Forward-Looking Statements
The following discussion should be read in conjunction with the financial
statements and related notes contained elsewhere in this Report, as well as our
Annual Report on Form 10-K for the fiscal year ended December 31, 2020 as filed
with the Securities and Exchange Commission (the "SEC") on April 30, 2021.
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 and the effects that the COVID-19 outbreak, or similar pandemics,
could have on our business. 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.
The full extent to which the COVID-19 pandemic may directly or indirectly impact
our business, results of operations and financial condition will depend on
future developments that are uncertain, including as a result of new information
that may emerge concerning COVID-19 and the actions taken to contain it or treat
COVID-19, as well as the economic impact on local, regional, national and
international customers and markets. We have made estimates of the impact of
COVID-19 within our financial statements, and although there is currently no
major impact, there may be changes to those estimates in future periods. Actual
results may differ from these estimates.
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 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
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assumptions can affect the reported amounts of assets and liabilities as of the
date of the financial statements as well as the reported amounts of revenues and
expenses during the periods presented. Our 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 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
On August 13, 2019, the Company consummated an Agreement and Plan of Merger with
Farmhouse Washington which became a wholly owned subsidiary. On this date, 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 share for one
share basis (the "Acquisition"). Upon consummation of the Acquisition, the
financial statements are the continuation of Farmhouse Washington with the
adjustment to reflect the capital structure of the Company.
The Company is a holding company dedicated to connecting the cannabis industry
through multiple divisions including WeedClub, the @420 Twitter handle and a 49%
equity interest in a Los Angeles-based multi-licensed cannabis retail
dispensary, grow, manufacturer and distributor.
Weedclub. WeedClub is a professional social networking platform for the
regulated cannabis and hemp industries. It was founded in 2014 and has
established a trusted brand by providing a private and secure way for members to
network with fellow industry stakeholders through the WeedClub platform and
in-person and virtual events.
@420. Our signature @420 pitch events connect cannabis startups with investors.
Since 2014, our events have hosted over 100 startup pitches, led to more than
$50M in funding and seen over 10 fully funded startups and exits. In response to
the COVID-19 pandemic, we moved our event to a virtual pitch format that
garnered over 150 online attendees in March 2020. Our @420 Twitter handle
enables the Company to raise awareness, engage with and advertise to cannabis
enthusiasts and consumers. With over 90,000 followers, our organic tweets
consistently generate engagement rates of at least 2% and upwards of 10% while
the industry average 0.07% on Twitter according to Social Insider. In addition,
our Twitter handle provides an approved paid advertising channel that many
companies lack access to. This exclusive ability enables our members to drive
traffic to their websites and deliver increased sales through approved paid
advertising campaigns.
LA Dispensary. In April 2021, the Judge overseeing the arbitration hearing in
our ongoing lawsuit issued a judgment in favor of the Company. The judgment
awarded 49% of a downtown Los Angeles retail dispensary to the Company. In
addition to equity ownership, the judgment awarded the Company a share of any
profits from November 2017 to the present and going forward along with accrued
interest on those profits and the costs of bringing litigation.
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The Court appointed a monitor, to be supervised by the Judge, to determine how
much in past profits and interest the Company is entitled to be awarded and to
ensure the Company is treated fairly by the counterparty going forward. The
impact of the Judgment has not been reflected in our accompanying unaudited
interim condensed consolidated financial statements as the amount of the
Judgment has not been determined.
WeedClub, our @420 Twitter and @420 pitch events provide essential services that
position the Company as a trusted brand and connector within the cannabis
industry. Our recent award of 49% equity ownership in the Los Angeles retail
dispensary provides an additional asset for our holding company. With our strong
brand and far-reaching cannabis network, we believe the Company is uniquely
positioned to scale in the current political climate and in the event of federal
legalization.
Our principal executive office is located at 1355 Market Street, Suite 488, San
Francisco, CA 94103 and our phone number is (888) 420-6856.
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, 2021 and 2020, we generated revenues of
$11,896 and $2,940, respectively, and we reported net losses of $393,492 and
$314,011, respectively. We had negative cash flow from operating activities of
$87,345 and $56,018, respectively. As of June 30, 2021, we had an accumulated
deficit of $4,719,830 and a stockholders' deficit of $1,347,623.
Our auditors have raised substantial doubt regarding our ability to continue as
a going concern as a result 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.
In April 2021, we authorized an offering of up to 1,000,000 shares of common
stock at $0.51 per share, providing proceeds of up to $510,000 ("Common Stock
Offering"). The Common Stock
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Offering will be sold only to investors that qualify as "accredited investors,"
as that term is defined in Regulation D. A total of 46,020 shares of common
stock have been sold under the Private Placement Offering for proceeds of
$25,000 as of June 30, 2020. The Common Stock Offering terminated on June 30,
2021, but was extended until August 21, 2020 under the same terms, with the
option of the management, with no further action of the board of directors
("Board"), to extend for ten (10) days until August 31, 2021, at which time the
Common Stock Offering will terminate. Subsequent to June 30, 2021, the Company
sold 99,608 shares of common stock under the Common Stock Offering for proceeds
of $50,800.
There is no assurance that we can raise money under the Common Stock Offering,
but management believes the full proceeds of this offering will provide
sufficient cash for 12 months' operating expenses.
Results of Operations
Six Months Ended June 30, 2021, compared to the six Months Ended June 30, 2020
For the six months ended June 30, 2021 and 2020, we generated revenues of
$11,895 and $2,940, respectively. We generate five types of revenue, which
consists of fees from subscriptions, affiliate advertising, event sales,
referrals and consulting. Our revenues for the six months ended June 30, 2021
and 2020 were as follows:
Six Months Ended June 30,
2021 2020
Subscription fees $ 546 $ -
Affiliate advertising 8,850 -
Event Sales - 2,940
Referral fees 2,500 -
Consulting and other - -
$ 11,896 $ 2,940In June 2021, we launched a new Membership Benefits Program under the WeedClub®
Platform, where subscribers can connect to 'exclusive deals' on essential
products and services necessary to scale their business. Our special pricing of
$149 for an annual subscription makes access to our WeedClub® Platform available
to all. Affiliate advertising, through our advertising deal with Twitter,
generated $8,850 of revenues for the six months ended June 30, 2021. In 2020, we
entered into 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. Referral fees are earned when a business transaction is consummated between
us and potential target company, as a result of an introduction at one of our
@420 events. Event Sales recognized in the prior year comparable period are from
our @420 pitch event with investors. In response to the COVID-19 pandemic, we
moved our event to a virtual pitch format that garnered over 150 online
attendees.
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For the six months ended June 30, 2021 and 2020, general and administrative
expenses were $169,970 and $160,586, respectively, an overall increase of
approximately $9,400. For the six months ended June 30, 2021, marketing and
sales expenses increased by approximately $8,900 and general and administrative
expenses increased of approximately $5,900. These increases were offset by a
decrease in labor-related expenses, including payroll, by approximately $5,400.
This included recognizing approximately $34,600 in stock-based fees in the
current six-month period.
For the six months ended June 30, 2021 and 2020, professional fees were $215,437
and $116,787, respectively, an increase of approximately $98,600. Our
professional fees the six months ended June 30, 2021 and 2020 were comprised of
the following:
Six Months Ended June 30,
2021 2020
Legal $ 60,206 $ 39,739
Accounting and audit 73,457 36,604
Professional fees 57,774 40,444
Consulting fees 24,000 -
$ 215,437 $ 116,787Legal expenses increased by approximately $20,500 for the six months ended June
30, 2021 compared to the six months ended June 30, 2020 due to an increase in
legal fees to our current securities counsel fee by approximately $4,900, and
legal fees incurred by Judicate West and Planet Depot by approximately $52,500
related to our litigation against LAFI. Reference is made to Note 9, Litigation,
to the Condensed Consolidated Financial Statements included under Item 1 in this
Report. These increases were offset by a decrease in legal fees to litigation
counsel in connection with our litigation against LAFI by approximately $36,900
compared to no litigation-related legal fees incurred in the current six-month
period.
Accounting and audit expenses increased by approximately $36,900 for the six
months ended June 30, 2021 compared to the six months ended June 30, 2020 due to
an increase in fees to our independent public accounting firm by approximately
$6,800 for our annual fiscal year audit and an increase in fees for contracted
CFO services by approximately $40,100. This included $35,300 in stock-based fees
in the current six-month period. These increases were offset by a decrease in
fees to our outside bookkeeping services by approximately $10,000 for the costs
of filing our corporate federal income tax returns in the prior year comparable
period.
Professional fees increased by approximately $17,300 for the six months ended
June 30, 2021 compared to the six months ended June 30, 2020 due to an increase
in fees to our contracted software engineers and developers of our software
technology platforms. This included approximately $56,700 in stock-based fees in
the current six-month period.
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Consulting fees increased $24,000 for the six months ended June 30, 2021
compared to the six months ended June 30, 2020 due to fees to an outside
strategic business consultant, which was all stock-based fees in the current
six-month period.
For the six months ended June 30, 2021 and 2020 interest expense was $19,392 and
$38,354, respectively, a decrease of approximately $18,900 entirely due to a
decrease in the interest charged by the Company's former litigation counsel on
their unpaid balance.
Overall, for the six months ended June 30, 2021, we reported a net loss of
$393,492 compared to a net loss of $314,011 for the six months ended June 30,
2020, an overall increase of approximately $79,500 from the prior year
comparable period. Not including stock-based fees recorded for services rendered
by consultants and professionals, which totaled approximately $150,600 for the
six months ended June 30, 2021, as discussed above, our net loss actually
decreased approximately $71,100 from the prior year comparable period.
Three Months Ended June 30, 2021, compared to the three Months Ended June 30,
2020
For the three months ended June 30, 2021 and 2020, we generated revenues of $546
and $2,490, respectively. Our revenues for the three months ended June 30, 2021
and 2020 were as follows:
Three Months ended June 30,
2021 2020
Subscription fees $ 546 $ -
Affiliate advertising - -
Event Sales - 2,490
Referral fees - -
Consulting and other - -
$ 546 $ 2,490
In June 2021, we launched a new Membership Benefits Program under the WeedClub®
Platform, where subscribers can connect to 'exclusive deals' on essential
products and services necessary to scale their business. Our special pricing of
$149 for an annual subscription makes access to our WeedClub® Platform available
to all. Event Sales recognized in the prior year comparable period are from our
@420 pitch event with investors. In response to the COVID-19 pandemic, we moved
our event to a virtual pitch format that garnered over 150 online attendees.
For the three months ended June 30, 2021 and 2020, general and administrative
expenses were $96,622 and $64,962, respectively, an overall increase of
approximately $31,700. For the three months ended June 30, 2021, marketing and
sales expenses increased by approximately $8,300, general and administrative
expenses increased by approximately $6,300, and labor-related expenses,
including payroll, increased by approximately $17,100. This included
approximately $23,600 in stock-based fees in the current three-month period.
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For the three months ended June 30, 2021 and 2020, professional fees were
$148,311 and $53,165, respectively, an increase of approximately $95,100. Our
professional fees for the three months ended June 30, 2021 and 2020 were
comprised of the following:
Three Months ended June 30,
2021 2020
Legal $ 32,541 $ 7,753
Accounting and audit 37,528 16,554
Professional fees 54,242 28,858
Consulting fees 24,000 -
$ 148,311 $ 53,165Legal expenses increased by approximately $24,800 for the three months ended
June 30, 2021 compared to the three months ended June 30, 2020 due to an
increase in legal fees to our current securities counsel fee by approximately
$3,600 and legal fees incurred by Judicate West by approximately $28,400 related
to our litigation against LAFI. Reference is made to Note 9, Litigation, to the
Condensed Consolidated Financial Statements included under Item 1 in this
Report. These increases were offset by a decrease in legal fees to litigation
counsel in connection with our litigation against LAFI by approximately $7,200
compared to no litigation-related legal fees incurred in the current three-month
period.
Accounting and audit expenses increased by approximately $21,000 for the three
months ended June 30, 2021 compared to the three months ended June 30, 2020 due
to an increase in fees for contracted CFO services by approximately $29,000.
This included $20,000 in stock-based fees in the current three-month period.
This increase was offset by a decrease in fees to our independent public
accounting firm by approximately $6,200 for our annual fiscal year audit and a
decrease in other miscellaneous accounting-related costs by approximately
$1,800.
Professional fees increased by approximately $25,400 for the three months ended
June 30, 2021 compared to the three months ended June 30, 2020 due to an
increase in fees to our contracted software engineers and developers of our
software technology platforms. This included approximately $53,100 in
stock-based fees in the current three-month period.
Consulting fees increased $24,000 for the three months ended June 30, 2021
compared to the three months ended June 30, 2020 due to fees to an outside
strategic business consultant, which was all stock-based fees in the current
three-month period.
For the three months ended June 30, 2021 and 2020 interest expense decreased by
approximately $300 and represents interest on one convertible note outstanding
and interest charged by the Company's former litigation counsel on their unpaid
balance.
Overall, for the three months ended June 30, 2021, we reported a net loss of
$256,167 compared to a net loss of $127,559 for the three months ended June 30,
2020, an overall increase of approximately $128,900 from the prior year
comparable period. Not including stock-based fees
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recorded for services rendered by consultants and professionals, which totaled
approximately $120,700 for the three months ended June 30, 2021, as discussed
above, our net loss actually increased approximately $8,200 from the prior year
comparable period.
Cash Flows
The following table summarizes the sources and uses of cash for the six months
ended June 30, 2021 and 2020, respectively:
Six Months Ended June 30
2021 2020
Net cash used in operating activities $ (87,345) $ (56,018)
Net cash used in investing activities - -
Net cash provided by financing activities 88,977 50,877
Net increase (decrease) in cash and cash equivalents $ 1,632 $ (5,141)
Operating activities used $87,345 of cash, primarily resulting from our net loss
for the six months ended June 30, 2021 of $393,492, offset by non-cash stock
issued for services of $150,581, and increases in liabilities across all
categories: accounts payable, accounts payable - related party, 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 $88,977 of cash, consisting of $31,000 in proceeds from the
sale of common stock and $50,000 of borrowings on a Note Payable. Borrowings
under the Note Payable shall remain senior with respect to priority lien and
right of payment to any indebtedness later acquired. As a condition of the loan
agreement, a Company officer personally and unconditionally guaranteed the
timely repayment of the loan. The Company also received net proceeds of $7,977
in short-term advances from Company 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.
Cash and Cash Equivalents
We consider all highly liquid investments with an original maturity of three
months or less when purchased to be cash equivalents. Cash and cash equivalents
were $5,538 and $3,906 as of June 30, 2021 and December 31, 2020, respectively.
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Critical Accounting Policies and Estimates
The preparation of our 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
the 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, 2020, as filed on April 30, 2021. 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
Condensed Consolidated Financial Statements included under Item 1 in this
Report.
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FARMHOUSE, INC 
