10-K: Farmhouse Inc. Reports 2023 Annual Results, Focuses on Web3 Expansion

Farmhouse Inc.'s 2023 annual report highlights a shift towards web3 licensing and continued efforts to connect professionals in the cannabis industry, despite ongoing losses.

Summary

• Farmhouse Inc. is a holding company focused on connecting professionals and brands in the legal cannabis industry.
• The company operates through divisions including Farmhouse Vault, the @420 brand, and the WeedClub Platform.
• In 2023, Farmhouse generated $15,227 in revenue, primarily from license fees, compared to $10,261 in 2022.
• The company reported a net loss of $560,789 for 2023, compared to a net loss of $442,782 in 2022.
• Operating expenses decreased to $517,843 in 2023 from $786,087 in 2022, mainly due to lower professional and consulting fees.
• The company's web3 division is focused on licensing intellectual property from digital collectible holders to launch cannabis brands.
• Farmhouse has developed relationships with several digital collectible holders, including Bored Ape Yacht Club and CryptoPunks.
• The company is exploring new IP collaborations, including a partnership with G. Love for cannabis branded products and a potential energy beverage venture with T-Pain.
• As of December 31, 2023, the company had an accumulated deficit of $6,305,488 and a total shareholders deficit of $1,978,281.
• The company's auditors have raised substantial doubt about its ability to continue as a going concern due to recurring losses and negative cash flows.

Sentiment

Score: 3

Explanation: The document presents a mixed picture. While there are some positive developments in terms of new ventures and cost management, the significant losses, going concern issues, and material weaknesses in internal controls raise serious concerns. The company's financial position is weak, and its future is uncertain.

Positives

• The company has successfully launched cannabis products with licensed NFT IP, demonstrating the potential of its web3 division.
• Farmhouse has established a strong network of over 110,000 cannabis industry participants.
• Operating expenses decreased significantly in 2023, indicating improved cost management.
• The company is actively pursuing new IP collaborations and ventures, showing a commitment to growth and innovation.
• The company has a strong social media presence with over 100,000 followers on Twitter.

Negatives

• The company experienced a net loss of $560,789 in 2023, an increase from $442,782 in 2022.
• The company's auditors have raised substantial doubt about its ability to continue as a going concern.
• The company has a significant accumulated deficit of $6,305,488.
• The company's stock is considered a penny stock, which may decrease liquidity and increase transaction costs.
• The company has a history of recurring losses and negative cash flows from operations.

Risks

• The company's ability to continue as a going concern is uncertain due to recurring losses and negative cash flows.
• The company is dependent on private equity and financing to fund its operations.
• The cannabis industry is subject to state-by-state regulations and an uncertain federal regulatory landscape.
• The company's stock is considered a penny stock, which may decrease liquidity and increase transaction costs.
• The company faces risks related to the legal proceedings involving its subsidiary, DTLA, and the potential recovery of funds.
• The company has identified material weaknesses in its internal control over financial reporting.

Future Outlook

The company intends to continue expanding its web3 division, develop new IP collaborations, and explore opportunities in the energy beverage industry. They estimate they will need $2,500,000 in capital to cover ongoing expenses and expand product offerings.

Management Comments

• Management believes that loans and advances from Company officers, funds raised from the sale of its common stock, and funds raised from loans with third parties allow the Company sufficient capital for operations and to continue as a going concern.
• Management considers the non-GAAP measurement of Adjusted Net Loss important to investors to evaluate performance on a comparable basis.

Industry Context

The company operates in the fragmented cannabis market, which emphasizes the importance of a trusted facilitator for value-added connections. The company is also leveraging the growing interest in web3 and digital collectibles to expand its business.

Comparison to Industry Standards

• The company's revenue of $15,227 is very low compared to established cannabis companies, which often report millions or billions in revenue.
• The net loss of $560,789 is significant for a company of this size and indicates a need for improved financial performance.
• The company's focus on web3 and NFT licensing is a unique approach compared to traditional cannabis businesses, but its success is yet to be fully determined.
• The company's reliance on short-term advances and equity financing is common for early-stage companies but highlights the need for a sustainable revenue model.
• The company's accumulated deficit of $6,305,488 is a significant concern and indicates a need for substantial improvement in financial performance.

Management Changes

Corporate Governance

Legal Proceedings

• The company's subsidiary, DTLA, is involved in ongoing legal proceedings related to a Strategic Consulting Agreement with Los Angeles Farmers, Inc.
• The sale of LAFI was completed by a receiver in April 2024, but it is still uncertain whether DTLA will recover any funds.

Related Party Transactions

• Company officers provided cash advances for operating expenses, with $10,761 advanced and $26,685 repaid in 2023.
• Company officers were owed $28,958 as of December 31, 2023, for cash advances.
• Company officers own approximately 43.2% of the company as of December 31, 2023.

Stakeholder Impact

• Shareholders face the risk of further dilution due to potential equity financing.
• Employees may be impacted by the company's financial instability and potential restructuring.
• Customers may be affected by the company's ability to deliver products and services due to financial constraints.
• Creditors face the risk of non-payment due to the company's financial difficulties.

Next Steps

• The company will continue to develop and release new IP collaborations.
• The company will explore a potential acquisition of Thrown, LLC.
• The company will seek additional financing to cover ongoing expenses and expand its product offerings.
• The company intends to undertake remediation measures to address the material weaknesses in its internal control over financial reporting.

Key Dates

Keywords

cannabis, web3, NFT, licensing, intellectual property, social network, digital collectibles, Farmhouse Vault, WeedClub, @420