10-Q/A: 1606 Corp. Files Amended Quarterly Report Due to Unpaid CEO Salary

1606 Corp. has filed an amended quarterly report to include accrued and unpaid salary for its CEO, Gregory Lambrecht, and to update certifications.

Summary

• 1606 Corp. filed an amended quarterly report (Form 10-Q/A) to correct its financial statements for the quarter ended June 30, 2023.
• The amendment includes the addition of accrued and unpaid salary to the CEO, Gregory Lambrecht.
• The original report was filed on August 15, 2023, and this amendment includes new certifications required by the Securities Exchange Act of 1934.
• The company's financial statements have been restated to reflect the accrued salary, impacting total liabilities and stockholders' deficit.
• The company experienced a net loss of $533,664 for the three months ended June 30, 2023, and $826,376 for the six months ended June 30, 2023.
• Revenue decreased to $304 for the three months and $1,474 for the six months ended June 30, 2023, compared to $4,382 and $9,302 for the same periods in 2022, respectively.
• Operating expenses increased significantly due to write-offs of investments, higher legal and professional fees, and increased marketing spend.
• The company's cash balance was $26,973 as of June 30, 2023, down from $105,065 at the end of 2022.
• The company has a promissory note of $755,050 due to the CEO, which is due on December 31, 2023.
• The company has identified material weaknesses in its internal controls, including a lack of a functioning audit committee and inadequate segregation of duties.

Sentiment

Score: 3

Explanation: The document reveals significant financial challenges, including declining revenue, increasing losses, and internal control weaknesses. The company's reliance on external funding and the large promissory note to the CEO raise serious concerns about its financial stability and future prospects.

Positives

• The company issued shares for services provided, which is a non-cash way to compensate for work.
• The company is actively working to expand its retail footprint and online presence.

Negatives

• The company experienced a significant decrease in revenue compared to the same periods in the previous year.
• The company's operating expenses have increased substantially, leading to larger net losses.
• The company wrote off $65,000 in investments, indicating poor investment decisions.
• The company's cash balance has decreased significantly, raising concerns about its ability to continue operations.
• The company has a large promissory note due to the CEO, which could strain its finances.
• The company has identified material weaknesses in its internal controls, indicating potential risks in financial reporting.

Risks

• The company's ability to continue as a going concern is dependent on its ability to raise capital and achieve profitable operations.
• The company's current cash balance is low, and it may need to raise additional funds through outside investors.
• The company's internal control weaknesses could lead to misstatements in financial reporting.
• The company is in default on a note payable to a related party.
• The company's reliance on a promissory note from the CEO creates a financial risk.
• The company's ability to expand its retail footprint and online presence is not guaranteed.

Future Outlook

The company's ability to continue in existence is dependent on its ability to achieve profitable operations, and it may need to raise capital from stockholders or other sources to sustain operations. The company plans to pay off current liabilities through sales and increasing revenue, or through financing activities.

Management Comments

• Management believes the assumptions underlying the Company's standalone financial statements are reasonable.
• Management will continue to pursue additional equity financing through private placements of the Company's common stock.
• Management considers all receivables collectable.
• Management believes that they have adequate provisions for any probable and estimable losses.

Industry Context

The company operates in the hemp cigarette market, which is a growing sector as consumers seek alternatives to traditional tobacco products. The company faces competition from other hemp and tobacco companies, and its success depends on its ability to expand its distribution network and market its products effectively.

Comparison to Industry Standards

• The company's revenue of $1,474 for the six months ended June 30, 2023, is significantly lower than many established players in the tobacco and hemp industries.
• Companies like Turning Point Brands (TPB) and 22nd Century Group (XXII), which are involved in tobacco and hemp, have reported significantly higher revenues.
• The company's net loss of $826,376 for the six months ended June 30, 2023, is concerning compared to companies with more established revenue streams.
• The company's lack of profitability and reliance on external funding is a significant deviation from industry standards for established companies.
• The company's internal control weaknesses are also a concern, as most public companies have robust internal control systems.

Corporate Governance

Legal Proceedings

• The company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.

Related Party Transactions

• 200,001 shares of Class A Preferred Stock were issued to the Companys Vice President, Austen Lambrecht, the son of Greg Lambrecht, the Companys Chief Executive Officer (CEO).
• One share of Class A Preferred Stock was issued to Greg Lambrecht and each of the two other members of the Companys Board of Directors for services provided.
• The company recorded $125,000 in accrued salary due to the Companys Chief Executive Officer.
• The company borrowed $20,000 from the CEO, increasing the promissory note to $755,050.
• The company has a note payable to SinglePoint for $63,456, which is in default.

Stakeholder Impact

• Shareholders face the risk of further dilution if the company raises capital through equity financing.
• Employees may be concerned about the company's financial stability and its ability to continue operations.
• Customers may be affected if the company is unable to maintain its product offerings.
• Suppliers may be concerned about the company's ability to pay its debts.
• Creditors face the risk of not being repaid if the company's financial situation does not improve.

Next Steps

• The company needs to increase revenue through sales of its products and services.
• The company needs to manage operating expenses to reduce net losses.
• The company needs to address the material weaknesses in its internal controls.
• The company needs to secure additional funding through outside investors.
• The company needs to pay off the promissory note due to the CEO by December 31, 2023.

Key Dates

Keywords

hemp cigarettes, financial statements, accrued salary, internal controls, net loss, operating expenses, revenue, promissory note, going concern, capital raise