted stock awards as of June 30, 2022 and changes for the six months then ended is presented below:
|
|
Restricted Stock Awards |
|
Weighted Average Grant Date Fair Value |
||
|
|
|
|
|
|
|
|
Non-vested restricted stock awards, Dec. 31, 2021 |
|
|
|
$ |
|
|
Awarded |
|
- |
|
|
|
|
Vested |
|
(
|
|
|
|
|
Forfeited |
|
- |
|
|
|
|
Non-vested restricted stock awards, June 30, 2022 |
|
|
|
$ |
|
In August 2021, the Board granted a Restricted Stock Award (“RSA”) of 200,000 shares of common stock under the 2021 OIP to the Company’s CFO. The RSA shares vest 25,000 shares over each of the following eight fiscal quarters starting September 30, 2021. RSA shares are measured at fair market value on the date of grant and stock-based compensation expense is recognized as the shares vest with a corresponding offset credited to additional paid-in-capital. The Company recognized stock-based compensation expense of $
Subsequent to June 30, 2022, the Board granted additional RSA’s of 1,022,000 shares of common stock under the 2021 OIP to Company officers, directors, and consultants. See Note 12.
NOTE 9 – LITIGATION
In August 2017, the Company’s subsidiary, DTLA. entered into a Strategic Consulting Agreement (the “SCA”) with Absolute Herbal Pain Solutions, Inc., a medical marijuana growing, and retail company based in Los Angeles that now goes by the name Los Angeles Farmers, Inc. (“LAFI”). The SCA provided for DTLA to invest substantial sums of money into LAFI and also to provide management services for LAFI going forward. In exchange, LAFI agreed to provide DTLA with a share in any future profits and a 49% equity stake in LAFI. Following the SCA, in excess of $700,000 was spent by DTLA to stabilize LAFI’s finances and pay critical bills. In addition, DTLA brought in an outside management company with expertise in running grow and retail operations. Subsequent to DTLA providing funding and management resources to LAFI, DTLA and its management team were locked out of the LAFI facility in late October 2017.
On October 25, 2017, DTLA commenced litigation in Los Angeles County Superior Court (Case #BC681251) against LAFI and David and Irina Vayntrub, who were the sole officers, directors, and members of LAFI, seeking to enforce its contract rights under the SCA. On March 27, 2018, the litigation was stayed so that the parties could pursue the claims by way of arbitration at Judicate West. In January 2020, following more than a year of discovery, DTLA entered into a confidential settlement with the Vayntrubs, however, the case continued against LAFI.
16
FARMHOUSE, INC. AND SUBSIDIARIES
NOTES TO QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
In February 2021, a four-day arbitration hearing was held at Judicate West. On April 8, 2021, the Arbitrator overseeing the arbitration hearing issued a judgment in favor of DTLA and against LAFI (the “DLTA Judgment”). The DLTA Judgment awarded 49% of LAFI to DTLA as of the change of control in November 2017, along with a share of any profits from November 2017 to the present and going forward, accrued interest on those profits, and costs of bringing the litigation. The DLTA Judgment also appointed a Monitor, to be supervised by the Arbitrator, to determine how much in past profits and interest DTLA is entitled to be awarded and that DTLA is treated fairly by LAFI on a going forward basis.
Following the issuance of DTLA Judgment, DTLA filed a motion for reimbursement of costs in the amount of $22,382. No objection was filed by LAFI and on June 1, 2021, the amount was confirmed by the Los Angeles County Superior Court as a Judgment. In July 2021, DTLA received reimbursement costs in the amount of $22,382, which is recorded as other income for the year ended December 31, 2021.
Between July and December 2021, the Monitor undertook a detailed process to determine the value of the 49% of profits and proceeds from 2017 to the present that DTLA is entitled to, in addition to the 10% prejudgment interest. The Monitor’s report was completed in January 2022. Based on the information in the Monitor’s report, DTLA has requested that the Arbitrator issue an award of back profits and interest and order the sale of LAFI to an independent third party in order to allow any judgment to be paid to DTLA. An evidentiary hearing has been scheduled by the Arbitrator to commence on October 31, 2022 to determine what DTLA is owed. Accordingly, the impact of the DLTA Judgment has not been reflected in the accompanying consolidated financial statements as of June 30, 2022.
On August 25, 2022, a receiver was appointed by the Los Angeles County Superior Court to assume control of LAFI. As the receiver was just appointed and has not had an opportunity to assume full control of LAFI, the impact of the appointment of the receiver is unknown at this time.
Subsequent to June 30, 2022, the Company received $225,000 of funding under a Litigation Funding Agreement with Legalist Fund III, LP. See Note 12.
NOTE 10 – RELATED PARTIES
As discussed in Note 6, cash advances are provided to the Company for operating expenses by Company officers, who were owed $
In February 2021, the Company entered into a CFO Consulting and Advisory Agreement with Lang Financial Services, Inc. (“LFSI”). In August 2021, the Board granted LFSI an RSA of
17
FARMHOUSE, INC. AND SUBSIDIARIES
NOTES TO QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
additional RSA of 200,000 shares of common stock under the 2021 OIP. These new RSA shares vest 25,000 shares over each of the following eight fiscal quarters starting September 30, 2022. See Note 12.
NOTE 11 – COMMITMENTS AND CONTINGENCIES
In the normal course of its business, the Company may be subject to certain contractual obligations and litigation. In management’s opinion, upon consultation with legal counsel, there are no contractual obligations or current litigation that will materially affect the Company’s unaudited interim condensed consolidated financial position or results of operations.
Lease Commitment
The Company leased desk space in an incubator in San Francisco, CA at the rate of $
Indemnification Agreements
The Company has agreed to indemnify its officers and directors for certain events or occurrences arising as a result of the officer or director serving in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company believes the estimated fair value of these indemnification agreements is minimal and no liability has been recorded as of June 30, 2022 and December 31, 2021.
NOTE 12 – SUBSEQUENT EVENTS
As of August 29, 2022, the date of these unaudited interim condensed consolidated financial statements, there are no subsequent events that are required to be recorded or disclosed in the accompanying unaudited interim condensed consolidated financial statements other than those listed below and elsewhere in these unaudited interim condensed consolidated financial statements.
Litigation financing
On June 21, 2022, the Company executed a Litigation Funding Agreement with Legalist Fund III, LP, whereby Legalist will provide certain funding, in advance of any collection, in connection with certain claims that the Company has against LAFI. See Note 9. The terms of the Litigation Funding Agreement provide for committed funds of $325,000 with a first tranche of $225,000 and the second tranche of $100,000. With respect to the second tranche, the Company has the option of drawing down the $100,000 in a lump sum payment but is under no obligation to draw down the second tranche. On July 15, 2022, the Company received the first tranche of $225,000.
Upon collection of any claims in the LAFI litigation, Legalist’s recovery is 0.85 of the committed funds then in effect, if repayment in full prior to 12 months, and 0.27 of the committed funds then in effect for every additional four months, if repayment in full occurs thereafter. In addition, Legalist was granted a security interest on the assets of the Company.
18
FARMHOUSE, INC. AND SUBSIDIARIES
NOTES TO QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
Sale of domain name
In June 2022, the Company received an unsolicited offer for its domain name “blunt.com” from an unaffiliated party. The Board considered this offer to be a fair arms-length price for a premium domain name and on July 20, 2022, the Company sold domain name “blunt.com” for $165,000, net of commission.
Payment of notes payable and officer loans
From the proceeds of the aforementioned funding events, the notes to an unrelated party totaling $32,650, together with accrued interest of $1,253, were paid in full (Note 5) and-, Company officers were paid approximately $49,000 on their outstanding advances (Note 6).
Restricted Stock Awards
On July 18, 2022, the Board granted Restricted Stock Awards (“RSAs”) totaling 1,022,000 shares of common stock under the 2021 OIP to Company officers, directors, and consultants. A summary of the Company’s non-vested restricted stock awards subsequent to June 30, 2022 is presented below:
|
|
Restricted Stock Awards |
|
Weighted Average Grant Date Fair Value |
||
|
|
|
|
|
|
|
|
Non-vested restricted stock awards, June 30, 2022 |
|
100,000 |
|
$ |
1.020 |
|
Awarded – Company officers |
|
400,000 |
|
|
0.190 |
|
Awarded – LFSI |
|
200,000 |
|
|
0.190 |
|
Awarded – Company director |
|
200,000 |
|
|
0.190 |
|
Awarded – Consultants |
|
222,000 |
|
|
0.190 |
|
Vested |
|
- |
|
|
- |
|
Forfeited |
|
- |
|
|
|
|
Non-vested restricted stock awards, August 29, 2022 |
|
1,122,000 |
|
$ |
0.264 |
The RSA shares to Company officers and LFSI vest 25,000 shares over each of the following eight fiscal quarters starting September 30, 2022. The RSA shares to Company director vest 100,000 upon grant, for past services rendered, and 25,000 shares over each of the following four fiscal quarters starting September 30, 2022. The RSA shares to consultants vest equally over each of the following four fiscal quarters starting September 30, 2022. RSA shares are measured at fair market value based on the closing price of the Company’s common stock on the OTCQB market on the date of grant ($0.19 per share on July 18, 2022). Stock-based compensation expense is recognized as the shares vest with a corresponding offset credited to additional paid-in-capital.
19
FARMHOUSE, INC. AND SUBSIDIARIES
NOTES TO QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(Unaudited)
Designation of Series A Preferred stock
On July 18, 2022, the Board designated 500,000 shares of the Company’s authorized preferred stock as Series A 10% Cumulative Convertible Participating Preferred Stock (the “Series A Preferred”). As of August 29, 2022, the date of these unaudited interim condensed consolidated financial statements were issued, no shares of Series A Preferred have been issued.
The Series A Preferred bears a 10% cumulative dividend and has a per share liquidation preference equal to $1.00 plus any unpaid dividends (“Liquidation Preference”). Dividends must be declared by the Board to become payable. If cash dividends were to be paid, the Series A Preferred would have preference in payment of dividends over the common stock and any other series of preferred stock later designated. Each dollar of Series A Preferred and any accumulated dividends are initially convertible into five shares of the Company’s common stock, or $.20 per share (the “Conversion Price”). The Conversion Price will be adjusted if there are dilutive issuances. Shares may be converted at any time at the election of the holders. There are no mandatory conversion provisions of the Series A Preferred. Starting one year after issuance, the Series A Preferred may be redeemed by the Company upon 30 days notice, subject to prior conversion at any time.
Other attributes of the Series A Preferred are priority of class, anti-dilution protection, right of first refusal to the holders and voting rights on an as converted basis. The Series A Preferred is senior to all other classes of stock of the Company. In the event of liquidation, after the Preference Amount plus accrued dividends have been paid on all outstanding Series A Preferred, any remaining funds and assets of the Company legally available for distribution to the Shareholders will be distributed ratably among the Shareholders in accordance with their holdings on an as converted basis. The Series A Preferred is protected from a dilutive issuance of additional shares of stock at a per share less than the conversion price at the date of such new issuance. The Series A Preferred votes with the shares of common stock on an as-converted basis as a single class on all matters except for matters that affect the rights of the Series A Preferred, in which case the Series A Preferred votes separately as a single class. Holders of Series A Preferred vote as a class to elect a single director out of a maximum of five directors.
20
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
The following discussion should be read in conjunction with our interim condensed consolidated financial statements and related notes contained elsewhere in this Report, as well as our Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the Securities and Exchange Commission (the “SEC”) on April 22, 2022. Certain statements made in this discussion are “forward-looking statements” within the meaning of 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are based upon beliefs of, and information currently available to management as well as estimates and assumptions made by management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used herein, the words “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “future,” “intend,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to our business, industry, and our operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our interim condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of these interim condensed consolidated financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our interim condensed consolidated financial statements would be affected to the extent there are material differences between these estimates and actual results. The following discussion should be read in conjunction with our interim condensed consolidated financial statements and notes thereto appearing elsewhere in this Report.
Unless otherwise indicated or the context requires otherwise, the words “we,” “us,” “our,” the “Company,” “our Company” or “Farmhouse” refer to Farmhouse Inc., a Nevada corporation, and our wholly owned subsidiaries, Farmhouse, Inc., a Washington corporation (“Farmhouse Washington”) and Farmhouse DTLA, Inc. (“DTLA”), a California corporation.
Corporate Overview
We are a leading connection platform in the legal cannabis industry. We connect the industry through multiple divisions including the @420 brand and @420 Twitter, and the WeedClub® Platform. Our @420 brand and @420 Twitter serve as trusted, influential properties that enable the Company to connect, promote and advocate for the industry. These properties leverage the WeedClub® Platform to
21
drive valuable connections for cannabis startups and supplier connections for retail dispensaries. We will continue to serve as a leading cannabis connection platform and branch its well-known brand into the budding web3 and metaverse. Every company needs Friends in High Places® and our multiple divisions to provide exactly that.
Recent Business Developments
In July 2021, we successfully enforced DTLA’s contract rights in an operating retail cannabis business in Los Angeles. After four years of litigation, a Final Judgment was filed into the record in the Superior Court of California in the County of Los Angeles for case number BC681251 (the “DTLA Judgment”). See “Farmhouse Divisions” below.
In October 2021, we uplisted from the OTC Pink Sheets to the OTCQB Venture Marketplace and commenced trading under the symbol “FMHS.” This marked a milestone for our Company by being recognized as a fully-reporting cannabis company and increasing its reach to more retail and private investors.
In November 2021, we began exploring potential acquisitions of cannabis companies to expand our physical footprint in the industry. Acquisitions would improve our ability to leverage our WeedClub® Platform and our @420 Twitter handle to connect with consumers. We have not entered into any serious discussions with potential target companies as of the date of this filing.
In December 2021, we launched a Non-Fungible Token (NFT) division dedicated to connecting the metaverse with cannabis brands. As a leader in technology, we established this division to bring NFTs to cannabis brands to create a symbiotic relationship between two fast-growing industries. Our NFT division explores how cannabis brands can connect with the metaverse through NFTs. It is a natural expansion of our brand and bridges the gap between physical cannabis brands and digital assets. Our NFT division is currently investigating initiatives from creating NFTs with artists, launching an NFT project, and developing NFT IP licensing opportunities with cannabis brands.
In April 2022, we entered into a joint venture to license Bored Ape Yacht Club #2186, “Oro Blanco,” as the face of a new cannabis brand on behalf of Ape-In Productions, a ground-breaking entertainment company, and virtual community. This was the first significant licensing agreement for our NFT division we launched in December 2021.
In May 2022, we entered into an agreement with Urbana to feature a Bored Ape Yacht Club #2186 cannabis strain on shelves at both their San Francisco dispensary locations. This represented our first partnership that placed our NFT IP on cannabis products in stores for people to purchase.
Farmhouse Divisions
Our @420 brand and Twitter handle (with over 97,000 followers) serve as an influential brand that connects us with the greater public. Our Twitter handle enables the NFT division to forge valuable connections in the space and work with established projects.
The WeedClub® Platform is a premier networking platform with over 5,000 cannabis professionals and is the backbone of the Company. WeedClub® Platform is an established presence in the cannabis industry that people trust to make valuable connections. As we continue to expand our operations, WeedClub members benefit immensely from the added potential connections.
22
As discussed above, the DTLA Judgment awarded 49% of this dispensary to DTLA. In addition to equity ownership, the DTLA Judgment awarded DTLA a share of any profits of this dispensary from November 2017 to the present and going forward along with accrued interest on those profits and the costs of bringing litigation. The DLTA Judgment also appointed a Monitor, to be supervised by the Arbitrator, to determine how much in past profits and interest DTLA is entitled to be awarded and that DTLA is treated fairly by LAFI on a going-forward basis. Between July and December 2021, the Monitor undertook a detailed process to determine the value of the 49% of profits and proceeds from 2017 to the present that DTLA is entitled to, in addition to the 10% prejudgment interest. The Monitor’s report was completed in January 2022. Based on the information in the Monitor’s report, DTLA has requested that the Arbitrator issue an award of back profits and interest and order the sale of LAFI to an independent third party in order to allow any judgment to be paid to DTLA. That request will be heard by the Arbitrator in October 2022.
Although ownership percentages over 20% would typically be accounted for using the equity method, the Company is accounting for this investment as an investment in equity securities due to the Company not having significant influence over LAFI. The cost of this investment was expensed during the fiscal year ended December 31, 2017 and, due to uncertainties surrounding the value of LAFI and determining any award of back profits and interest, as well as the pending litigation, no value has been reflected in our interim condensed consolidated financial statements as of June 30, 2022. Reference is made to Note 9, Litigation, to the interim condensed consolidated financial statements included under Item 1 in this Report.
Current and Future Plan of Operations
Farmhouse is built on connection, brand, and trust. These three pillars establish the foundation that drives value for our community across all our divisions. Through technology, we leverage these pillars to connect members to value-add products, services, capital, and consumers. Our commitment to developing cannabis-specific technology solutions firmly established us as a trusted connector in the cannabis industry.
As our industry continues to grow, it faces the same problems due to the lack of federal legalization. For many cannabis brands, the lack of federal legalization leads to increased cost of expansion, lack of access to many proven digital marketing channels, and lack of access to capital and banking. We addressed these problems by being early movers by creating the WeedClub® Platform and establishing the @420 brand including our @420 Twitter handle with over 93,000 followers.
Over the past few years, new technology centered around a decentralized future (web3) has emerged as a potentially more effective solution for all the core problems our industry faces. Decentralization and web3 eliminate the walled gardens created by the platform economy that cannabis companies lack access to due to the lack of federal legalization. Through web3, cannabis brands can connect directly with their consumers, build community and raise capital through new channels to better position themselves for potential federal legalization.
The key feature of this decentralized future (web3)is NFTs. What started out as simple digital JPEGs has rapidly evolved in the past year into curated collectible art and the digital proof of ownership that unlocks holder-specific value such as community, product and services discounts, and more. Just as we were early movers when we created the WeedClub® Platform as a professional social network for the cannabis industry, we launched our NFT division to connect cannabis brands directly to a community of cannabis and cryptocurrency enthusiasts. The NFT division is an exploration of how we can connect these two similar, rapidly growing industries.
23
The NFT division is our first step that allows us to leverage our existing foundation to solve the problems of our industry through web3 solutions. As we build this new crypto-native, cannabis enthusiast community, we will drive brand awareness and access an entirely new demographic of members of our ecosystem. Not only will this provide new opportunities for cannabis brands to engage with us, it will also expand our reach to younger demographics that care about engaging in a more instantaneous and genuine way.
We believe our entrance into web3 and NFTs adds a new layer to our current foundation and allows us to leverage what we have built to strengthen our ability to provide technological solutions that address the core problems our industry continues to face. We believe we are uniquely positioned to fill this industry need by scaling its commercial presence.
In April 2022, we entered into a joint venture to license Bored Ape Yacht Club #2186, “Oro Blanco,” as the face of a new cannabis brand on behalf of Ape-In Productions, a ground-breaking entertainment company, and virtual community. This was the first significant licensing agreement for our NFT division we launched in December 2021.
In May 2022, we entered into an agreement with Urbana to feature a Bored Ape Yacht Club #2186 cannabis strain on shelves at both their San Francisco dispensary locations. This represented our first partnership that placed our NFT IP on cannabis products in stores for people to purchase.
Liquidity and Capital Resources
Until such time we can raise additional capital or generate positive cash flow from operations, we will continue to be funded through short-term advances from the Company Officers. We estimate we will need $2,500,000 in capital, after satisfying our debt obligations, to cover our ongoing expenses and to successfully market and expand our product offerings. This is only an estimate and may change as we receive feedback from customers and have a better feel of the demand and revenues from our new products. Both of these factors may change and we may not be able to raise the necessary capital and if we are able to, that it may not be at favorable rates. We intend to meet our cash requirements for the next 12 months equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares.
For the six months ended June 30, 2022, we had a net loss from operations of $465,152, consisting primarily of general and administrative and legal and professional expenses. In addition, as of June 30, 2022, we had stockholders’ deficit of $1,761,542 and available cash on hand of zero. Our auditors have raised substantial doubt regarding our ability to continue as a going concern because of our historical recurring losses and negative cash flows from operations as well as our dependence on private equity and financings. We anticipate that we will continue to report losses and negative cash flow. To date, we have financed our activities principally from the sale of common stock and loans from Company officers. We intend on financing our future working capital needs from these sources until such time that funds provided by our operations are sufficient to fund our working capital requirements. We believe that the loans from Company officers and funds raised from the sale of our common stock will allow us sufficient capital for operations and to continue as a going concern.
On February 1, 2022, the board of directors (“Board”) authorized an offering of up to 294,118 shares of restricted common stock at $0.85 per share, providing proceeds of up to $250,000, to be offered and sold only to investors that qualify as “accredited investors” as that term is defined in Regulation D. For the six months ended June 30, 2022, the Company sold 69,900 shares of common stock under this offering for proceeds of $59,415. This offering expired on August 1, 2022.
24
Subsequent to June 30, 2022, we received cash proceeds totaling $390,000, including $225,000 from funding under a Litigation Funding Agreement and $165,000 from the sale of its domain name “blunt.com”. Reference is made to Note 12, Subsequent Events, to the interim condensed consolidated financial statements included under Item 1 in this Report.
Results of Operations
We generate six types of revenue:
· subscription fees consisting of membership dues,
· affiliate advertising from links within the web properties,
· ticket sales and sponsorships derived from events,
· referral fees from strategic business introductions,
· consulting fees, and
· License fees.
Each of the above segments is dependent on leads generated within the Farmhouse ecosystem. Subscription fees were billed based on the types of membership privileges that Members such as being able to communicate privately with dispensary owners and other licensed operators. Affiliate advertising revenue is derived from the placement of web links on WeedClub, @420 Twitter, e-mail and social media primarily. Live events by WeedClub and the @420 pitch by WeedClub, as well as community-building events such as mixers and topical panels, offer the Community unique sponsorship opportunities for signage, tables, and presentations. Sometimes Members require additional help to make professional connections and we charge a flat-rate consulting fee in these special situations. Lastly, we generate revenue from license fees in connection with NFT Art License Agreements, whereby the licensee is granted a limited license to use one of our licensed NFT’s for the purposes of creating, marketing, and selling a line of cannabis accessory products for retail sale in cannabis dispensaries.
Details regarding when each revenue stream is recognized are listed below:
(1) Subscription fees . Subscription fees related to the WeedClub portal are received at the time of purchase. Our performance obligation is to provide services over a fixed subscription period; accordingly, we recognize revenue ratably over the subscription period and deferred revenue is recorded for the portion of the subscription period subsequent to each reporting date.
(2) Affiliate advertising . Affiliate advertising revenues result from advertising campaigns and are generally multi-month arrangements. Our performance obligation is met when we run the agreed upon advertisements on its platform, accordingly, we recognize revenue ratably over the campaign period and deferred revenue is recorded for the portion of the campaign period subsequent to each reporting date.
(3) Event Sales . We collect payment up front for event ticket sales and sponsorships and records these payments as unearned revenue. Our performance obligation is met at the time the event takes place; accordingly, we recognize revenue at the time the event takes place.
(4) Referral fees . We generate referral fees when a business transaction is consummated between the Company, as referee, and a potential target company. Our performance obligation is met at the time such business transaction is consummated, accordingly, we recognize revenue at that point.
25
(5) Consulting and Other . We generate fees to assist presenting companies with request consulting services in connection with their investment deck and presentation scripts. Such consulting fees are recognized as services are performed.
(6) License revenues . The Company generates revenue from license fees in connection with NFT Art License Agreements, whereby the licensee is granted a limited license from the Company to use one of its licensed NFT’s for the purposes of creating, marketing, and selling a line of cannabis accessory products for retail sale in cannabis dispensaries. The Company’s performance obligation is met over the term of the license agreement, accordingly, the Company recognizes revenue ratably over the term of the license agreement.
Six months ended June 30, 2022, compared to the six months ended June 30, 2021 (Unaudited)
Revenues generated for the six months ended June 30, 2022 and 2021 were as follows:
|
|
Six months ended June 30, |
||||
|
|
2022 |
|
2021 |
||
|
|
|
|
|
|
|
|
Subscription fees |
$ |
149 |
|
$ |
546 |
|
Affiliate advertising |
|
- |
|
|
8,850 |
|
Event Sales |
|
- |
|
|
- |
|
Referral fees |
|
- |
|
|
2,500 |
|
Consulting and other |
|
- |
|
|
- |
|
License revenues |
|
2,500 |
|
|
- |
|
|
$ |
2,649 |
|
$ |
11,896 |
Subscription fees . We generated one new subscription for the six months ended June 30, 2022 related to the WeedClub portal.
Affiliate advertising . Affiliate advertising, through our advertising deal with Twitter, generated $8,850 of revenues for the prior six months ended June 30, 2021. We have an advertising deal with Twitter which provides us a revenue stream and growth opportunity due to our ability to post approved hemp social media ads. The corresponding costs of revenues associated with affiliate advertising revenues was $8,000.
Referral fees . We generate referral fees when a business transaction is consummated between us and the potential target company. Such business transactions generally arise from the connections with company presenters during @420 events of which none were held during the six months ended June 30, 2022. Accordingly, our revenues from referral fees declined from $2,500 to zero for the six months ended June 30, 2022.
License revenues . We recognized revenue for an up-front license fee in connection with an NFT Art License Agreement, whereby the licensee was granted a limited license from the Company to us use one of its licensed NFT’s for the purposes of creating, marketing, and selling a line of cannabis accessory products for retail sale in California dispensaries.
26
Operating expenses for the six months ended June 30, 2022 and 2021 were as follows:
|
|
Six months ended June 30, |
||||
|
|
2022 |
|
2021 |
||
|
|
|
|
|
|
|
|
General and administrative |
$ |
213,914 |
|
$ |
193,971 |
|
Professional fees |
|
253,793 |
|
|
191,436 |
|
Depreciation and amortization |
|
94 |
|
|
589 |
|
|
$ |
467,801 |
|
$ |
385,996 |
For the six months ended June 30, 2022 and 2021, general and administrative expenses were $213,914 and $193,971, respectively, an overall increase of approximately $20,000. Contributing factors to this increase were:
· Outside consulting fees increased by approximately $26,100, all of which was in stock-based fees in the current six month period.
· Labor-related expenses increased by approximately $1,800. Labor-related expenses included recognizing approximately $36,400 in stock-based fees in the current six month period.
· Public company related costs, including OTC filing fees, press releases and transfer agent costs increased by approximately $8,000, due primarily in increased listing fee on the OTCQB market, and
· Overall other general and administrative expenses, including website development, dues and subscriptions, rent and office expenses and travel and entertainment decreased by approximately $15,900 due to general budget constraints.
For the six months ended June 30, 2022 and 2021, professional fees were $253,793 and $191,436, respectively, an increase of approximately $62,400. Our professional fees for the six months ended June 30, 2022 and 2021 were comprised of the following:
|
|
Six months ended June 30, |
||||
|
|
2022 |
|
2021 |
||
|
|
|
|
|
|
|
|
Legal |
$ |
33,210 |
|
$ |
60,206 |
|
Accounting and audit |
|
116,473 |
|
|
73,456 |
|
Other professional fees |
|
104,110 |
|
|
57,774 |
|
|
$ |
253,793 |
|
$ |
191,436 |
Legal . Legal expenses decreased by approximately $27,000 for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Contributing factors to this net decrease were:
· Legal fees to our corporate and securities counsel firms decreased by approximately $3,100.
· Legal fees to our patent and trademark counsel increased by approximately $3,400.
· Fees incurred by Judicate West, Planet Depot and court reporting related to our litigation against LAFI decreased by approximately $50,600, due to winding down of the active litigation.
· Our portion of the fees incurred by the Monitor to advance our litigation against LAFI were approximately $23,300 for the six months ended June 30, 2022. In April 2021, the Arbitrator overseeing the arbitration hearing issued a judgment in our favor and against LAFI. This
27
judgment also appointed a Monitor, to be supervised by the Arbitrator, to determine how much in past profits and interest we are entitled to be awarded. The costs of the Monitor are borne equally between the Company and LAFI. Between July and December 2021, the Monitor undertook a detailed forensic examination of LAFI. The Monitor’s report was completed in January 2022. Reference is made to Note 9, Litigation, to the interim condensed consolidated financial statements included under Item 1 in this Report.
Accounting and audit . Accounting and audit expenses increased by approximately $43,000 for the six months ended June 30, 2022, compared to the six months ended June 30, 2021. Contributing factors to this increase were:
· Audit and accounting fees to our independent public accounting firm decreased by approximately $1,000 related to our annual fiscal year audit.
· Accounting fees for our contracted CFO services increased by approximately $40,700, which included $51,500 in stock-based fees in the six months ended June 30, 2022 compared to $35,300 of stock-based fees recognized in the six months ended June 30, 2021.
· Accounting fees to our outside bookkeeping services increased by approximately $3,300.
Other professional fees . Other professional fees increased by approximately $47,400 for the six months ended June 30, 2022, compared to the six months ended June 30, 2021 due to an increase in fees to our contracted software engineers and developers of our software technology platforms. All professional fees incurred for both the six months ended June 30, 2022 and 2021 were comprised of stock-based fees.
Interest expense increased by approximately $5,800 for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Approximately $3,500 of the increase in interest expense was due to interest accrued on our unpaid liability to our predecessor law firm in the aforementioned litigation. This law firm resigned in April 2021 when we engaged a new “contingency-based” law firm and started accruing interest expense on their unpaid amount. The additional increase in interest expense of approximately $2,300 pertains to our two loan obligations during the six months ended June 30, 2022.
Overall, for the six months ended June 30, 2022, we reported a net loss of $490,296 compared to a net loss of $393,492 for the six months ended June 30, 2021.
28
Non-GAAP Adjusted Net Loss
The following table reflects the reconciliation of net loss to Adjusted Net Loss for the six months ended June 30, 2022 and 2021. This is a non-GAAP measurement of earnings and considers the stock-related compensation expense for services rendered by consultants and professionals for the comparable years. Management considers this non-GAAP measurement of earnings important to investors and other interested parties to evaluate the Company’s performance on a comparable basis.
|
|
Six months ended June 30, |
||||
|
|
2022 |
|
2021 |
||
|
|
|
|
|
|
|
|
Net loss as reported |
$ |
490,296 |
|
$ |
393,492 |
|
Less: Stock-based fees |
|
(240,582) |
|
|
(150,581) |
|
Adjusted Net Loss |
$ |
249,714 |
|
$ |
242,911 |
Adjusted Net Loss should only be viewed in conjunction with our reported financial results or other financial information prepared in accordance with accounting principles generally accepted in the United States, or “GAAP.”
Three months ended June 30, 2022, compared to the three months ended June 30, 2021 (Unaudited)
Revenues generated for the three months ended June 30, 2022 and 2021 were as follows:
|
|
Three months ended June 30, |
||||
|
|
2022 |
|
2021 |
||
|
|
|
|
|
|
|
|
Subscription fees |
$ |
149 |
|
$ |
546 |
|
Affiliate advertising |
|
- |
|
|
- |
|
Event Sales |
|
- |
|
|
- |
|
Referral fees |
|
- |
|
|
- |
|
Consulting and other |
|
- |
|
|
- |
|
License revenues |
|
2,500 |
|
|
- |
|
|
$ |
2,649 |
|
$ |
546 |
Subscription fees . We generated one new subscription for the three months ended June 30, 2022 related to the WeedClub portal.
License revenues . We recognized revenue for an up-front license fee in connection with an NFT Art License Agreement, whereby the licensee was granted a limited license from the Company to us use one of its licensed NFT’s for the purposes of creating, marketing, and selling a line of cannabis accessory products for retail sale in California dispensaries.
29
Operating expenses for the three months ended June 30, 2022 and 2021 were as follows:
|
|
Three months ended June 30, |
||||
|
|
2022 |
|
2021 |
||
|
|
|
|
|
|
|
|
General and administrative |
$ |
121,328 |
|
$ |
120,623 |
|
Professional fees |
|
128,064 |
|
|
124,310 |
|
Depreciation and amortization |
|
- |
|
|
295 |
|
|
$ |
249,392 |
|
$ |
245,228 |
For the three months ended June 30, 2022 and 2021, general and administrative expenses were $121,328 and $120,623, respectively, an overall increase of approximately $700. Contributing factors to this increase were:
· Outside consulting fees increased by approximately $8,500, all of which was in stock-based fees in the current three month period.
· Labor-related expenses decreased by approximately $2,700. Labor-related expenses included recognizing approximately $23,600 in stock-based fees in the current three month period.
· Public company related costs, including OTC filing fees, press releases and transfer agent costs increased by approximately $5,600, due primarily in increased listing fee on the OTCQB market, and
· Overall other general and administrative expenses, including website development, dues and subscriptions, rent and office expenses and travel and entertainment decreased by approximately $10,700 due to general budget constraints.
For the three months ended June 30, 2022 and 2021, professional fees were $128,064 and $124,310, respectively, an increase of approximately $3,800. Our professional fees for the three months ended June 30, 2022 and 2021 were comprised of the following:
|
|
Three months ended June 30, |
||||
|
|
2022 |
|
2021 |
||
|
|
|
|
|
|
|
|
Legal |
$ |
6,680 |
|
$ |
32,540 |
|
Accounting and audit |
|
54,534 |
|
|
37,528 |
|
Other professional fees |
|
66,850 |
|
|
54,242 |
|
|
$ |
128,064 |
|
$ |
124,310 |
Legal . Legal expenses decreased by approximately $25,800 for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. Contributing factors to this net decrease were:
· Legal fees to our corporate and securities counsel firms decreased by approximately $1,800.
· Legal fees to our patent and trademark counsel increased by approximately $200.
· Fees incurred by Judicate West, Planet Depot and court reporting related to our litigation against LAFI decreased by approximately $24,200, due to winding down of the active litigation.
30
Accounting and audit . Accounting and audit expenses increased by approximately $17,000 for the three months ended June 30, 2022, compared to the three months ended June 30, 2021. Contributing factors to this increase were:
· Audit and accounting fees to our independent public accounting firm increased by approximately $2,000 related to our annual fiscal year audit.
· Accounting fees for our contracted CFO services increased by approximately $12,500, which included $25,500 in stock-based fees in the three months ended June 30, 2022 compared to $20,000 of stock-based fees recognized in the three months ended June 30, 2021.
· Accounting fees to our outside bookkeeping services increased by approximately $2,500.
Other professional fees . Other professional fees increased by approximately $12,600 for the three months ended June 30, 2022, compared to the three months ended June 30, 2021 due to an increase in fees to our contracted software engineers and developers of our software technology platforms. All professional fees incurred for both the three months ended June 30, 2022 and 2021 were comprised of stock-based fees.
Interest expense decreased by approximately $2,100 for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. Approximately $3,300 of the decrease in interest expense was from interest accrued on our unpaid liability to our predecessor law firm in the aforementioned litigation. This law firm resigned in April 2021 when we engaged a new “contingency-based” law firm and started accruing interest expense on their unpaid amount. This decrease was offset by an increase in interest expense of approximately $1,200 on our two loan obligations during the three months ended June 30, 2022.
Overall, for the three months ended June 30, 2022, we reported a net loss of $256,079 compared to a net loss of $256,167 for the three months ended June 30, 2021.
Non-GAAP Adjusted Net Loss
The following table reflects the reconciliation of net loss to Adjusted Net Loss for the three months ended June 30, 2022 and 2021. This is a non-GAAP measurement of earnings and considers the stock-related compensation expense for services rendered by consultants and professionals for the comparable years. Management considers this non-GAAP measurement of earnings important to investors and other interested parties to evaluate the Company’s performance on a comparable basis.
|
|
Three months ended June 30, |
||||
|
|
2022 |
|
2021 |
||
|
|
|
|
|
|
|
|
Net loss as reported |
$ |
256,079 |
|
$ |
256,167 |
|
Less: Stock-based fees |
|
(145,670) |
|
|
(120,713) |
|
Adjusted Net Loss |
$ |
110,409 |
|
$ |
135,454 |
Adjusted Net Loss should only be viewed in conjunction with our reported financial results or other financial information prepared in accordance with accounting principles generally accepted in the United States, or “GAAP.”
31
Cash Flows
The following table summarizes the sources and uses of cash for the six months ended June 30, 2022 and 2021, respectively:
|
|
Six months ended June 30, |
||||
|
|
2022 |
|
2021 |
||
|
|
|
|
|
|
|
|
Net cash used in operating activities |
$ |
(68,404) |
|
|
(103,781) |
|
Net cash used in investing activities |
|
- |
|
|
- |
|
Net cash provided by financing activities |
|
64,624 |
|
|
105,413 |
|
Net change in cash and cash equivalents |
$ |
(3,780) |
|
$ |
1,632 |
Six months ended June 30, 2022
Operating activities used $68,404 of cash, primarily resulting from our net loss for the six months ended June 30, 2022 of $490,296, offset by non-cash stock-based compensation expense recorded for services rendered of $189,582, non-cash stock-based compensation expense recorded for vested restricted stock awards of $51,000, and increases in liabilities across most categories: accrued legal fees, accrued payroll and other accrued liabilities. There was no use of cash for investing activities for the six months ended June 30, 2022. Financing activities provided $64,624 of cash for the six months ended June 30, 2022, consisting of $59,415 in proceeds from the sale of common stock, $7,620 of borrowings from an unrelated lender, offset by repayments of $2,411 of advances from officers.
Six months ended June 30, 2021
Operating activities used $103,781 of cash, primarily resulting from a net loss of $393,492, offset by non-cash stock-based compensation expense recorded for services rendered of $150,581, and increases in liabilities across all categories: accounts payable, accrued legal fees, accrued payroll and other accrued liabilities. There was no use of cash for investing activities for the six months ended June 30, 2021. Financing activities provided $105,413 of cash, consisting of $31,000 in proceeds from the sale of common stock, $50,000 of borrowings from an unrelated lender and $29,436 of advances from officers, offset by repayments of $5,023 of advances from officers.
Contractual Obligations
We qualify as a smaller reporting company, as defined by Item 10 of Regulation S-K and, thus, are not required to provide the information required by this Item.
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.
32
Cash and Cash Equivalents
We consider all highly liquid investments with an original maturity of six months or less when purchased to be cash equivalents. Cash and cash equivalents were zero and $3,780 as of June 30, 2022 and December 31, 2021, respectively.
Critical Accounting Policies and Estimates
The preparation of our interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States requires us 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 these interim condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Our accounting policies that are critical or most important to understanding our financial condition and results of operations and that require management to make the most difficult judgments are described in our Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC on April 22, 2022. There have been no material changes in these critical accounting policies.
Recently Adopted Accounting Pronouncements
Reference is made to Note 2, Summary of Significant Accounting Policies, to the interim condensed consolidated financial statements included under Item 1 in this Report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective as of June 30, 2022.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting subsequent to June 30, 2022, which were identified in connection with our management’s evaluation required by paragraph (d) of rules
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13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations of the Effectiveness of Disclosure Controls and Internal Controls
Our management, including our Principal Executive Officer and Principal Financial Officer, does not expect that our disclosure controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.
The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II – OTHER INFORMATION
None.
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company may become subject to various legal proceedings that are incidental to the ordinary conduct of its business. Although the Company cannot accurately predict the amount of any liability that may ultimately arise with respect to any of these matters, it makes provision for potential liabilities when it deems them probable and reasonably estimable. These provisions are based on current information and legal advice and may be adjusted from time to time according to developments.
The Company is a party to legal proceedings by the Company’s subsidiary, Farmhouse DTLA.
In August 2017, our subsidiary, DTLA. entered into a Strategic Consulting Agreement (the “SCA”) with Absolute Herbal Pain Solutions, Inc., a medical marijuana growing and retail company based in Los Angeles that now goes by the name Los Angeles Farmers, Inc. (“LAFI”). The SCA provided for DTLA to invest substantial sums of money into LAFI and also to provide management services for LAFI going forward. In exchange, LAFI agreed to provide DTLA with a share in any future profits and a 49% equity stake in LAFI. Following the SCA, in excess of $700,000 was spent by DTLA to stabilize LAFI’s finances and pay critical bills. In addition, DTLA brought in an outside management company with expertise in running grow and retail operations. Subsequent to DTLA providing funding and management resources to LAFI, DTLA and its management team were locked out of the LAFI facility in late October 2017.
On October 25, 2017, DTLA commenced litigation in Los Angeles County Superior Court (Case #BC681251) against LAFI and David and Irina Vayntrub, who were the sole officers, directors, and
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members of LAFI, seeking to enforce its contract rights under the SCA. On March 27, 2018, the litigation was stayed so that the parties could pursue the claims by way of arbitration at Judicate West. In January 2020, following more than a year of discovery, DTLA entered into a confidential settlement with the Vayntrubs, however, the case continued against LAFI.
In February 2021, a four-day arbitration hearing was held at Judicate West. On April 8, 2021, the Arbitrator overseeing the arbitration hearing issued a judgment in favor of DTLA and against LAFI (the “DLTA Judgment”). The DLTA Judgment awarded 49% of LAFI to DTLA as of the change of control in November 2017, along with a share of any profits from November 2017 to the present and going forward, accrued interest on those profits, and costs of bringing the litigation. The DLTA Judgment also appointed a Monitor, to be supervised by the Arbitrator, to determine how much in past profits and interest DTLA is entitled to be awarded and that DTLA is treated fairly by LAFI on a going forward basis.
Between July and December 2021, the Monitor undertook a detailed process to determine the value of the 49% of profits and proceeds from 2017 to the present that DTLA is entitled to, in addition to the 10% prejudgment interest. The Monitor’s report was completed in January 2022. Based on the information in the Monitor’s report, DTLA has requested that the Arbitrator issue an award of back profits and interest and order the sale of LAFI to an independent third party in order to allow any judgment to be paid to DTLA. An evidentiary hearing has been scheduled by the Arbitrator to commence on October 31, 2022 to determine what DTLA is owed.. Accordingly, the impact of the DLTA Judgment has not been reflected in the accompanying consolidated financial statements as of June 30, 2022.
Although ownership percentages over 20% would typically be accounted for using the equity method, the Company is accounting for this investment as an investment in equity securities due to the Company not having significant influence over LAFI. The cost of this investment was expensed during the fiscal year ended December 31, 2017 and, due to uncertainties surrounding the value of LAFI and determining any award of back profits and interest, as well as the pending litigation, no value has been reflected in our interim condensed consolidated financial statements as of June 30, 2022.
On August 25, 2022, a receiver was appointed by the Los Angeles County Superior Court to assume control of LAFI. As the receiver was just appointed and has not had an opportunity to assume full control of LAFI, the impact of the appointment of the receiver is unknown at this time.
ITEM 1A. RISK FACTORS
The Company qualifies as a smaller reporting company, as defined by Item 10 of Regulation S-K and, thus, are not required to provide the information required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Common Stock Offerings
In April 2021, the Board authorized an offering of up to 1,000,000 shares of restricted common stock at $0.51 per share (the “Offering Price”), providing proceeds of up to $510,000 (the “Offering”). The Offering will be offered and sold only to investors that qualify as “accredited investors” as that term is defined in Regulation D. The Offering terminated on August 21, 2021. In addition, the Board approved a one-time, limited “anti-dilution protection” to certain investors who, in the last 12 months, have invested at a per share price higher than the Offering Price, provided such investors make a new minimum investment under the Offering.
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On February 1, 2022, the Board authorized an offering of up to 294,118 shares of common stock at $0.85 per share, providing proceeds of up to $250,000, to be offered and sold only to investors that qualify as “accredited investors” as that term is defined in Regulation D. For the six months ended June 30, 2022, we sold 69,900 shares of common stock under this offering for proceeds of $59,415. This offering expired on August 1, 2022.
Unless otherwise indicated, all of the following sales or issuances of Company securities were conducted under the exemption from registration as provided under Section 4(2) of the Securities Act of 1933 (and also qualified for exemption under 4(5), formerly 4(6) of the Securities Act of 1933, except as noted below). All of the shares issued were issued in transactions not involving a public offering, are considered to be restricted stock as defined in Rule 144 promulgated under the Securities Act of 1933 and stock certificates issued with respect thereto bear legends to that effect.
Common Stock Issuances
A summary of the Company’s common stock transactions for the six months ended June 30, 2022 is as follows:
· The Company sold 69,900 shares of common stock for cash proceeds of $59,415.
· The Company issued 193,500 shares of common stock for services rendered. The Company recorded an expense of $189,582 for the six months ended June 30, 2022 based on the closing price of the Company’s common stock on the OTCQB market.
As a result of these transactions, the Company has 15,957,950 shares of common stock outstanding as of June 30, 2022.
· The Company sold 8,000 shares of common stock for cash proceeds of $6,000.
· The Company issued 179,000 shares of common stock for services rendered. The Company recorded an expense of $150,581 for the six months ended June 30, 2021 based on the closing price of the Company’s common stock on the OTC Pink market.
· The Company sold 49,020 shares of common stock under the Common Stock Offering for proceeds of $25,000 and issued this investor 17,255 shares of common stock for anti-dilution protection under the Offering.
· The Company issued 39,844 shares of common stock for anti-dilution protection to five investors who invested at a per share price higher than the Offering Price in the last 12 months.
As a result of these transactions, the Company has 15,131,656 shares of common stock outstanding as of June 30, 2021.
Subsequent to June 30, 2022, the Board issued 1,022,000 shares of common stock as Restricted Stock Awards under its 2021 Omnibus Incentive Plan to Company officers, directors, and consultants. Reference is made to Note 12, Subsequent Events, to the interim condensed consolidated financial statements included under Item 1 in this Report.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There have been no events which are required to be reported under this item.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The exhibits required to be filed herewith by Item 601 of Regulation S-K, as described in the following index of exhibits, are attached hereto unless otherwise indicated as being incorporated by reference, as follows:
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Exhibit Number |
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Description |
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31.1 |
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31.2 |
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32.1 |
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* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, City of San Francisco, State of California, on August 29, 2022.
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By: |
/s/ Evan Horowitz |
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EVAN HOROWITZ |
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Chief Executive Officer, Director |
Pursuant to the requirements of the Securities Act of 1933, this registrant statement has been signed by the following persons in the capacities and on the dates indicated.
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By: |
/s/ Evan Horowitz |
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EVAN HOROWITZ |
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Chief Executive Officer, Director |
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By: |
/s/ Lanny R. Lang |
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LANNY R. LANG |
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Chief Financial Officer, Chief Accounting Officer |
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(Principal Financial and Accounting Officer) |
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By: |
/s/ Michael Landau |
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MICHAEL LANDAU |
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Chief Technology Officer, Treasurer, Director |
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By: |
/s/ Scott Bostick |
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SCOTT BOSTICK |
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Director |
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