Resonate Blends, Inc 10-Q for FY2022 Q3
Resonate Blends, Inc. (KOAN)
About this 10-Q
Resonate Blends, Inc filed this 10-Q on November 21, 2022, covering the quarter ended September 30, 2022 (FY2022 Q3).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $10.43K
- up 37.7% from $7574 a year earlier
- Net income
- $62.1K
- down 37.4% from net income of $99.27K a year earlier
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, 2022
TABLE OF CONTENTS
| Page | ||
| PART I – FINANCIAL INFORMATION | ||
| Item 1: | Financial Statements | |
| Item 2: | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 3 |
| Item 3: | Quantitative and Qualitative Disclosures About Market Risk | 8 |
| Item 4: | Controls and Procedures | 8 |
| PART II – OTHER INFORMATION | 10 | |
| 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
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 nine months period ended September 30, 2022 are not necessarily indicative of the results that can be expected for the full year.
RESONATE BLENDS, INC.
Consolidated Balance Sheets
As of September 30, 2022 (unaudited) and December 31, 2021
| September 30,2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Advances to Suppliers | ||||||||
| Other receivable | ||||||||
| Inventories | ||||||||
| Total current assets | ||||||||
| Fixed assets, net | ||||||||
| Derivative Valuation allowance | ||||||||
| 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 C - Preferred stock, shares authorized, $ par value, issued and outstanding | ||||||||
| Preferred stock, value | ||||||||
| Common stock; $ par value; shares authorized; and shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively. | ||||||||
| Stock subscription receivable | ( | ) | ||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ deficit | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these audited consolidated financial statements
| F-1 |
RESONATE BLENDS, INC.
Consolidated Statements of Operations
For the three and nine months ended September 30, 2022 and 2021
(unaudited)
| Nine Months Ended | Three Months Ended | |||||||||||||||
| September 30 2022 | September 30 2021 | September 30 2022 | September 30 2021 | |||||||||||||
| REVENUES | $ | $ | $ | |||||||||||||
| COST OF REVENUES | ||||||||||||||||
| Gross profit | ( | ) | ( | ) | ||||||||||||
| Operating expenses | ||||||||||||||||
| Advertising | ||||||||||||||||
| General and administrative expenses | ( | ) | ||||||||||||||
| Legal and Professional fees | ||||||||||||||||
| Officer Compensation | ||||||||||||||||
| Salaries and Related | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Office Rent | ||||||||||||||||
| Impairment of inhouse software | ||||||||||||||||
| Non cash management fees | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (expense) | ||||||||||||||||
| Other Income | ( | ) | ||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain (Loss) on change of derivative liability | ( | ) | ||||||||||||||
| Amortization of debt discount | ( | ) | ||||||||||||||
| Amortization of issuance costs | ( | ) | ( | ) | ( | ) | ||||||||||
| Gain (loss) on settlement of derivative liabilities | ||||||||||||||||
| Legal settlement | ||||||||||||||||
| (Loss) Gain on settlement of notes payable | ( | ) | ( | ) | ||||||||||||
| Total other Income (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 audited consolidated financial statements
| F-2 |
RESONATE BLENDS, INC.
Consolidated Statement of Stockholders’ Equity (Deficit)
For the nine months period ended September 30, 2022
(unaudited)
| Preferred Stock Series A | Preferred stock - Series C | Common Stock | APIC | Subscription Receivable | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Stock issuance in private placement | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Stock issuance for debt conversion | - | |||||||||||||||||||||||||||||||||||||||
| Stock issuance for services | - | |||||||||||||||||||||||||||||||||||||||
| Net income for the quarter | - | |||||||||||||||||||||||||||||||||||||||
| Balances March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||
| Stock issuance for services | - | |||||||||||||||||||||||||||||||||||||||
| Net income for the quarter | - | - | ||||||||||||||||||||||||||||||||||||||
| Balance June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||
| Stock issuance for services | - | - | ||||||||||||||||||||||||||||||||||||||
| Stock issuance for debt conversion | - | - | ||||||||||||||||||||||||||||||||||||||
| Stock issuance in private placement | - | - | ||||||||||||||||||||||||||||||||||||||
| Net income for the quarter | - | - | ||||||||||||||||||||||||||||||||||||||
| Balance September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||
| Preferred Stock Series A | Preferred stock - Series C | Common Stock | Subscription | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | APIC | Receivable | Deficit | Deficit | |||||||||||||||||||||||||||||||
| Balance December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||
| Common stock issuance | ||||||||||||||||||||||||||||||||||||||||
| Net income for the quarter | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance March 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Common stock issuance | ||||||||||||||||||||||||||||||||||||||||
| Net income for the quarter | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance June 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Non-cash compensation | ||||||||||||||||||||||||||||||||||||||||
| Net income for the quarter | - | - | ||||||||||||||||||||||||||||||||||||||
| Balance September 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these audited consolidated financial statements
| F-3 |
RESONATE BLENDS, INC.
Consolidated Statements of Cash Flows
For the nine months ended September 30, 2022 and 2021
(unaudited)
| September 30, 2022 | September 30, 2021 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net Income (loss) | $ | $ | ( | ) | ||||
| Net loss from discontinued operations | ||||||||
| Adjustments to reconcile | ||||||||
| Amortization and depreciation | ||||||||
| (Gain) Loss on derivative liability | ( | ) | ||||||
| Non cash interest expense | ||||||||
| Stock subscription receivable | ( | ) | ||||||
| Share professional fees/ compensation | ||||||||
| Share-based compensation | ||||||||
| Gain on settlement of Derivative liabilities | ( | ) | ||||||
| Changes in assets and liabilities | ||||||||
| Inventories | ( | ) | ||||||
| Prepaids | ( | ) | ||||||
| Advances to suppliers | ( | ) | ( | ) | ||||
| Other receivables | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Derivative liabilities | ||||||||
| Due to Related party | ( | ) | ( | ) | ||||
| Net cash used by operating activities | ( | ) | ( | ) | ||||
| Net cash provided by discontinued operations | ||||||||
| Net Cash Provided By Used In Operating Activities | ( | ) | ( | ) | ||||
| 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) | ||||||||
| Payments on convertible notes payable | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net increase in cash | ||||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Non-Cash investing and financing transactions | - | - | ||||||
| Conversion of debt for common stock | $ | $ | ||||||
The accompanying notes are an integral part of these audited consolidated financial statements
| F-4 |
RESONATE BLENDS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
(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 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.
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.
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; and (ii) Pamela Kerwin as Chief Operating Officer (COO) of the Company with an annual salary of $120,000. Both 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 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.
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 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.
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
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 $
| F-5 |
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, 2022, 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. However, as of September 30, 2022, the company balances were above 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.
| F-6 |
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, 2022 and year ended December 31, 2021.
SUMMARY OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON RECURRING BASIS
| As of September 30, 2022 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Liabilities | ||||||||||||||||
| Derivative Liabilities | ||||||||||||||||
| As of December 31, 2021 | 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 from to
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.
| F-7 |
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.
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, 2022 and December 31, 2021 are $
| F-8 |
NOTE 4 - CONVERTIBLE NOTE PAYABLE
Convertible notes payable consists of the following as of September 30, 2022 and December 31, 2021:
SCHEDULE OF CONVERTIBLE NOTES PAYABLE
| September30, 2022 | December 31, 2021 | |||||||
| Convertible notes face value | $ | $ | ||||||
| Less: Discounts | ||||||||
| Less: Debt issuance cost | ||||||||
| Net convertible notes | $ | $ | ||||||
The
convertible notes as of September 30, 2022 are
On
January 28, 2022, we entered into Securities Purchase Agreements (the “Purchase Agreements”) with two accredited investors,
pursuant to which we issued and sold to the investors two convertible promissory notes, dated January 28, 2022, each in the principal
amount of $
The
Purchase Agreements allow for additional notes to be issued to investors up to $
On
March 3, 2022, we issued and sold to an accredited investor a convertible promissory note the principal amount of $
The
maturity date for repayment of the Notes is nine months from issuance and the Notes bear interest at
All
principal and accrued interest on the Notes are convertible into shares of our common stock. The conversion price shall equal a fixed
price of $
In the event that by the five (5) month anniversary of the issue date a Qualified Offering (as defined above) has not occurred, then we shall file with the SEC a registration statement on Form S-1 covering the resale of the maximum number of Registrable Securities, defined as the Commitment Shares, Conversion Shares and Warrant Shares.
| F-9 |
In
connection with the investment, we issued Commitment Shares to the Investors in the amount of shares collectively and we also
issued a warrant (the “Warrant”) to the Investors to purchase
The Securities Purchase Agreement contain a most favored nation provision that allows the Investor to claim any lower price from any future securities six months after this closing and a blocker on issuing variable rate investments.
On
June 27, 2022, we issued and sold to an accredited investor a convertible promissory note the principal amount of $
The Notes are convertible into shares of common stock, $ par value per share, of the Company upon the terms and subject to the limitations and conditions set forth in such Note. On the Closing Date (i) the Buyer shall pay the purchase price for the Note to be issued and sold to it at the Closing (as defined below) (the “Purchase Price”) by wire transfer of immediately available funds to the Company, in accordance with the Company’s written wiring instructions, against delivery of the Note in the principal amount equal to the Purchase Price as is set forth immediately below the Buyer’s name on the signature pages hereto, and (ii) the Company shall deliver such duly executed Note on behalf of the Company, to the Buyer, against delivery of such Purchase Price .
Finally,
on September 8, 2022, we issued and sold a convertible promissory note to AJB Capital Investments LLC for a principal amount of $
We
received $
In connection with the investment, we issued Commitment Shares to the Investors in the amount of shares collectively. A total of of those shares can be returned to treasury if the Note is paid off within six (6) months.
The
nine months ended September 2022 and 2021 interest accrued for the convertible notes payable at $
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 $
| F-10 |
NOTE 6 – STOCKHOLDERS’ EQUITY
During the third quarter of 2022 the company issued a total of shares of common stock to vendors for compensation, services rendered and commitment shares. The fair market value of the shares issued accounted as expenses as follows:
| Professional Fees | $ | |||
| Commitment shares | ||||
| Convertible promissory notes | ||||
| Total | $ |
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
SCHEDULE OF DISCONTINUED OPERATIONS
| 2020 | ||||
| Revenues | $ | |||
| Cost of Revenues | ( | ) | ||
| Operating expenses | ( | ) | ||
| Loss from operations of discontinued operations | ( | ) | ||
NOTE 8 – SUBSEQUENT EVENTS
In accordance with FASB ASC 855-10, Subsequent Events, the Company has analyzed its operations subsequent to September 30, 2022 to the date these financial statements were issued and has determined that it does not have any material subsequent events to disclose in these consolidated financial statements.
| F-11 |
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, the Company announced its entry into the cannabis industry by acquiring Resonate Blends LLC (“Resonate Blends”), a California-based cannabis wellness lifestyle product company built on a proprietary system of experiential targets. Resonate Blends 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 Blends. Entourage Labs is the Intellectual Property (IP) subsidiary of Resonate Blends.
Based in Calabasas, California, the Company is a cannabis holding company centered on value-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 the Company believes is the industry gold standard in user experience.
Resonate 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 and beneficial experiences.
Resonate is committed to helping people live the life they love, but they do not make the medicinal vs. recreational distinction. This is a temporary legal separation in some states that should soon cease to exist. The Company believes in wellness for the whole person, especially people with insomnia, pain or anxiety who also want to enjoy friends, concerts and have satisfying intimate experiences. Resonate is designing experiences which should improve all areas of ones’ life.
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To accomplish this, Resonate is Mastering the Art of Experience. This is the Company’s mission. By integrating science, technology, education, branding, marketing, sales and delivery - with every customer interaction they aim to provide exceptional experiences. Cannabis has a broad range of unique characteristics, and they are dedicated to harnessing and amplifying those characteristics to support healthy empowered and engaged lifestyles. From product development through customer communication, they 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 its 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.
To communicate the breadth of wellness products that Resonate is developing, the Company 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. Koan 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”). 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, the Koan 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. 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. A significant competitive advantage is that the Cordials allow users to select both the experience they want and the beverage they choose to enjoy them in.
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 now offering seven unique formulations including the newly released Sleep Cordial available as of September 29, 2022. The Sleep Cordial has been thoroughly tested and is now available in “Single” samples and in cost effective 100 ml, 10 serving multi-serve bottles. Koan Cordials now come in: Calm, Create, Delight, Love, Play, Wonder and Sleep experience-targeted blends providing consumers a choice on how they want to feel.
The Cordials were awarded the Golden Leaf Award as “Best New Brand of 2021” at the “Luxury Meets Cannabis Conference” held in New York City in December. Resonate also won a Cannabis Clio Award for “Brand Design” in 2021.
Resonate has formalized contracts with logistical, sales and marketing partners to build a digital native strategy supporting Direct-to-Consumer (D2C) sales. The D2C sales platform launched in October 2021 and now allows California consumers the ability to order on-line and have the Cordials home delivered in most metro areas within four hours. Based on customer demand, the Company offers a “Singles” option for the Cordials which are now available. In response to customer requests, the company is now offering five popular blends in 10-serving bottles, also known as “multi-serve” bottles, that provide a lower cost per serving and allow users to customize their servings to their personal preference. In addition, the company is also offering a 4-pack that also lowers the cost per serving while preserving the convenience and portability of the discrete smaller bottles.
| 4 |
The Company offers market support to select premium California dispensaries both in person and thorough the Leaf.VIP budtender training program. The Company expects that building its brand online will complement retail sales by increasing customer awareness and creating “pull-through” at brick-and-mortar facilities. The social media strategy was brought in-house during Q1 to both reduce overall costs and control the messaging to the appropriate audience for the Cordials.
Resonate recently hired an internal sales manager to oversee all sales efforts in Southern California and expects to hire a sales manager for Northern California in the near future. The Company implemented an in-house sales strategy in Q1 2022 to maximize both the dispensary outreach and budtender education – and to increase D2C sales platform activity. The Company has added several new retail partners in 2022 to include Atrium, Cornerstone Wellness, 99 High Tide, Artist Tree, Canni Delivery and Rose Mary Jane. The Cordials are now featured at West Hollywood’s The Artist Tree Studio Cannabis Lounge where music performers will be providing the entertainment events throughout the summer. The Studio Cannabis Lounge in West Hollywood is the only one of its kind in the United States and this partnership should provide users an interactive experience unavailable elsewhere. Rose Mary Jane Cannabis Lounge in Oakland also added the Cordials to its menu on September 24, 2022. The Company is placing a major focus on cannabis lounges throughout California to enhance its marketing and sales efforts.
With the new in-house sales strategy in place, new wellness dispensaries are expected to grow throughout 2022 Wellness dispensaries are the main target due to the demographics of the consumer and the thorough educational process these dispensaries offer to buyers in their stores. Multi-state expansion through licensing arrangements with the Cordials is also being planned. Several retailers and leading brands in multiple states have reached out to Resonate requesting the Cordials to be stocked in their dispensaries. The Company is currently evaluating where and when to open new states outside of California.
We are in negotiations with Chemistry, Inc. (“Chemistry”), a California corporation, to acquire the company pending execution of definitive agreements, obtaining the required corporate approvals and other matters. We are no longer pursuing Iron Summit Distribution, Inc., as was announced on September 20 through a Press Release, but are instead focused on an anticipated closing of Chemistry in Q4 2022.
The principal executive office is located at 26565 Agoura Road, Suite 200, Calabasas, CA 91302. The executive telephone number is (571) 888-0009.
Results of Operation for Three and Nine Months period Ended September 30, 2022 and 2021
Revenues
We have generated $10,429 and $40,917 in sales for the three and nine months period ended September 30, 2022, respectively, as compared with $7,574 in sales for the three months and nine months period ended September 30, 2021 on our current product line. We launched our first line of seven Cordial products in California and we have started to generate revenues from the sale of these products.
We anticipate increased revenues on our seven Cordials including our newly launched Sleep Cordial, discussed above, for the rest of 2022. In Q3 2022, we rolled out a new packaging configuration for our Cordials: to include a one-pack, a 4-pack to replace the 3-pack and a multi-dose bottle which is expected to bring the cost per dose down considerably. We also plan on launching a new line of edibles in late 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.
| 5 |
Gross Profit
We accrued $9,718 and $24,996 in cost of revenues for the three and nine months period ended September 30, 2022, respectively, resulting in a gross profit of $711 and $15,921 for the three and nine months period ended September 30, 2022, respectively. We have had little historical data to compare our margins for the sale of our new products, which were introduced into the retail channel in late Q2 of 2021. We accrued $12,304 in cost of revenues for the three months ended September 30, 2021, resulting in a gross loss of $4,730 for the three months ended September 30, 2021. Our gross margin, which is the difference between our revenues and our cost of revenues, is expected to increase in future quarters as we work to increase our efficiency and lessen costs. In addition, our gross margin percentage, which was 6.82% and 38.91% for the three and nine months period ended September 30, 2022, respectively, and we hope will stabilize in the 35% to 43% range as we implement cost saving measures and roll out new products to increase sales for the balance of 2022. We are also implementing new packaging configurations which we expect to stabilize our overall gross margin.
Operating Expenses
Our operating expenses were $218,876 and $1,164,706 for the three and nine months period ended September 30, 2022, respectively, as compared with $762,912 and $2,937,437 for the three and nine months period ended September 30, 2021, respectively.
The main drivers for the overall decrease in operating expenses in Q3 2022 were the reduction of Legal, Professional Fees and Salaries as well as a significant decrease in non-cash management fees.
Not having these non-cash management and broker fees would reduce our operating expenses by $0 and $206,462 for the three and nine months period ended September 30, 2022, respectively. Our continued focus on sales, advertising, marketing and new product development costs to support our planned growth is expected to increase throughout 2022.
We spent $129,316 and $104,957 less on advertising for the three and nine months period ended September 30, 2022, respectively, than for the same periods in 2021. We spent more on advertising for the nine-month ended September 30, 2021 particularly the first quarter to introduce our Koan Cordials to the California retail channel, perform Search Engine Optimization (SEO), conduct Programmatic advertising, hire a professional agency to promote our Cordials on social media channels and other general advertising methods. We believe our advertising efforts will pay dividends for the rest of 2022 and into 2023 as the awareness groundwork has been established to educate the market on our family of Cordial formulations.
Professional fees decreased by $27,951 and $381,618 for the three and nine months period ended September 30, 2022, respectively, over for the same periods in 2021. Our professional fees were less for this period compared to last period, but we expect that professional fees will increase in 2022 as we continue to ramp up operations.
General and administrative expenses increased by $70,717 and $53,855 for the three and nine months period ended September 30, 2022, respectively, over for the same periods in 2021. The increased expenses resulted from establishing our internal sales team, attending strategic trade shows and bringing on consultants and financial analysts to assist in analyzing our acquisition strategy. We expect general and administrative expenses to remain fairly constant throughout 2022, but they could increase significantly if we acquire new companies as part of our overall corporate strategy.
We also expect that our operating expenses will increase in 2022 over 2021 as we roll out new products along with our existing products, and the increased expenses associated with operations.
Other Income/Expenses
We had other income of $280,267 and $1,912,657 for the three and nine months period ended September 30, 2022, respectively, compared with other income of $866,917 and other expense of $3,398,548, respectively, for the same periods ended September 30, 2021, respectively.
The main reason for our other income in 2022 was the gain on revaluation of derivative liabilities. The main reason for our other expenses in 2021 was the loss on revaluation of derivative liabilities.
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Net Income/Loss
We had net income of $62,102 and $763,872 for the three and nine months period ended September 30, 2022, as compared with net income of $99,274 and a net loss of $6,340,715 for the three and nine months period ended September 30, 2021, respectively.
Liquidity and Capital Resources
As of September 30, 2022, we had total current assets of $616,531 consisting of $274,840 in cash, $19,592 in advances to suppliers, $126,811 in other receivable and $195,288 in inventories. Our total current liabilities as of September 30, 2022 were $1,419,130. We had a working capital deficit of $802,599 as of September 30, 2022 compared with a working capital deficit of $3,088,810 as of June 30, 2022 and $4,133,368 as of December 31, 2021.
Cash Flows from Operating Activities
Operating activities used $1,476,854 in cash for the nine months period ended September 30, 2022, compared with cash used of $ 2,415,066 for the nine months period ended September 30, 2021. Our negative operating cash flow for the nine months period ended September 30, 2022 was largely the result of our unrealized gain on derivative liability of $2,213,527, offset by our net income of $763,872. Our negative operating cash flow for the nine months period ended September 30, 2021 was largely the result of our net loss of $6,340,715, offset by share based compensation of $1,267,297 and the unrealized loss on derivative liability of $3,106,826.
Cash Flows from Investing Activities
Investing activities used $0 in cash for the nine months period ended September 30, 2022, as compared with $36,047 to purchase computer equipment for the nine months period ended September 30, 2021.
Cash Flows from Financing Activities
Cash flows provided by financing activities during the nine months period ended September 30, 2022 amounted to $1,738,781, compared with cash flows provided by financing activities of $2,727,322 for the nine months period ended September 30, 2021. Our positive cash flows for the nine months period ended September 30, 2022 consisted of proceeds from issuance of common stock of $349,981 and proceeds from Convertible notes payable of $1,388,800. Our positive cash flows for the nine months period 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.
The features of the debt instruments and payables concerning our financing activities are detailed in the footnotes to our financial statements.
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.
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, 2022, we have an accumulated deficit of $25,210,179. 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.
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Off Balance Sheet Arrangements
As of September 30, 2022, 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, 2022, 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, 2022, 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, 2022, 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, 2022. 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, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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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
See risk factors included in our Annual Report on Form 10-K/A for the year ended December 31, 2021 filed on April 19, 2022.
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 2022, we issued a total of 27,565,745 shares of common stock to vendors for compensation, services rendered and commitment shares.
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 | |
| 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, 2022 formatted in Extensible Business Reporting Language (XBRL). | |
| **Provided herewith |
| 10 |
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 21, 2022 | |
| 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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Exhibit 3.1
Exhibit 31.1
CERTIFICATIONS
I, Geoffrey Selzer, certify that;
| 1. | I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2022 of Resonate Blends, Inc. (the “registrant”); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 21, 2022
| /s/ Geoffrey Selzer | ||
| By: | Geoffrey Selzer | |
| Title: | Chief Executive Officer |
Exhibit 31.2
CERTIFICATIONS
I, Geoffrey Selzer, certify that;
| 1. | I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2022 of Resonate Blends, Inc. (the “registrant”); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 21, 2022
| /s/ Geoffrey Selzer | ||
| By: | Geoffrey Selzer | |
| Title: | Chief Financial Officer |
Exhibit 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
In connection with the quarterly Report of Resonate Blends, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2022 filed with the Securities and Exchange Commission (the “Report”), I, Geoffrey Selzer, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the consolidated result of operations of the Company for the periods presented. |
| By: | /s/ Geoffrey Selzer | |
| Name: | Geoffrey Selzer | |
| Title: | Principal Executive Officer, Principal Accounting Officer and Principal Financial Officer
|
|
| Date: | November 21, 2022 |
This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.