UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| [X] | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2020
| [ ] | Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from __________ to__________
Commission File Number: 000-21202
Resonate Blends, Inc.
(Exact name of registrant as specified in its charter)
| Nevada | 58-1588291 | |
| (State
or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
26565 Agoura Road, Suite 200
Calabasas, CA 91302
(Address of principal executive offices)
571-888-0009
(Registrant’s telephone number)
(Former name, former address and former fiscal year, if changed since last report)
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] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically 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] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
| [ ] Large accelerated filer | [ ] Accelerated filer | |
| [ ] Non-accelerated filer | [X] Smaller reporting company | |
| [ ] Emerging growth company |
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 shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
Securities registered pursuant to Section 12(b) of the Act: None
State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 25,288,879 common shares as of November 16, 2020
TABLE OF CONTENTS
| Page | ||
| PART I – FINANCIAL INFORMATION | ||
| Item 1: | Financial Statements | 3 |
| Item 2: | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 4 |
| Item 3: | Quantitative and Qualitative Disclosures About Market Risk | 8 |
| Item 4: | Controls and Procedures | 8 |
| PART II – OTHER INFORMATION | ||
| Item 1: | Legal Proceedings | 10 |
| Item 1A: | Risk Factors | 10 |
| Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | 10 |
| Item 3: | Defaults Upon Senior Securities | 10 |
| Item 4: | Mine Safety Disclosures | 10 |
| Item 5: | Other Information | 10 |
| Item 6: | Exhibits | 10 |
| 2 |
PART I - FINANCIAL INFORMATION
Our consolidated financial statements included in this Form 10-Q are as follows:
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended September 30, 2020 are not necessarily indicative of the results that can be expected for the full year.
| 3 |
(FORMERLY TEXTMUNICATION HOLDINGS, INC.)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| September 30, 2020 | December 31, 2019 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 9,014 | $ | 3,115 | ||||
| Receivables | - | |||||||
| Current assets of discontinued operations | - | 102,627 | ||||||
| Total current assets | 9,014 | 105,742 | ||||||
| Investment in equity method investee | 25,000 | 25,000 | ||||||
| TOTAL ASSETS | 34,014 | 130,742 | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | 168,046 | 63,664 | ||||||
| Due to related parties | - | (100 | ) | |||||
| Notes Payable Related Party | 332,852 | |||||||
| Convertible notes payable, net of discount | 526,803 | 161,404 | ||||||
| Derivative liability | 763,134 | 262,712 | ||||||
| Settlement liability | 106,961 | |||||||
| Current liabilities of discontinued operations | - | 123,329 | ||||||
| Total current liabilities | 1,790,835 | 717,970 | ||||||
| Stockholders’ deficit | ||||||||
| Preferred stock, 10,000,000 shares authorized, $0.0001 par value, 0 and 4,000,000 issued and outstanding | - | 400 | ||||||
| Series C - Preferred stock, 2,000,000 shares authorized, $0.0001 par value, 2,000,000 issued and outstanding | 200 | 200 | ||||||
| Common stock; $0.0001 par value; 100,000,000 shares authorized; 24,789,981 and 17,133,936 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively. | 2,479 | 1,715 | ||||||
| Additional paid-in capital | 19,542,531 | 18,570,178 | ||||||
| Accumulated deficit | (21,302,031 | ) | (19,159,721 | ) | ||||
| Total Stockholders’ deficit | (1,756,821 | ) | (587,228 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY | $ | 34,014 | $ | 130,742 | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
| F-1 |
(FORMERLY TEXTMUNICATION HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| The Three Months Ended | The Nine Months Ended | |||||||||||||||
| September 30, 2020 | September 30, 2019 | September 30, 2020 | September 30, 2019 | |||||||||||||
| REVENUES | $ | $ | - | $ | $ | |||||||||||
| COST OF REVENUES | - | |||||||||||||||
| Gross profit | - | - | - | - | ||||||||||||
| Operating expenses | ||||||||||||||||
| Advertising | 178 | - | 6,875 | - | ||||||||||||
| General and administrative expenses | 112,967 | 10,113 | 456,674 | 13,486 | ||||||||||||
| Legal and Professional fees | 16,705 | 78,665 | 401,095 | 194,427 | ||||||||||||
| Officer Compensation | - | 23,351 | - | 77,634 | ||||||||||||
| Salaries and Related | 106,000 | - | 381,900 | - | ||||||||||||
| Sales Commission | - | - | - | - | ||||||||||||
| Office Rent | 310 | - | 405 | - | ||||||||||||
| Impairment of inhouse software | - | - | ||||||||||||||
| Non cash management fees | - | - | 198,514 | 2,521,582 | ||||||||||||
| Total operating expenses | 236,160 | 112,129 | 1,445,463 | 2,807,129 | ||||||||||||
| Loss from operations | (236,160 | ) | (112,129 | ) | (1,445,463 | ) | (2,807,129 | ) | ||||||||
| Other Income (expense) | ||||||||||||||||
| Other Income | - | - | ||||||||||||||
| Interest expense | (25,988 | ) | (34,027 | ) | (54,453 | ) | - | |||||||||
| Loss on change of derivative liability | - | 44,528 | (617,769 | ) | 44,528 | |||||||||||
| Amortization of debt discount | (29,033 | ) | - | (40,475 | ) | (34,026 | ) | |||||||||
| Gain on settlement of derivative liabilities | - | - | 31,961 | - | ||||||||||||
| Legal settlement | (31,889 | ) | (106,961 | ) | (31,889 | ) | (106,961 | ) | ||||||||
| Gain on settlement of notes payable | - | - | ||||||||||||||
| Total other expense | (86,910 | ) | (96,460 | ) | (712,625 | ) | (96,459 | ) | ||||||||
| Income (loss) from investment in equity method investee | 976 | (11,125 | ) | |||||||||||||
| Loss from continuing operations | (323,070 | ) | (207,613 | ) | (2,158,088 | ) | (2,914,713 | ) | ||||||||
| Income (loss) on discontinued operations | (28,329 | ) | (35,541 | ) | 15,778 | (108,748 | ) | |||||||||
| Net Loss | $ | (351,399 | ) | $ | (243,154 | ) | $ | (2,142,310 | ) | $ | (3,023,461 | ) | ||||
| Basic weighted average common shares outstanding | 23,694,220 | 12,544,669 | 19,731,100 | 12,595,552 | ||||||||||||
| Net Income (loss) per common share: basic and diluted | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.10 | ) | $ | (0.23 | ) | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
| F-2 |
(FORMERLY TEXTMUNICATION, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(UNAUDITED)
| Preferred stock | Preferred stock - Series B | Preferred stock - Series C | Preferred stock - Series D | Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||
| AS OF SEPTEMBER 30, 2020 | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | |||||||||||||||||||||||||||||||||||||||
| As of December 31, 2019 | 4,000,000 | $ | 400 | $ | - | 2,000,000 | $ | 200 | - | $ | - | 17,133,936 | $ | 1,713 | $ | 18,570,178 | $ | (19,159,721 | ) | $ | (587,230 | ) | ||||||||||||||||||||||||||||||
| Common stock issuance | 1,050,000 | 105 | 110,245 | 110,350 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance for services | 1,501,778 | 150 | 165,196 | 165,346 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net Loss 3 months ended March 31, 2020 | (608,828 | ) | (608,828 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balances, March 31, 2020 | 4,000,000 | 400 | - | - | 2,000,000 | 200 | - | - | 19,685,714 | 1,968 | 18,845,619 | (19,768,549 | ) | (920,362 | ) | |||||||||||||||||||||||||||||||||||||
| Conversion of notes payable | 750,000 | 75 | 74,925 | 75,000 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issuance | 1,000,000 | 100 | 99,900 | 100,000 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Non-cash Compensation | 2,495,129 | 250 | 249,265 | 249,515 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss 3 months ended June 30, 2020 | (1,182,083 | ) | (1,182,083 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balances June 30,2020 | 4,000,000 | 400 | - | - | 2,000,000 | 200 | - | - | 23,930,843 | 2,393 | 19,269,709 | (20,950,632 | ) | (1,677,930 | ) | |||||||||||||||||||||||||||||||||||||
| Common stock Issuance for Cash | 2,903,333 | 290 | 389,710 | 390,000 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of notes payable | 900,000 | 90 | 89,910 | 90,000 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cancellation of shares held by Textmunication | (4,755,029 | ) | (476 | ) | (332,376 | ) | (332,852 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Non cash compensation | 1,335,279 | 135 | 93,336 | 93,471 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issues for legal settlement | 455,555 | 46 | 31,842 | 31,888 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cancellation of preferred stock | (4,000,000 | ) | (400 | ) | 400 | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss 3 months ended September 30, 2020 | (351,399 | ) | (351,399 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balances, September 30, 2020 | - | $ | - | - | $ | - | 2,000,000 | 200 | - | $ | - | 24,769,981 | $ | 2,479 | $ | 19,542,531 | $ | (21,302,031 | ) | $ | (1,756,821 | ) | ||||||||||||||||||||||||||||||
| AS OF SEPTEMBER 30, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| As of December 31, 2018 | 4,000,000 | $ | 400 | 66,667 | $ | 7 | 2,000,000 | $ | 200 | $ | - | 4,456,452 | $ | 446 | 15,404,716 | $ | (15,489,993 | ) | $ | (84,224 | ) | |||||||||||||||||||||||||||||||
| Settlement of liabilities | 438,000 | 44 | 196,732 | 196,776 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock issuance for services | 6,685,000 | 669 | 2,520,913 | 2,521,582 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss 3 months ended March 31, 2019 | (2,591,325 | ) | (2,591,325 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balances, March 31, 2019 | 4,000,000 | 400 | 66,667 | 7 | 2,000,000 | 200 | - | - | 11,579,452 | 1,159 | 18,122,361 | (18,081,318 | ) | 42,809 | ||||||||||||||||||||||||||||||||||||||
| Preferred shares converted to common shares | (66,667 | ) | (7 | ) | 20,000 | 2 | 5 | |||||||||||||||||||||||||||||||||||||||||||||
| Stocks and warrants issued for settlement for liabilities | 40,000 | 4 | 199,996 | 200,000 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss 3 months ended June 30, 2019 | (188,982 | ) | (188,982 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balances, June 30, 2019 | 4,000,000 | 400 | - | - | 2,000,000 | 200 | 40,000 | 4 | 11,599,452 | 1,161 | 18,322,362 | (18,270,300 | ) | 53,827 | ||||||||||||||||||||||||||||||||||||||
| Stock issuance for settlement of liabilities | 1,280,000 | 127 | 163,906 | 164,033 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss 3 months ended September 30, 2019 | (243,154 | ) | (243,154 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balances, September 30, 2019 | 4,000,000 | $ | 400 | - | $ | - | 2,000,000 | 200 | 40,000 | $ | 4 | 12,879,452 | $ | 1,288 | $ | 18,486,268 | (18,513,454 | ) | $ | (25,294 | ) | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
| F-3 |
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2020 and 2019
(UNAUDITED)
| September 30, 2020 | September 30, 2019 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | (2,142,310 | ) | $ | (3,023,461 | ) | ||
| (Income) loss from discontinued operations | (15,778 | ) | 108,748 | |||||
| Adjustments to reconcile | ||||||||
| Amortization of debt discount | 40,475 | 34,026 | ||||||
| Loss on derivative liability | 536,819 | 44,528 | ||||||
| Non cash interest expense | 101,014 | |||||||
| Legal Settlement | 106,961 | |||||||
| Share based professional fees | 176,627 | |||||||
| Share based compensation | 198,514 | 2,521,635 | ||||||
| Gain (Loss) on the settlement of debt | (31,961 | ) | 106,961 | |||||
| Gain on settlement of derivative liabilities | (143,293 | ) | ||||||
| Income (Loss) from equity method investee | 11,125 | |||||||
| Changes in assets and liabilities | ||||||||
| Accounts payable and accrued expenses | 104,383 | (19,566 | ) | |||||
| Due to Related party | (332,752 | ) | - | |||||
| Net cash used in operating activities of continuing operations | (1,401,301 | ) | (216,004 | ) | ||||
| Net cash provided by (used in) operating activities of discontinued operations | 99,638 | (169,997 | ) | |||||
| Net cash used in operating activities | (1,301,663 | ) | (386,001 | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Investments in Joiant | - | |||||||
| Disposal of subsidiary company | - | |||||||
| Net cash provided by investing activities | - | - | ||||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from subscription | 540,000 | |||||||
| Proceeds from convertible notes / loans payable | 806,000 | 167,500 | ||||||
| Proceeds from issuance of stock warrants | 200,000 | |||||||
| Payments to notes payables | (226,057 | ) | ||||||
| Net cash provided by financing activities of continuing operations | 1,119,943 | 367,500 | ||||||
| Net cash provided by financing activities of discontinued operations | 187,619 | 38,067 | ||||||
1,307,562 | 405,567 | |||||||
| Net increase in cash | 5,899 | 19,566 | ||||||
| Cash, beginning of period | 3,115 | - | ||||||
| Cash, end of period | $ | 9,014 | $ | 19,566 | ||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | 12,235 | $ | 9,557 | ||||
| Cash paid for tax | $ | - | $ | - | ||||
| Non-Cash investing and financing transactions | - | - | ||||||
| Conversion of debt for common stock | $ | 90,000 | $ | 163,906 | ||||
The accompanying notes are an integral part of these audited consolidated financial statements
| F-4 |
RESONATE BLENDS, INC. (FORMERLY TEXTMUNICATION HOLDINGS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 2020
(UNAUDITED)
NOTE 1 – ORGANIZATION AND BUSINESS OPERATIONS
The Company
Resonate Blends, Inc. (formerly Textmunication Holdings, Inc.) (the “Company”) was incorporated in October 1984 in the State of Georgia as Brock Control Systems. Founded by Richard T. Brock, the Company was in the sales automation market and an early developer of enterprise customer management systems. The Company went public at the end of March of 1993. In February of 1996, the Company changed its name to Brock International Inc., and in March of 1998, the Company again changed our name to Firstwave Technologies, Inc.
In 2007, the Company deregistered its common stock in order to avoid the expenses of being a public company. The Company reported briefly on the OTC Disclosure & News Service in 2008 but not for long. The Company again changed its name to FSTWV, Inc.
On October 28, 2013, the Company held a shareholder meeting to reincorporate the company in the State of Nevada and concurrently change its name to Textmunication Holdings, Inc. The Company also voted to approve a 1 for 5 reverse split of its outstanding common stock.
On November 16, 2013, the Company entered into a Share Exchange Agreement (SEA) with Textmunication, Inc. a California corporation, whereby the sole shareholder of the Company received 65,640,207 new shares of common stock of the Company in exchange for 100% of the Textmunication issued and outstanding shares.
Textmunication is an online mobile marketing platform service that will connect merchants with their customers and allow them to drive loyalty and repeat business in a non-intrusive, value added medium. For merchants the company provides a mobile marketing platform where they can always send the most up-to-date offers/discounts/alerts/events schedule, such as happy hours, trivia night, and other campaigns. The consumer can also access specials and promotions that merchants choose to distribute through Textmunication by opting into keywords designated to the merchant’s keywords.
On July 9, 2018, the 1 – 1,000 Reverse Split of the Company’s common stock took effect at the open of business. All shares and per share amounts have been retroactively adjusted to reflect the reverse split.
On June 25, 2019, the Company issued a press release announcing it plans to change its business direction from its current SMS technology business to focus on the emerging national cannabis market. The Company planned on using its mobile texting platform to enhance communication efforts with the potential acquisitions.
On October 25, 2019, the Company entered into a Membership Interest Purchase Agreement (the “Resonate Purchase Agreement”) with Resonate Blends, LLC, a California limited liability company (“Resonate”), and the members of Resonate. As a result of the transaction, Resonate became a wholly owned subsidiary of the Company. In accordance with the terms of the Purchase Agreement, at the closing an aggregate of 5% of the Company’s outstanding shares of common stock for a total of 665,072 shares were issued to the holders of Resonate in exchange for their membership interests of Resonate. These shares have anti-dilution protection. We have also agreed as part of the purchase price to issue: (ii) such number of shares of Series E Preferred Stock that will convert into 5% of the outstanding shares of common stock in the Company on a fully-diluted basis upon an annualized revenue run rate of Ten Million Dollars ($10,000,000.00) for any three (3) consecutive month trailing period; and (iii) such number of shares of Series E Preferred Stock that will convert into 5% of the outstanding shares of common stock in the Company on a fully-diluted basis upon the occurrence of the Company’s public market value reaching One Hundred Million US Dollars ($100,000,000). The shares in (ii) and (iii) shall have anti-dilution protections, except that this provision only applies for 2.5% of the outstanding shares acquired under each subsection.
| F-5 |
Also, on October 25, 2019, the Company entered into a Membership Interest Purchase Agreement (the “Entourage Labs Purchase Agreement”) with Entourage Labs, LLC, a California limited liability company (“Entourage Labs”), and the members of Entourage Labs. As a result of the transaction, Entourage Labs became a wholly owned subsidiary of the Company. In accordance with the terms of the Purchase Agreement, at the closing an aggregate of 5% of the Company’s outstanding shares of common stock for a total of 665,072 shares were issued to the holders of Entourage Labs in exchange for their membership interests of Entourage Labs. These shares have anti-dilution protection. We have also agreed as part of the purchase price to issue: (ii) such number of shares of Series E Preferred Stock that will convert into 5% of the outstanding shares of common stock in the Company on a fully-diluted basis upon an annualized revenue run rate of Ten Million Dollars ($10,000,000.00) for any three (3) consecutive month trailing period; and (iii) such number of shares of Series E Preferred Stock that will convert into 5% of the outstanding shares of common stock in the Company on a fully-diluted basis upon the occurrence of the Company’s public market value reaching One Hundred Million US Dollars ($100,000,000). The shares in (ii) and (iii) shall have anti-dilution protections, except that this provision only applies for 2.5% of the outstanding shares acquired under each subsection.
In addition, the Company entered into an Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of Obligations (the “Conveyance Agreement”) with Mark S. Johnson and the Company’s 49% owned subsidiary, Aspire Consulting Group, LLC, a Virginia limited liability company. Pursuant to the Conveyance Agreement, the Company transferred all assets and business operations associated with its IT consulting solutions, including all of the capital stock of Aspire Consulting, to Mr. Johnson. In exchange, Mr. Johnson agreed to cancel 20,000 shares of common stock in the Company and to assume and cancel all liabilities relating to the Company’s former business.
Finally, the Company entered into Employment Agreements with the following persons: (i) Geoffrey Selzer as Chief Executive Officer (CEO) of the Company with an annual salary of $180,000; (ii) Pamela Kerwin as Chief Operating Officer (COO) of the Company with an annual salary of $120,000; and David Thielen as Chief Investment Officer (CIO) with an annual salary of $120,000. All are eligible for salary increases upon milestone achievements and other benefits. The Employment Agreement for the CEO has a term of 2 years and can’t be terminated without cause. Severance of six (6) weeks is available for termination of the COO and CIO without cause before one-year of service and eight (8) weeks after one-year of service.
On December 16, 2019 the Company filed Articles of Merger with the Secretary of State of Nevada in order to effectuate a merger with its wholly owned subsidiary; Resonate Blends, Inc. Shareholder approval was not required under Section 92A.180 of the Nevada Revised Statutes. As part of the merger, the Company’s board of directors authorized a change in our name to “Resonate Blends, Inc.” and the Company’s Articles of Incorporation have been amended to reflect this name change.
In connection with the name change, the Company’s symbol was changed to “KOAN” that more resembles the Company’s new business focus.
On May 22, 2020, Resonate Blends, Inc. (the “Company”) entered into a Stock Purchase Agreement (the “SPA”) with Wais Asefi, Nick Miniello, Juleon Asefi, and Curt Byers (collectively, the “Asefi Group”) to sell to the Asefi Group its subsidiary, Textmunication, Inc., a California corporation (“Textmunication”). Textmunication operates the Company’s SMS business activities. The Company will retain its cannabis operations based in Calabasas, California.
The consideration for the sale of Textmunication consists of the cancellation by the Asefi Group of 4,822,029 shares of common stock (the “Shares”) of the Company. The Shares have a market value of $337,542, based on our last sales price of $0.07 per share as of May 26, 2020. Upon the cancellation of the Shares, the Company agreed to execute a general release in favor of Mr. Asefi.
| F-6 |
Also on May 22, 2020, the Company entered into a Separation and Release Agreement (the “Separation Agreement”) with Wais Asefi. Pursuant to the Separation Agreement, Mr. Asefi agreed to separate from all officer positions and as a director of the Company and to further accept the payment of $200,000 from the Company’s future fundraising as consideration of all debts outstanding under Mr. Asefi’s employment agreement with the Company. Mr. Asefi further agreed to cancel his 4,000,000 shares of Series A Preferred Stock and to transfer his 2,000,000 shares of Series C Preferred Stock to Geoffrey Selzer, the Company’s current CEO and Director. Mr. Asefi further released the Company of all claims.
Also on May 22, 2020, Mr. Selzer signed a Voting Agreement and agreed to vote his newly acquired 2,000,000 shares of Series C Preferred Stock in favor of the sale of Textmunication to the Asefi Group.
On May 22, 2020, Resonate Blends, Inc. (the “Company”) entered into a Stock Purchase Agreement (the “SPA”) with Wais Asefi, Nick Miniello, Juleon Asefi, and Curt Byers (collectively, the “Asefi Group”) to sell to the Asefi Group its subsidiary, Textmunication, Inc., a California corporation (“Textmunication”). Textmunication operates the Company’s SMS business activities.
On July 20, 2020, the parties closed on the transactions contained in the SPA. The Asefi Group cancelled 4,755,209 shares of common stock (the “Shares”) of the Company. The Shares have a market value of $332,842, based on our last sales price of $0.07 per share as of May 26, 2020. The Company also executed a general release in favor of Mr. Asefi.
Basis of Presentation
The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s most recent Annual Financial Statements filed with the SEC on Form 10-K. 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 period presented have been reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted.
Going concern
These consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As of September 30, 2020, the Company has an accumulated deficit of $21,302,031. The company’s ability to continue as a going concern is contingent upon the successful completion of additional financing arrangements and its ability to achieve and maintain profitable operations. While the Company is expanding its best efforts to achieve the above plans, there is no assurance that any such activity will generate funds that will be available for operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. These consolidated financial statements do not include any adjustments that might arise from this uncertainty.
| F-7 |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash
The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents.
The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits. At September 30, 2020 no cash balances exceeded the federally insured limit.
Accounts receivable and allowance for doubtful accounts
Accounts receivable are stated at the amount management expects to collect. The Company generally does not require collateral to support customer receivables. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic conditions. As of September 30, 2020 and 2019 no allowance for doubtful accounts was set up.
Revenue Recognition
The Company did not have any revenues from continuing operations for the periods presented. The Company’s policy is that revenues will be recognized when control of the product is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.
Results for reporting periods beginning after January 1, 2020 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605. We did not have any cumulative impact as a result of applying Topic 606.
Fair Value of Financial Instruments
The carrying amounts reflected in the balance sheets for cash, accounts payable and accrued expenses approximate the respective fair values due to the short maturities of these items.
As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
| F-8 |
The three levels of the fair value hierarchy are described below:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs that is observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
The fair value of the accounts receivable, accounts payable, notes payable are considered short term in nature and therefore their value is considered fair value.
Net income (loss) per Common Share
Basic net income (loss) per share is computed by dividing the net loss attributable to the common stockholders by the weighted average number of shares of common stock outstanding during the period. Fully diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.
Property and equipment
Property and equipment are stated at cost, less accumulated depreciation provided on the straight-line method over the estimated useful lives of the assets, which range from three to seven years. Expenditures for renewals or betterments are capitalized, and repairs and maintenance are charged to expense as incurred the cost and accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts, and any gain or loss thereon is reflected in operations. Company policy capitalize property and equipment for cost over $1,000, asset acquired under $1,000 are charge to operations.
Income Taxes
Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized. Because the Company has no net income, the tax benefit of the accumulated net loss has been fully offset by an equal valuation allowance.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Stock-Based Compensation
The Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation – Stock Compensation which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The fair value of the equity instrument is charged directly to compensation expense and credited to additional paid-in capital over the period during which services are rendered.
| F-9 |
The Company follows ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants and other non-employees. In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital over the period during which services are rendered.
Investments in Securities
Investments in securities are accounted for using the equity method if the investment provides the Company the ability to exercise significant influence, but not control, over an investee. Significant influence is generally deemed to exist if the Company has an ownership interest in the voting stock of the investee between 20% and 50%, although other factors, such as representation on the investee’s Board of Directors, are considered in determining whether the equity method is appropriate.
NOTE 3 – RELATED PARTY TRANSACTIONS
As of September 30, 2020, the Company had notes payable to related party of $332,852. The amount payable was in relation to the agreed amount to buyout of shares held by former officer and employees of Textmunication Inc. As of December 31, 2019, there were approximately $11,650 of related party payables.
NOTE 4 - CONVERTIBLE NOTE PAYABLE
On January 22, 2020, we executed a convertible promissory note with Geneva Roth Remark Holdings, Inc. for $113,300 with note discounted of $10,300 and interest at the rate of 10% per annum from the issue date. This note will mature on January 22, 2021 with penalty clause of 22% per annum should the note be defaulted. If we decide to let this Note convert, the variable conversion price is 75% multiplied by the market price, representing a market discount of 25%. We have the ability to prepay this Note beginning on the Issue Date and ending on the date which is one hundred twenty (120) days following the Issue Date with a prepayment percentage of 113%. The period beginning on the date which is one hundred twenty-one (121) days following the Issue Date and ending on the date which is one hundred eight (180) days following the Issue Date, the prepayment percentage is 118%.
On March 3, 2020 Resonate Blends, Inc. (“Resonate”) agreed to pay Cicero Holding, Inc. (“Cicero”) five payments of $10,000 plus a final balloon payment of $60,000 by September 15, 2020. This settlement was on a previous $100,000 convertible note issued to Textmunication Holdings, Inc. on October 2, 2019. To date, Resonate has made two payments of $10,000 each – or $20,000 total. On June 23, 2020, both Parties agreed to amend the settlement agreement dated March 3, 2020. Resonate issued 900,000 common shares to Cicero with a leak-out of 120,000 shares per month to retire the remaining $90,000 owed on the Note.
On March 13, 2020 we executed a convertible promissory note with Armada Capital Partners LLC. for $142,000 with note discounted of $8,667 and interest at the rate of 15% per annum from the issue date. This note will mature on April 20, 2021 with penalty clause of 18% per annum should the note be defaulted. If we decide to let this Note convert, the variable conversion price is 65% multiplied by the market price, representing a market discount of 35%. We have the ability to prepay this Note beginning on the Issue Date at our discretion.
On March 13, 2020 we executed a convertible promissory note with BHP Capital NY for $142,000 with note discounted of $8,667 and interest at the rate of 15% per annum from the issue date. This note will mature on April 20, 2021 with penalty clause of 18% per annum should the note be defaulted. If we decide to let this Note convert, the variable conversion price is 65% multiplied by the market price, representing a market discount of 35%. We have the ability to prepay this Note beginning on the Issue Date at our discretion.
On March 13, 2020 we executed a convertible promissory note with Jefferson Street Capital LLC for $142,000 with note discounted of $8,667 and interest at the rate of 15% per annum from the issue date. This note will mature on April 20, 2021 with penalty clause of 18% per annum should the note be defaulted. If we decide to let this Note convert, the variable conversion price is 65% multiplied by the market price, representing a market discount of 35%. We have the ability to prepay this Note beginning on the Issue Date at our discretion.
| F-10 |
On June 18, 2020, we executed a convertible promissory note with Geneva Roth Remark Holdings, Inc. for $85,800 together with any interest at the rate of 10% per annum from the issue date. If we decide to let this Note convert, the variable conversion price is 75% multiplied by the market price, representing a market discount of 25%. We have the ability to prepay this Note beginning on the Issue Date and ending on the date which is one hundred twenty (120) days following the Issue Date with a prepayment percentage of 113%. The period beginning on the date which is one hundred twenty-one (121) days following the Issue Date and ending on the date which is one hundred eight (180) days following the Issue Date, the prepayment percentage is 118%.
On July 20, 2020, we executed a Securities Purchase Agreement (“SPA”) with FirstFire and issued the FirstFire Note with a principal amount of $225,000, a $25,000 original issue discount and interest at 8% per annum. The principal balance and accrued but unpaid interest may be converted to our common stock at $0.10 per share or, upon default, at 75% of the lowest trading price in the last 20 days in our trading market.
On July 20, 2020, the parties closed on the transactions contained in the SPA. The Asefi Group will cancel 4,822,029 shares of common stock (the “Shares”) of the Company. The Shares have a market value of $337,542, based on our last sales price of $0.07 per share as of May 26, 2020. The Company also executed a general release in favor of Mr. Asefi.
On July 21, 2020, we paid off the Geneva Note in its entirety with proceeds acquired from the below new convertible promissory note (the FirstFire Note”) we issued to FirstFire Global Opportunities Fund LLC. The amount paid to Geneva was $140,397.01.
Convertible notes payable consists of the following as of September 30, 2020 and December 31, 2019:
| September 30, 2020 | December 31, 2019 | |||||||
| Convertible Note face value | $ | 555,427 | $ | 277,750 | ||||
| Less: Discounts | (28,624 | ) | (116,345 | ) | ||||
| Net Convertible notes payable | $ | 526,803 | $ | 161,404 | ||||
As of September 30, 2020, and December 31, 2020 accrued interest on notes payable were $28,860 and $10,556, respectively.
The Company accounts for the fair value of the conversion features of its convertible debt in accordance with ASC Topic No. 815-15 “Derivatives and Hedging; Embedded Derivatives” (“Topic No. 815-15”). Topic No. 815-15 requires the Company to bifurcate and separately account for the conversion features as an embedded derivative contained in the Company’s convertible debt. The Company is required to carry the embedded derivative on its balance sheet at fair value and account for’ any unrealized change in fair value as a component of results of operations. The Company values the embedded derivatives using the Black-Scholes pricing model.
NOTE 5 – COMMITMENTS AND CONTINGENCIES
Office Lease
On January 6, 2015, the Company signed an amendment to its lease originally signed on May 9, 2008. The amended lease commenced January 1, 2015 and expires on thirty days’ notice. Rent expense was approximately $5,607 and $11,025 for the three nine ended September 30, 2020 and 2019, respectively. We also have a co-share office located in Calabasas, California for our executive team at Resonate. We pay $99 month for the office space.
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Executive Employment Agreement
On October 25, 2019 the Company entered into Employment Agreements with the following persons: (i) Geoffrey Selzer as Chief Executive Officer (CEO) of the Company with an annual salary of $180,000; (ii) Pamela Kerwin as Chief Operating Officer (COO) of the Company with an annual salary of $120,000. On August 3, 2020, the Company entered into an Employment Agreement with David Thielen as Chief Investment Officer (CIO) with an annual salary of $120,000. All are eligible for salary increases upon milestone achievements and other benefits. The Employment Agreement for the CEO has a term of 2 years and can’t be terminated without cause. Severance of six (6) weeks is available for termination of the COO and CIO without cause before one-year of service and eight (8) weeks after one-year of service.
NOTE 6 – STOCKHOLDERS’ EQUITY
For the nine months ended September 30, 2020, the company issued a total of 5,332,186 shares of common stock to vendors for compensation and services rendered. The fair market value of the shares issues accounted as expenses as follows:
| Professional Fees | $ | 110,500 | ||
| Payment to obtain loan | 165,195 | |||
| Payment to management staff | 198,514 | |||
| $ | 474,209 |
NOTE 7 – DISCONTINUED OPERATONS
On July 20, 2020, the Company finalized a Stock Purchase Agreement (the “SPA”) with Wais Asefi, Nick Miniello, Juleon Asefi, and Curt Byers (collectively, the “Asefi Group”) to sell to the Asefi Group its subsidiary, Textmunication, Inc., a California corporation (“Textmunication”). Textmunication operates the Company’s SMS business activities. The Company retained its cannabis operations based in Calabasas, California. The Company has accounted for this spinout as a discontinued operation and retroactively reclassified all previously presented financial information. The following summarizes the results of operations for Textmunication, Inc.
| Nine Months Ended | ||||||||
| 2020 | 2019 | |||||||
| Revenues | $ | 477,734 | $ | 758,101 | ||||
| Cost of revenues | 101,347 | 285,085 | ||||||
| Operating expenses | 468,815 | 581,764 | ||||||
| 570,162 | 866,849 | |||||||
| Loss from operations of discontinued operation | (92,428 | ) | (108,748 | ) | ||||
| Gain on disposal of discontinued operations | 108,206 | - | ||||||
| Gain (loss) from discontinued operations | $ | 15,778 | $ | (108,748 | ) | |||
NOTE 8 – SUBSEQUENT EVENTS
The company has evaluated subsequent events for recognition and disclosure through September 29, 2020 which is the date the financial statements were available to be issued. No other matters were identified affecting the accompanying financial statements and related disclosures.
| F-12 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
Company Overview
On October 25, 2019, Resonate Blends, Inc. (formerly Textmunication Holdings Inc.) announced its entry into the cannabis industry by acquiring Resonate Blends LLC (“Resonate” or the “Company”), a California-based cannabis wellness lifestyle product company built on a proprietary system of experiential targets. Resonate is building a value-added, brand-focused cannabis organization offering premium brands of consistent quality. The Company also acquired Entourage Labs LLC (“Entourage Labs”), a sister company of Resonate. Entourage Labs is the Intellectual Property (IP) subsidiary of Resonate.
Based in Calabasas, California, Resonate Blends, Inc. is a cannabis holding company centered on valued-added holistic Wellness and Lifestyle brands. The Company’s strategy is to ignite future growth by building a purpose-driven portfolio of innovative, trusted national brands, emerging brands, research organizations, and a variety of retail channels. The Company’s focus is finding mutual value between product and consumer by optimizing quality, supply chain resources and financial performance. The Company offers a family of premium cannabis-based products of consistent quality based on unique formations calibrated to Resonate Blends effects system in what we believe is the industry gold standard in user experience.
The Company believes the greatest long-term value creation in the cannabis industry will be in the establishment of high quality and consistent consumer brands. Resonate hopes to become a national leader through its vision in creating a family of brands designed specifically to deliver reliable, effective, beneficial experiences.
Koan, the Resonate Blends product family, is based around a comprehensive system of interconnected experience targets that allow people to select the products that best fit their lifestyle and health objectives. Koan products are dedicated to the efficacy and precision of functional experience targets across a broad range of product categories.
Resonate’s initial products are a completely unique class of products called Cordials. These blends offer a wide range of experiences not currently available in the cannabis market. Our Cordials are water-soluble and use nano-emulsification technology to allow for quick onset and a sustained and nuanced experience. Single dose, healthful, subtle in taste, cordials are an ideal way for people to gently intentionally improve their well-being. They can be shipped directly or substituted for alcohol as a cocktail mixer.
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Resonate’s Cordials have been developed in partnership with an award-winning advanced infusion technology partner and are targeted for commercial release in early Q1 of 2021. The company plans to offer six unique blends at its initial release.
In preparation for you upcoming release, we have formalized contracts with our logistical and marketing partners and are implementing a digital native strategy supporting direct to consumer sales. This release will be followed before year end with our second product line that is already in full development.
Partnerships
Product Development:
The Company signed a custom development contract with Vertosa in March of 2020, the leading provider of safe, reliable emulsion bases for infused product developers. This contract was a major milestone for the Company as it selects its strategic partners to develop innovative products and solutions.
Vertosa is an award-winning strategic partner who will assist the Company in the launch of its first unique category of six water soluble products. These multi-use products deliver specific, predictable, reliable, effects in a format that is completely unique in the industry. The first product developed collaboratively is the Cordial product line, but both companies expect several other products to be developed over time utilizing Vertosa’s nano-emulsification technology.
The Vertosa and Resonate teams share a mission of maximizing the benefits of cannabinoids and plant medicine. Resonate selected Vertosa as a development partner because the Vertosa systems’ industry leading emulsification technology makes them highly stable, bioavailable, and water compatible. All of Vertosa’s inactive base materials are FDA approved and are lab tested for quality. Vertosa’s Hemp-derived CBD Emulsion System is now certified organic by CCOF, a United States Department of Agriculture-accredited certifier and non-profit advocacy group, and the company has also received its Good Manufacturing Practice (GMP) certification, confirming that its offerings follow regulations promulgated by the US Food and Drug Administration and are safe, pure, and effective.
Manufacturing:
The Company partnered with The Hive Laboratory, LLC (THL), a California licensed Type N – Infused Products Manufacturer based in Grover Beach, CA. THL produces and packages premium award-winning products for the medicinal, recreational and nutraceutical cannabis industries, and has worked with some of the biggest named brands in the industry.
Resonate and THL entered into a Master Services Agreement in which THL will manufacture and package Resonate’s first family of products to precise specifications. THL also has a Bureau of Cannabis Control (BCC) issued distribution license in California and will distribute Resonate’s products to retail establishments throughout the state.
THL and Resonate have been in frequent contact throughout Resonate’s development period and THL is prepared to support production of the Company’s unique family of wellness lifestyle products. Resonate’s upcoming first of its kind offerings are emulsified through the advanced infusion technology provided by award-winning Vertosa and collaboratively developed to push the state of the art in its cannabis products.
Distribution:
Because of the unique nature of Resonate’s Koan products and the recent expansion of home delivery services in the cannabis industry, Resonate has adopted a direct to consumer method as their primary sales strategy. Working with a technology partner, Resonate is adding an e-commerce feature to the Koan web site that will allow the Company to sell products directly to consumers using a licensed California state-wide delivery network for fulfilment.
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In addition to direct sales, the company plans to offer products to select premium dispensaries throughout California. These products will be delivered to retail establishments by Hive Labs under their distribution license.
Resonate is also developing relationships with a variety of complementary distribution channels such as subscription box companies and other non-storefront reseller organizations.
Marketing:
Resonate selected Way To Blue as the marketing firm for its Koan family of wellness lifestyle blends. Way To Blue, is an award-winning, global, integrated communications agency working with consumer, lifestyle, media and entertainment companies, developing digitally led strategic brand communications.
Resonate will draw upon Way To Blue’s expertise in social media strategy and execution, content creation, community management and influencer engagement. The marketing firm focuses on insight and data-driven storytelling campaigns to deliver optimal results in both brand building and product sales.
Sale of Textmunication, Inc.:
Our holding company, Resonate Blends, Inc., is now comprised of Resonate Blends LLC, the cannabis operations and product development side of the company; and Entourage Labs LLC, which is our Intellectual Property (IP) subsidiary.
We recently sold Textmunication, Inc., our mobile marketing subsidiary for the health, fitness and wellness sectors. Our company and a group of shareholders (hereinafter referred to as, the “Asefi Group”), including Wais Asefi, our former Chief Executive Officer and director, have entered into a Purchase Agreement, dated as of May 22, 2020, pursuant to which we have agreed to sell Textmunication, Inc. to the Asefi Group.
The consideration for the sale of Textmunication, Inc. consisted of 4,822,029 shares of common stock of our company that belong to Wais Asefi and other members of the Asefi Group, and which were cancelled in the transaction. The 4,822,029 shares had a current market value of $337,542, based on our sales price of $.07 per share as of May 22, 2020.
Our principal executive office is located at 26565 Agoura Road, Suite 200, Calabasas, CA. Our executive telephone number is (571) 888-0009.
Results of Operation for Three and Nine Months Ended September 30, 2020 and 2019
Revenues
We have generated no revenues in our cannabis holding company or from our operating subsidiaries, Resonate Blends, LLC or Entourage Labs, LLC, for the three and nine months ended September 30, 2020.
From the discontinued operations of our prior held subsidiary, Textmunication, Inc., which we sold on July 20, 2020, we recorded discontinued revenues of $534,743, as compared with revenues of $758,100 for the nine months ended September 30, 2019.
We anticipate revenue from the Resonate Koan product line in first quarter of 2021.
Operating Expenses
Our operating expenses were $236,160 for the three months ended September 30, 2020, as compared with $112,129 for the three months ended September 30, 2019. Our operating expenses were $1,445,463 for the nine months ended September 30, 2020, as compared with $2,807,129 for the nine months ended September 30, 2019.
The main reason for our decreased operating expenses in 2020 was a result of non-cash management fees in 2019 of $2,521,582, while this year we only have $198,514 non-cash management fees.
We expect that our operating expenses will increase in 2021 over 2020 as a result of our product launch and the increased expenses associated with operations.
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Other Income
We had other expenses of $86,910 for the three months ended September 30, 2020 compared with other expenses of $96,460 for the same period ended September 30, 2019. We had other expenses of $712,625 for the nine months ended September 30, 2020 compared with other expenses of $96,459 for the same period ended September 30, 2019.
The main reason for our increased other expenses in 2020 was a result of loss on revaluation of derivative liabilities of $617,769.
Net Income/Loss
We had net loss of $351,399 for the three months ended September 30, 2020, as compared with net loss of $243,154 for the three months ended September 30, 2019. We had a net loss of $2,142,310 for the nine months ended September 30, 2020, as compared with a net loss of $3,023,461 for the nine months ended September 30, 2019.
Liquidity and Capital Resources
As of September 30, 2020, we had total current assets of $9,014, consisting of $9,014 in cash. Our total current liabilities as of September 30, 2020 were $1,790,835. We had a working capital deficit of $1,781,821 as of September 30, 2020, compared with a working capital deficit of $612,228 as of December 31, 2019.
Cash Flows from Operating Activities
Operating activities used $1,301,663 in cash for the nine months ended September 30, 2020, compared with cash used of $386,001 for the nine months ended September 30, 2019. Our negative operating cash flow for the nine months ended September 30, 2020 was largely the result of our net loss of $2,142,310, offset by loss on derivative liability of $536,819 and share based compensation of $198,514. Our negative operating cash flow for the nine months ended September 30, 2019 was largely the result of our net loss of $3,023,461, offset mainly by share based compensation of $2,521,635.
Cash Flows from Investing Activities
We used no cash on investing activities for both the three or nine months ended September 30, 2020 and 2019.
Cash Flows from Financing Activities
Cash flows provided by financing activities during the nine months ended September 30, 2020 amounted to $1,119,943 compared with cash flows provided by financing activities of $367,500 for the nine months ended September 30, 2019. Our positive cash flows for the nine months ended September 30, 2020 consisted of proceeds from issuance of common stocks $540,000, proceeds from Convertible notes payable $806,000, offset by payments of notes payable of $226,057. Our positive cash flows for the nine months ended September 30, 2019 consisted of proceeds from the issuance of preferred stock and warrants of $200,000 and proceeds from convertible notes of $167,750.
The features of the debt instruments and payables concerning our financing activities are detailed in the footnotes to our financial statements.
Our optimum level of growth for success will be achieved if we are able to raise $1,500,000 in the next twelve months. However, funds are difficult to raise in today’s economic environment. We have experienced a history of losses. If we are unable to raise $1,500,000, our ability to implement our business plan and achieve our goals will be significantly diminished.
We are dependent on investment capital to continue our survival. We have raised money through convertible debt, almost always on unfavorable terms. There is no guarantee that these small convertible loans will be available to us in the future or on terms acceptable to us.
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We also plan to raise money in the sale of our equity and debt securities. There can be no assurance of funds from these efforts or that any other type of additional financing will be available to us on acceptable terms, or at all.
Going Concern
As of September 30, 2020, we have an accumulated deficit of $21,302,031. Our ability to continue as a going concern is contingent upon the successful completion of additional financing arrangements and our ability to achieve and maintain profitable operations. While we are expanding our best efforts to achieve the above plans, there is no assurance that any such activity will generate funds that will be available for operations. These conditions raise substantial doubt about our ability to continue as a going concern. These financial statements do not include any adjustments that might arise from this uncertainty.
Off Balance Sheet Arrangements
As of September 30, 2020, there were no off-balance sheet arrangements.
Critical Accounting Policies
In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies are disclosed in Note 2 of our audited financial statements included in the Form 10-K filed with the Securities and Exchange Commission.
Recent Accounting Pronouncements
No new accounting pronouncements issued or effective during the fiscal year has had or is expected to have a material impact on the financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
A smaller reporting company is not required to provide the information required by this Item.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of September 30, 2020, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2020, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described below.
Our principal executive officers do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive officers have determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the 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 the 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 simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
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Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Management identified the following three material weaknesses that have caused management to conclude that, as of September 30, 2020, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level:
| 1. | We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act as of the period ending September 30, 2020. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness. |
| 2. | We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness. |
| 3. | Effective controls over the control environment were not maintained. Specifically, a formally adopted written code of business conduct and ethics that governs our employees, officers, and directors was not in place. Additionally, management has not developed and effectively communicated to employees its accounting policies and procedures. This has resulted in inconsistent practices. Further, our Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness. |
To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
To remediate the material weakness in our documentation, evaluation and testing of internal controls we plan to engage a third-party firm to assist us in remedying this material weakness once resources become available.
We intend to remedy our material weakness with regard to insufficient segregation of duties by hiring additional employees in order to segregate duties in a manner that establishes effective internal controls once resources become available.
Changes in Internal Control over Financial Reporting
No change in our system of internal control over financial reporting occurred during the period covered by this report, the period ended September 30, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.
For our cannabis operations, see risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2019 filed on May 14, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The information set forth below relates to our issuances of securities without registration under the Securities Act of 1933.
On September 21, 2020, we issued 2,400,000 shares of common stock to an accredited investor for total proceeds of $240,000.
For the nine months ended September 30, 2020, the company issued a total of 5,332,186 shares of common stock to vendors for compensation and services rendered.
These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.
Item 3. Defaults upon Senior Securities
None
Item 4. Mine Safety Disclosures
None
None
| Exhibit Number | Description of Exhibit | |
| 3.1 | Certificate of Amendment dated July 20, 2020 | |
| 31.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101** | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 formatted in Extensible Business Reporting Language (XBRL). | |
| **Provided herewith |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Resonate Blends, Inc. | ||
| Date: | November 23, 2020 | |
| By: | /s/ Geoffrey Selzer | |
| Geoffrey Selzer | ||
| Title: | President, Chief Executive Officer, Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer and Director | |
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