UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For
the quarterly period ended
| Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from __________ to__________
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
(Address of principal executive offices)
(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.
☒
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). ☒
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 | |
| ☒ |
||
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 ☒
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: common shares as of November 15, 2021
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 | 14 |
| Item 3: | Quantitative and Qualitative Disclosures About Market Risk | 22 |
| Item 4: | Controls and Procedures | 23 |
| PART II – OTHER INFORMATION | ||
| Item 1: | Legal Proceedings | 24 |
| Item 1A: | Risk Factors | 24 |
| Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | 24 |
| Item 3: | Defaults Upon Senior Securities | 24 |
| Item 4: | Mine Safety Disclosures | 24 |
| Item 5: | Other Information | 24 |
| Item 6: | Exhibits | 24 |
| 2 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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, 2021 are not necessarily indicative of the results that can be expected for the full year.
| 3 |
RESONATE BLENDS , INC.
(FORMERLY TEXTMUNICATION HOLDINGS, INC.)
CONSOLIDATED BALANCE SHEETS
| September 30,2021 | December 31, 2020 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Receivables | - | |||||||
| Prepaid expenses and other current assets | ||||||||
| Inventories | - | |||||||
| Total current assets | ||||||||
| Fixed assets, net | - | |||||||
| Investment in equity method investee | ||||||||
| TOTAL ASSETS | ||||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | ||||||||
| Due to related parties | - | |||||||
| Convertible notes payable, net of discount | ||||||||
| Derivative liability | ||||||||
| Settlement liability | ||||||||
| Current liabilities of discontinued operations | - | |||||||
| Total current liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ deficit | ||||||||
| Preferred stock, shares authorized, $ par value, shares issued. | ||||||||
| Series B - Preferred stock, shares authorized, $ par value, issued. | - | |||||||
| Series C - Preferred stock, shares authorized, $ par value, issued and outstanding | ||||||||
| Series D Preferred stock shares authorized, $ par value and issued and outstanding, respectively | ||||||||
| Common stock; $par value; shares authorized; and shares issued and outstanding as of September 30, 2021 December 31, 2020, respectively. | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total Stockholders’ deficit | ( |
) | ( |
) | ||||
| TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
| 4 |
RESONATE BLENDS, INC.
(FORMERLY TEXTMUNICATION HOLDINGS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
| The Three Months Ended | The Nine Months Ended | |||||||||||||||
| September 30 2021 | September 30 2020 | September 30 2021 | September 30 2020 | |||||||||||||
| REVENUES | $ | $ | $ | $ | ||||||||||||
| COST OF REVENUES | ||||||||||||||||
| Gross profit | ( | ) | - | ( | ) | - | ||||||||||
| Operating expenses | ||||||||||||||||
| Advertising | ||||||||||||||||
| General and administrative expenses | ( | ) | ||||||||||||||
| Legal and Professional fees | ||||||||||||||||
| Officer Compensation | - | - | ||||||||||||||
| Salaries and Related | ||||||||||||||||
| Sales Commission | - | - | - | |||||||||||||
| Office Rent | ||||||||||||||||
| Impairment of inhouse software | - | - | - | |||||||||||||
| Non cash management fees | - | |||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (expense) | ||||||||||||||||
| Other Income | ( | ) | - | |||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on change of derivative liability | - | ( | ) | ( | ) | |||||||||||
| Amortization of debt discount | ( | ) | ( | ) | ( | ) | ||||||||||
| Amortization of debt issuance costs | ( | ) | ( | ) | ||||||||||||
| Gain (loss) on settlement of derivative liabilities | - | - | ||||||||||||||
| Legal settlement | - | ( | ) | - | ( | ) | ||||||||||
| Gain on settlement of notes payable | - | - | ||||||||||||||
| Total other expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Income (loss) from investment in equity method investee | - | - | - | - | ||||||||||||
| NET INCOME (LOSS) from continuing operations | ( | ) | ( | ) | ( | ) | ||||||||||
| NET INCOME (LOSS) from discontinued operations | ( | ) | ||||||||||||||
| NET INCOME (LOSS) | ( | ) | ( | ) | ( | ) | ||||||||||
| Basic weighted average common shares outstanding | ||||||||||||||||
| Net Income (loss) per common share: basic and diluted | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
| 5 |
RESONATE BLENDS , INC.
(FORMERLY TEXTMUNICATION, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
| Preferred Stock Series A | Preferred stock - Series C | Common Stock | Additional | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Issuance of common stock |
| |||||||||||||||||||||||||||||||||||
| Net Loss for the quarter | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance, March 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Net Loss for the quarter | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Issuance of common stock | ||||||||||||||||||||||||||||||||||||
| Balances June 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Net Loss for the quarter | $ | $ | ||||||||||||||||||||||||||||||||||
| Non cash compensation | $ | $ | $ | |||||||||||||||||||||||||||||||||
| Balances September 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Preferred Stock Series A | Preferred stock - Series C | Common Stock | Additional | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||||||
| Balance December 31, 2019 | $ | $ | | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||
| Net Loss for the quarter | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Common stock issuance | ||||||||||||||||||||||||||||||||||||
| Balance March 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Net Loss for the quarter | $ | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Non-Cash Compensation | ||||||||||||||||||||||||||||||||||||
| Conversion of notes payable | ||||||||||||||||||||||||||||||||||||
| Common stock issue | ||||||||||||||||||||||||||||||||||||
| Balance June 30, 2020 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Net Loss for the quarter | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Common stock Issuance for Cash | ||||||||||||||||||||||||||||||||||||
| Conversion of notes payable | ||||||||||||||||||||||||||||||||||||
| Cancellation of shares held by Textmunication | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Non cash compensation | ||||||||||||||||||||||||||||||||||||
| Shares issues for legal settlement | ||||||||||||||||||||||||||||||||||||
| Cancellation of preferred stock | - | - | ||||||||||||||||||||||||||||||||||
| Balance September 30, 2020 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
| 6 |
RESONATE BLENDS , INC.
(FORMERLY TEXTMUNICATION, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
| 2021 | 2020 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net Income (loss) | $ | ( | ) | $ | ( | ) | ||
| Net loss from discontinued operations | ( | ) | ||||||
| Adjustments to reconcile | - | |||||||
| Amortization and depreciation | ||||||||
| Loss on derivative liability | ||||||||
| Non cash interest expense | ||||||||
| Legal Settlement | ||||||||
| Share professional fees | ||||||||
| Share based compensation | ||||||||
| Gain (Loss) on the settlement of debt | ( | ) | ( | ) | ||||
| Gain on settlement of derivative liabilities | ( | ) | ||||||
| Changes in assets and liabilities | - | |||||||
| Receivables | - | |||||||
| Inventories | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Advances to suppliers | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Due to Related party | ( | ) | ( | ) | ||||
| Net cash used by operating activities | ( | ) | ( | ) | ||||
| Net cash provided by (used in) operating activities of discontinued operations | ||||||||
| ( | ) | ( | ) | |||||
| Cash Flows from investing activities | ||||||||
| Purchase of fixed assets | ( | ) | - | |||||
| Net cash used by investing activities | ( | ) | - | |||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from subscription | ||||||||
| Proceeds from convertible notes (net) | ||||||||
| Proceeds from notes payables | ||||||||
| Payments on preferred stocks buy back | ||||||||
| Payments on convertible notes payable | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net cash provided by financing activities of discontinued operations | ||||||||
| | ||||||||
| Net increase in cash | ||||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for tax | - | - | ||||||
| Non-Cash investing and financing transactions | ||||||||
| Conversion of debt for common stock | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
| 7 |
TEXTMUNICATION HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE 1 – ORGANIZATION AND BUSINESS OPERATIONS
The Company
Resonate Blends, Inc. formerly Textmunication Holdings, Inc. (the “Company”) was incorporated on 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.
On January 20, 2020, Wais Asefi resigned as Chairman and as a member of our Board of Directors. Mr. Asefi’s resignation is in support of Resonate Blends strategic direction of becoming a pure play cannabis company. The Company does not believe that Mr. Asefi has any disagreements on matters relating to our operations, policies or practices. Also, on January 20, 2020, our Board of Directors appointed Geoffrey Selzer as our Chairman.
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 shares of common stock (the
“Shares”) of the Company. The Shares have a market value of $
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 $
Also on May 22, 2020, Mr. Selzer signed a Voting Agreement and agreed to vote his newly acquired 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 shares of common stock
(the “Shares”) of the Company. The Shares have a market value of $
| 8 |
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, 2021, the Company has an accumulated deficit of $
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. As of September 30, 2021, the company balances exceeded the federally insured
limit by approximately $
Revenue Recognition
The Company did 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.
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.
| 9 |
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).
Financial assets and liabilities measured at fair value on a recurring basis are summarized below for the quarter ended September 30, 2021 and year ended December 31, 2020.
| As of September 30, 2021 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Liabilities | ||||||||||||||||
| Derivative Liabilities | ||||||||||||||||
| As of December 31, 2020 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Liabilities | ||||||||||||||||
| Derivative Liabilities | ||||||||||||||||
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
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.
| 10 |
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.
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.
NOTE 3 – RELATED PARTY TRANSACTIONS
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 $
On
May 22, 2020, the shares of Series A Preferred Stock were returned to the Company’s transfer agent and cancelled and
on May 22, 2020 the shares of Series C Preferred Stock were transferred to Mr. Selzer. The parties to the Separation Agreement
agreed to a payment schedule of $
| ● | $ | |
| ● | $ | |
| ● | $ | |
| ● | $ | |
| ● | $ | |
| ● | $ | |
| ● | $ | |
| ● | $ |
On
May 13, 2021, we amended the Separation Agreement to state the parties desire to reduce the total amount payable to Wais Asefi from $
The
outstanding balances as of September 30, 2021 and December 31, 2020 are $ and $
| 11 |
NOTE 4 - CONVERTIBLE NOTE PAYABLE
Convertible notes payable consists of the following as of September 30, 2021 and December 31, 2020:
| September 30, 2021 | December 31, 2020 | |||||||
| Convertible notes face value | $ | $ | ||||||
| Less: Discounts | - | ( | ) | |||||
| Less: Debt issuance cost | ( | ) | ||||||
| Net convertible notes | $ | $ | ||||||
The
convertible notes as of September 30, 2021 are
The
three months ended September interest accrued for the convertible notes payable at $
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
October 16, 2019,
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 $
NOTE 6 – STOCKHOLDERS’ EQUITY
During the third quarter of 2021 the company issued a total of shares of common stock to vendors for compensation and services rendered. The fair market value of the shares issued accounted as expenses as follows:
| Professional Fees | $ | |||
| Convertible promissory notes | ||||
| Total | $ |
| 12 |
NOTE 7 – DISCONTINUED OPERATIONS
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. for the three months ended June 30, 2020
| 2020 | ||||
| Revenues | $ | |||
| Cost of Revenues | ( | ) | ||
| Operating expenses | ( | ) | ||
| Loss from operations of discontinued operations | ( | ) | ||
NOTE 8 – SUBSEQUENT EVENTS
As previously disclosed, on September 9, 2021, Resonate Blends, Inc. (the “Company”) entered into binding letter of intent (the “Agreement”) with L & G USA Inc., a Delaware corporation and L & G Canada Inc., an Ontario corporation (together “Seller”), and the stockholders of Seller (the “Stockholders”), pursuant to which the Company planned to acquire substantially all of the assets from Seller associated with the Lemon & Grass business and the Koan business (the “Acquisition”).
On October 27, 2021, the Company terminated the Agreement. The Company is still in discussions with Seller, and the Company may or may not go through with a transaction with Seller, but if the Company does, the terms will change from the previous Agreement.
| 13 |
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.
Resonate is committed to helping you live the life you love. We do not make the medicinal vs. recreational distinction. This is a temporary legal separation in some states that we expect will soon cease to exist. We believe in wellness for the whole person. We know that people with pain or anxiety also want to enjoy friends, concerts and have satisfying intimate experiences. We are designing experiences which will improve all areas of our lives.
To accomplish this, Resonate is Mastering the Art of Experience. This is our mission. By integrating science, technology, education, branding, marketing, sales and delivery - with every customer interaction we aim to provide exceptional experiences. Cannabis has a broad range of unique characteristics, and we are dedicated to harnessing and amplifying those characteristics to support healthy empowered and engaged lifestyles. From product development through customer communication, we prefect and demystify cannabis bringing innovative products to an increasingly sophisticated market. Resonate Blends has a strong social mission and the Resonate team is building a successful business by focusing our knowledge, skill and energy on creating wellness-lifestyle products which will improve community by helping individuals live more satisfying, meaningful and connected lives. The need for these products currently is crucial.
| 14 |
To communicate the breadth of wellness products that Resonate is developing, our team created The Resonate System. The Resonate System graphically represents a spectrum of wellness products based on cannabis scaffolding. This system helps users easily select which product they want. Products based on The Resonate System deliver relaxation, freedom from pain and anxiety, boosts in focus and creativity, sensuality, human connection and joy. Our products are formulated around a system of interconnected experience targets that will allow you to know exactly what to expect when using them.
While respecting and honoring the natural power of plant medicine, Resonate also employs advanced science, leading technology and a deep understanding of how various cannabis compounds, when working in the body, simultaneously can create unique effects and benefits (referred to as the “Entourage Effect”). Our product developers blend cannabinoids and terpenes to formulate products with specific, controllable and repeatable, beneficial effects. Through innovation, experimentation, testing and an iterative product development strategy, our team has unlocked new plant constituent combinations resulting in unique, enjoyable and extremely effective wellness products unlike anything else in the marketplace. Resonate has filed a provisional patent for protection of these formulations and products in the future.
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 intentionally improve their well-being. They can be shipped directly or substituted for alcohol as a cocktail mixer.
Resonate’s Cordials have been developed in partnership with an award-winning advanced infusion technology partner and were launched to the retail channel in late Q2 of 2021. The company is offering six unique blends at its initial release and expects to have additional blends by late 2021 into early 2022.
We have formalized contracts with our logistical and marketing partners and are building a digital native strategy supporting direct to consumer sales. Based on customer demand, the company is creating a “singles” option for the Cordials which will be available later 2021 and a multi-dose option shipping in Q1 2022.
Intellectual Property
Intellectual Property (“IP”) development and protection continues as a core area of value creation for Resonate. The Company has developed the world’s first Cannabis Cordial. The Koan Cordials combine THC (psychoactive), CBD (non-psychoactive) with botanical terpenes to deliver an all-natural, plant-derived, single-dosed experience that can be enjoyed straight out of the bottle or poured into any beverage. These multi-use products deliver specific, predictable, reliable, effects in a format that is completely unique in the industry.
The Company believes the greatest long-term value creation in the Cannabis industry will be in the establishment of high-quality consumer brands that deliver the expected experience. As cultivation, supplies and services become quickly commoditized, value-added brands represent the best opportunity for Resonate and its shareholders to support and benefit from the growth expected in the Cannabis industry. It is therefore critical for Resonate to protect its methods, formulations and packaging.
On June 14, 2021, the Company successfully filed a Provisional Patent Application with the US Patent & Trademark Office (USPTO) entitled “Cannabis Nano-Emulsions for Achieving a Reliable, Targeted, Specific and Repeatable User Experience.” The invention relates to methods and formulations including a combination of cannabinoids and terpenes calculated and specifically formulated to achieve a targeted, specific and repeatable user experience. The Company is also filing for patent protection on its unique product packaging.
Future Koan Product - Resonate Growth Plans
For the first 12-18 months, Resonate will concentrate on releasing product and brand building in our home state of California. Resonate plans to follow the launch of its first six Koan products with others based on The Resonate System at regular intervals. Our formulas, combined with the proprietary Vertosa technology, will allow the Company to quickly deliver controlled, predictable, enjoyable effects in beverages, teas, and gummies. Vertosa is the leading provider of emulsification technology for cannabis manufacturers. Emulsification allows cannabinoids to become water-soluble so that they can be added to Cordials, beverages, gummies, etc. Vertosa and Resonate are engaged in joint research focusing on effects of various emulsification methods on cannabinoids. We are working on methods that improve user experience by refining effects and managing bioavailability. Vertosa will also be providing the emulsification required for formulas in Resonate’s product line.
The cannabis industry is in its infancy. Resonate’s growth strategy is to create an innovative ecosystem of companies, investments and research that all support The Resonate System and our mission of empowering the wellness market. In addition to creating our “house” brands, the Company is also looking for other quality brands which could be incubated or targeted as either strategic partners or as acquisitions. Integrating these companies, we believe will provide consistent product quality that yields expected results and that also allows us to build a stable, successful company overall.
| 15 |
Resonate’s first commercial release is a family of six precisely targeted effect blends. These products are category-breaking offerings as they are neither tinctures nor beverages but have the benefits of both. They are emulsified, water soluble, single-serving blends that can be enjoyed privately or shared socially. Resonate offers these across California in stylish mini bottles, each containing a single serving. They can be sipped directly from the bottle or poured into beverages. Koan products offer the very high bioavailability of tinctures not possible to deliver with edibles, take effect generally within minutes and provide benefits for approximately 3 hours. Significantly, these formulas all provide a pleasant predictable experience, a gentle onset and exit and have no unpleasant sensations or aftereffects sometimes associated with cannabis products. Our current products are as follows:
Calm
CBD rich with a hint of THC, Calm is formulated to quiet your mind and ease you into a gentle sense of wellbeing.
Wonder
Our highest THC offering, Wonder is carefully crafted to bring back that youthful sense of wonder and awe we feel when we are fully engaged with our senses and environment.
Balance
Balance is a subtle combination of cannabinoids and terpenes formulated to bring your mind, body and spirit back to an even state of harmony and homeostasis.
Create
Create is formulated to stimulate your senses, spark your imagination and channel your inner muse. Led by a stimulative blend of terpenes and just the right amount of THC to inspire and facilitate the artist in you.
Play
We formulated Play to help you become fully immersed in the moment and the people around you. From the park to the beach to the dance floor, Play helps you find your groove and keep it going.
Delight
Put on your rose-colored glasses and give everything some extra sparkle with Delight. Designed to open your senses, raise your spirits and brighten your day.
Acquisition of Assets
On September 9, 2021, we entered into a binding letter of intent with L & G USA Inc., a Delaware corporation and L & G Canada Inc., an Ontario corporation (together “Seller”), and the stockholders of Seller, pursuant to which the Company planned to acquire substantially all of the assets from Seller associated with the Lemon & Grass business and the Koan business (the “Acquisition”).
On October 27, 2021, the Company terminated the agreement. The Company is still in discussions with Seller, and the Company may or may not go through with a transaction with Seller, but if the Company does, the terms will change from the previous agreement.
| 16 |
Competitive Landscape
The cannabis market still primarily consists of products of varying quality and poor branding. Much of the branding is heavy “stoner” or hospital medicinal, and differentiation between products is difficult. As a result, finding a product with controllable, consistent effects is difficult. Even products of high and reliable quality all look alike and have no shelf appeal. In addition, there is a mismatch between the fastest growing demographic and many current product offerings, which are designed to be inhaled. This is exactly why we have developed Koan Cordials, tasty, single serving, healthy cannabis products with timeless, exceptional branding. As the market matures, some companies are recognizing the importance of branding. Branded category leaders represent the 10 spots among best-selling products and sales data supports the desire among consumers for branded products. This is further supported by Headset, data (the leading industry provider of retail buying patterns), which shows that brands are leading every category in cannabis. Further, branded products command higher prices. Some branded products generate pricing as high as 151%, over industry average. The Resonate team excels in product branding.
There is no product in the marketplace exactly like our Koan products currently. Other companies offer tinctures (which are concentrated herbal extracts made by soaking the bark, berries, leaves (dried or fresh), or roots from one or more plants in alcohol or vinegar), tea, salves, patches, and cosmetics and vapes, and some of them provide effects which may be similar to those the Koan products will provide, but we believe that none are equal to ours with respect to quality, efficacy, consistency and scope. Our products are water soluble and can be enjoyed privately or poured in beverages and shared socially. We believe that the total experience offered by our products cannot be found elsewhere in the industry.
While there are several very fine products in the premium cannabis space, there is not yet a dominant brand in any category. Some are leading but no brand dominates. Data indicates that our targeted demographic seeks out trusted brands when making product selections. Resonate is bringing to market custom, reliable, experience-targeted products. which can be sipped or shared, offered under a well-crafted brand supported by an accessible information system. We provide The Resonate System so customers can understand what to expect and can make informed confident selections.
Marketing and Sales Plan
The cannabis industry is changing daily in response to updated regulations, customer product education, new interest from various demographics and now the COVID-19 pandemic. As a result, we are constantly attentive to these changes as they affect the marketing of our products. Our initial marketing strategy was to launch in select dispensaries in Los Angeles and to support the launch with dispensary promotional material and location-based marketing. However, in the current market the Company has decided to modify this strategy. Paradoxically, retail restrictions and safety regulations were beneficial for us, as these allowed us to reprioritize our sales approach and to build a marketing plan around on-line dispensaries with wide delivery networks. Although retail restrictions will eventually be relaxed, we do not expect that storefront dispensaries will return to the dominant role they played in the cannabis industry before COVID-19 for several reasons.
| 17 |
Dispensaries are generally small, making social distancing difficult. Limitations on a customers’ ability to touch and smell products reduces the value of in-person shopping. Restrictions on the number of people allowed in these small spaces will create waiting lines outside stores, which will be inconvenient and even embarrassing for some. Finally, we have learned that a significant number of customers, particularly in our targeted demographic, really prefer the privacy and convenience of having products delivered to their homes. For all these reasons, we have decided to focus our sales efforts on select high-end retail dispensaries and on-line, delivery and e-commerce outlets.
In response to the sudden change in customer buying preferences, Resonate has implemented a plan to sell directly to consumers. We are partnering with an on-line platform which will allow us to communicate the value of our products directly to consumers. This platform will connect consumers to a licensed retail and California-wide home delivery network. This direct-to-consumer approach has significant benefits for us. First, it allows us to control our brand messaging and to assure that we can provide the information and education customers need to make confident and informed product choices. Through this method, we also have access to customer information, which is not available from dispensaries, which allows us to employ successful marketing techniques used by leading on-line retailers such as customer loyalty programs, memberships, ambassadors, etc., to build brand awareness and increase sales. It is also better for us financially as it increases our profit margin.
Therefore, our marketing budget and energy is now being channeled into appropriate programmatic advertising, developing informational materials for customers on our website, and developing professional and effective social media, search engine optimization and direct to consumer marketing campaigns. We also offer market suppose and to select premium California dispensaries both in person and thorough the Leaf.VIP budtender training program. We expect that building our brand online will complement retail sales by increasing customer awareness and creating “pull-through” at brick-and-mortar facilities.
Resonate has partnered with Good People LLC as its state-wide Koan Cordial sales team. Good People is working closely with Resonate Blends’ marketing team to plan events, train budtenders, schedule and track relevant promotions and inform the innovation pipeline with field insights. In addition, Resonate is currently recruiting two internal sales managers to oversee all sales efforts in Northern and Southern California. Koan Cordials dispensary buyer sample kits are now available through Good People and dispensaries are now stocking the product in strategic geographical locations.
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 selected 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 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.
In addition, Vertosa is expanding into other legal states, and this paves the way for Resonate to follow behind moving beyond California while still assuring strict standards and high production quality for our products.
Manufacturing:
The Company partnered with The Galley, a California licensed Type N – Infused Products Manufacturer based in Santa Rosa, California. The Galley produces and packages premium award-winning products and has worked with some of the most popular brands in the industry. The Galley is built to FDA and CDPH standards and is focused on high demand areas of production – Edibles, Topicals, Tinctures, Chocolate, Hard Candies, Gummies, Pre-Rolls, Flower, Vapes and Beverages. Resonate Blends was granted a Type S: Shared Facility - Adult and Medicinal Cannabis Manufacturing License on July 23, 2021. The license allows Resonate Blends to manufacture cannabis products at the licensed facility of The Galley.
| 18 |
Resonate and The Galley entered into a Master Services Agreement in which The Galley will manufacture and package Resonate’s first family of products to precise specifications.
The Galley and Resonate have been in frequent contact throughout Resonate’s development period and are now supporting the production of the Company’s unique family of wellness lifestyle products. Resonate’s 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 prioritized a direct-to-consumer method as a key sales strategy. Resonate has identified a technology partner who will add 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.
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 a leading cannabis full-service distributor. The Company contracted with The Vault 3PL to provide logistics and state-wide distribution for Resonate’s Koan Cordials, its product line of unique experience blends currently available in California.
Resonate is also developing relationships with a variety of complementary distribution channels such as subscription box companies and other non-storefront reseller organizations.
| 19 |
To summarize, we have signed and announced definitive agreements with various partners to execute on our overall business strategy. Our partner Vertosa is expected to develop our unique formulations through its advanced nano-emulsification process, The Galley is expected to assemble and package, the Good People to sell the products, the Vault 3PL Distribution to distribute our products and, we just engaged with The Flower Agency to actively market our social media channels to the California market.
Our principal executive office is located at 26565 Agoura Road, Suite 200, Calabasas, CA 91302. Our executive telephone number is (571) 888-0009.
Results of Operation for Three and Nine Months Ended September 30, 2021 and 2020
Revenues
We have generated $7,574 and $7,574 in sales for the three and nine months ended September 30, 2021, respectively, as compared with no sales for the three and nine months ended September 30, 2020 on our current product line, but sales of $0 and $477,734 from the discontinued operations of our sold subsidiary, Textmunication, Inc., for the three and nine months ended September 30, 2020, respectively. We recently launched our first line of six Cordial products in California and we have started to generate revenues from the sale of these products.
We anticipate increased revenues on our six Cordials for the rest of the year. We anticipate a rollout of new packaging configurations by early 2022 for our Cordials; to include both a one-pack and a multi-dose bottle which will bring the cost per dose down considerably. We also plan on launching additional Cordial formulations by early 2022, which we hope will contribute to increasing our revenues. As we have just launched our products, however, it may take some time for the markets to react, gain traction and result in brand awareness among our customers. There can be no assurances, however, that customers will positively react to our products.
| 20 |
Operating Expenses
Our operating expenses were $762,912 for the three months ended September 30, 2021, as compared with $236,160 for the three months ended September 30, 2020. Our operating expenses were $2,937,437 for the nine months ended September 30, 2021, as compared with $1,445,463 for the nine months ended September 30, 2020.
The main reasons for the increased operating expense in 2021 was a result of our efforts to increase spending on advertising, as well as increased legal and professional fees and non-cash management fees.
We expect that our operating expenses will increase in 2021 over 2020 because of our product launch and the increased expenses associated with operations.
Other Income/Expenses
We had other income of $866,917 for the three months ended September 30, 2021 compared with other expenses of $86,910 for the same period ended September 30, 2020. We had other expenses of $3,398,548 for the nine months ended September 30, 2021 compared with other expenses of $712,625 for the same period ended September 30, 2020.
We recorded a gain on revaluation of derivative liabilities in the amount of $961,857 that contributed to our other income for the quarter ended September 30, 2021. Our other expenses for the nine months ended September 30, 2021 was mainly attributable to a loss on revaluation of derivative liabilities.
Net Loss
We had net income of $99,274 for the three months ended September 30, 2021, as compared with net loss of $351,399 for the three months ended September 30, 2020. We had net loss of $6,340,715 for the nine months ended September 30, 2021, as compared with net loss of $2,142,310 for the nine months ended September 30, 2020.
Liquidity and Capital Resources
As of September 30, 2021, we had total current assets of $649,017, consisting of $390,534 in cash and $258,483 in prepaids and inventory. Our total current liabilities as of September 30, 2021 were $5,387,805. We had a working capital deficit of $4,738,788 as of September 30, 2021, compared with a working capital deficit of $996,439 as of December 31, 2020.
Cash Flows from Operating Activities
Operating activities used $2,415,066 in cash for the nine months ended September 30, 2021, compared with cash used of $1,401,301 for the nine months ended September 30, 2020. Our negative operating cash flow for the nine months ended September 30, 2021 was largely the result of our net loss of $6,340,714, offset by share based compensation of $1,267,297. 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.
Cash Flows from Investing Activities
We used cash on investing activities to purchase computer equipment for the nine months ended September 30, 2021 with no cash used for the same period ended 2020.
Cash Flows from Financing Activities
Cash flows provided by financing activities during the nine months ended September 30, 2021 amounted to $2,727,322 compared with cash flows provided by financing activities of $1,119,943 for the nine months ended September 30, 2020. Our positive cash flows for the nine months ended September 30, 2021 consisted of proceeds from issuance of common stock of $1,367,115, proceeds from Convertible notes payable of $1,865,000, offset by payments of notes payable of $504,793. 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.
| 21 |
From December 1, 2020 through March 15, 2021, we sold units priced at $25,000 per unit where each unit consisted of (i) an 8.0% Note in the principal amount of $25,000 convertible into Common Stock (the “Note) and (ii) a warrant for the purchase of 83,333 shares of the Company’s Common Stock (the “Warrant”).
We sold 90 Units for total proceeds of $2,265,000. After paying finder fees of $187,450 to our placement agent, we netted $2,077,550, which will be used for working capital.
In addition, we also entered into subscription agreements in connection with an equity placement offering of a maximum of $2,000,000 in units (the “Equity Units”) where each Equity Unit consists of one share of Common Stock at a purchase price of $0.15 and a warrant to purchase 0.5 share(s) of Common Stock at an exercise price of $0.225 per share. We sold 6,983,333 Equity Units for total proceeds of $1,047,500. After paying finder fees of $100,763 to our placement agent, we netted $946,737, which was used to pay off the remaining convertible note debt and will also be used for working capital.
Until we can generate sufficient revenues to sustain operations, we are dependent on investment capital to continue our survival. 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, 2021, we have an accumulated deficit of $27,441,709. 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, 2021, 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 because 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.
| 22 |
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, 2021, 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.
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, 2021, 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, 2021. 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.
| 23 |
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 regarding insufficient segregation of duties by hiring additional employees 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, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
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.
Item 1A: Risk Factors
For our cannabis operations, see risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2020 filed on April 15, 2021.
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.
During the third quarter of 2021 the company issued a total of 716,554 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
Item 5. Other Information
None
Item 6. Exhibits
| Exhibit Number | Description of Exhibit | |
| 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, 2021 formatted in Extensible Business Reporting Language (XBRL). | |
| **Provided herewith |
| 24 |
SIGNATURES
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 22, 2021 | |
| By: | /s/ Geoffrey Selzer | |
| Geoffrey Selzer | ||
| Title: | President, Chief Executive Officer, Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer and Director | |
| 25 |