10-Q: Farmhouse Inc. Reports Q2 2024 Results, Revenue Declines Amidst Strategic Shift

Farmhouse Inc. reported a decrease in revenue for the second quarter of 2024, alongside a net loss, while progressing with strategic initiatives including a potential acquisition.

Summary

• Farmhouse Inc. reported a net loss of $255,190 for the six months ended June 30, 2024, compared to a net loss of $324,392 for the same period in 2023.
• Revenue decreased to $4,154 for the first six months of 2024, down from $5,203 in the same period of 2023.
• The company's operating expenses totaled $230,912 for the first six months of 2024, a decrease from $302,022 in the same period of 2023.
• The company is pursuing a potential acquisition of Thrown, LLC, a beverage company, and has issued 187,500 shares as an equity deposit.
• Farmhouse has a going concern uncertainty due to recurring losses and negative cash flows.
• The company's cash and cash equivalents stood at $2,018 as of June 30, 2024.
• The company has outstanding debt including convertible notes and promissory notes, some of which are in default.

Sentiment

Score: 3

Explanation: The document indicates significant financial challenges, including declining revenue, net losses, a going concern uncertainty, and defaulted debt. While there are some positive developments, such as reduced operating expenses and a potential acquisition, the overall sentiment is negative due to the company's precarious financial situation.

Positives

• The company's net loss decreased to $255,190 for the first six months of 2024, compared to $324,392 for the same period in 2023.
• Operating expenses decreased to $230,912 for the first six months of 2024, down from $302,022 in the same period of 2023.
• The company is actively pursuing strategic opportunities, such as the potential acquisition of Thrown, LLC.
• The company has secured $25,000 in cash from the sale of common stock.

Negatives

• The company's revenue decreased to $4,154 for the first six months of 2024, down from $5,203 in the same period of 2023.
• The company has a going concern uncertainty due to recurring losses and negative cash flows.
• The company has outstanding debt including convertible notes and promissory notes, some of which are in default.
• The company's cash and cash equivalents were only $2,018 as of June 30, 2024.
• The company has an accumulated deficit of $6,560,678 and a total stockholders deficit of $2,172,681.

Risks

• The company faces a going concern risk due to recurring losses and negative cash flows.
• The company's ability to continue operations is dependent on raising additional capital or achieving profitability.
• The potential acquisition of Thrown, LLC is not guaranteed and is subject to various conditions.
• The company has outstanding debt, some of which is in default, which could lead to financial challenges.
• The company's revenue is heavily reliant on a single licensee, which poses a concentration risk.
• The company's disclosure controls and procedures were not effective as of June 30, 2024.

Future Outlook

The company intends to finance its future working capital needs from the sale of common stock, loans from company officers, and loans from third parties until funds from operations are sufficient. They estimate needing $2,500,000 in capital to cover ongoing expenses and expand product offerings. The company is also focused on expanding its IP licensing relationships and developing new IP collaborations.

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.
• Management is aware of the risks associated with high-interest liabilities and is committed to meeting all obligations under the terms of the notes.

Industry Context

The company operates in the cannabis industry, which is characterized by state-by-state regulations and an uncertain federal regulatory landscape. The company is leveraging its brand and connections to facilitate value-added relationships across the supply chain. The company is also expanding into the Web3 space, connecting cannabis brands with digital collectible holders for licensing opportunities.

Comparison to Industry Standards

• The company's revenue of $4,154 for the first six months of 2024 is significantly lower than many established cannabis companies, which often report revenues in the millions or tens of millions.
• The company's net loss of $255,190 for the first six months of 2024 is also relatively high compared to more mature companies in the cannabis sector, which may be profitable or have smaller losses.
• The company's reliance on a single licensee for a significant portion of its revenue is a risk not typically seen in larger, more diversified cannabis businesses.
• The company's cash position of $2,018 is very low compared to industry standards, where companies often have substantial cash reserves to fund operations and growth.
• The company's debt levels, including defaulted notes, are a concern compared to industry benchmarks, where companies often have more manageable debt structures.

Legal Proceedings

• The company's subsidiary, DTLA, is involved in ongoing litigation 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 anything from the sale.

Related Party Transactions

• Company officers have provided cash advances for operating expenses, totaling $51,353 as of June 30, 2024.
• The company entered into a promissory note with an officer and director for $4,500 on August 12, 2024.
• Company officers own approximately 43.5% of the Company as of June 30, 2024.

Stakeholder Impact

• Shareholders face the risk of further dilution due to potential capital raises.
• Employees may be impacted by the company's financial instability.
• Customers may be affected by the company's ability to deliver products and services.
• Creditors face the risk of non-payment due to the company's defaulted debt.
• Suppliers may be impacted by the company's financial challenges.

Next Steps

• The company will continue to negotiate a definitive agreement with Thrown, LLC.
• The company will seek to raise additional capital through equity or debt financing.
• The company will continue to develop and release new IP collaborations.
• The company will work to expand its product offerings and market reach.

Key Dates

Keywords

cannabis, NFT, Web3, licensing, acquisition, revenue, net loss, convertible notes, promissory notes, going concern, stock, digital collectibles, social network