The accompanying
notes are an integral part of these consolidated financial statements
NOTE
1 – BASIS OF PRESENTATION AND GOING CONCERN
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.
In 2007, the Company deregistered its common
stock in order to avoid the expenses of being a public company. The Company reported briefly on the OTC Disclosure & News
Service in 2008 but not for long. The Company again changed its name to FSTWV, Inc.
On October 28, 2013, the Company held a
shareholder meeting to reincorporate the company in the State of Nevada and concurrently change its name to Textmunication Holdings,
Inc. The Company also voted to approve a 1 for 5 reverse split of its outstanding common stock.
On November 16, 2013, the Company entered
into a Share Exchange Agreement (SEA) with Textmunication, Inc. a California corporation, whereby the sole shareholder of the
Company received 65,640,207 new shares of common stock of the Company in exchange for 100% of the Textmunication’s issued
and outstanding shares.
Textmunication is an online mobile marketing
platform service that will connect merchants with their customers and allow them to drive loyalty and repeat business in a non-intrusive,
value added medium. For merchants we provide a mobile marketing platform where they can always send the most up-to-date offers/discounts/alerts/events
schedule, such as happy hours, trivia night, and other campaigns. The consumer can also access specials and promotions that merchants
choose to distribute through Textmunication by opting into keywords designated to the merchant’s keywords.
On July 9, 2018, the 1 – 1,000 Reverse
Split of the Company’s common stock took effect at the open of business. All shares and per share amounts have been
retroactively adjusted to reflect the reverse split.
On June 25, 2019, the Company issued a press
release announcing it plans to change its business direction from its current SMS technology business to focus on the emerging
national cannabis market. The Company planned on using its mobile texting platform to enhance communication efforts with
the potential acquisitions.
On October 25, 2019, the Company entered into
a Membership Interest Purchase Agreement (the “Resonate Purchase Agreement”) with Resonate Blends, LLC, a California
limited liability company (“Resonate”), and the members of Resonate. As a result of the transaction, Resonate became
a wholly owned subsidiary of the Company. In accordance with the terms of the Purchase Agreement, at the closing an aggregate of
5% of the Company’s outstanding shares of common stock for a total of 665,072 shares were issued to the holders of Resonate
in exchange for their membership interests of Resonate. These shares have anti-dilution protection. We have also agreed as part
of the purchase price to issue: (ii) such number of shares of Series E Preferred Stock that will convert into 5% of the outstanding
shares of common stock in the Company on a fully-diluted basis upon an annualized revenue run rate of Ten Million Dollars ($10,000,000.00)
for any three (3) consecutive month trailing period; and (iii) such number of shares of Series E Preferred Stock that will convert
into 5% of the outstanding shares of common stock in the Company on a fully-diluted basis upon the occurrence of the Company’s
public market value reaching One Hundred Million US Dollars ($100,000,000). The shares in (ii) and (iii) shall have anti-dilution
protections, except that this provision only applies for 2.5% of the outstanding shares acquired under each subsection.
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.
RESONATE BLENDS, INC.
(formerly TEXTMUNICATION HOLDINGS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 and 2018
In
addition, the Company entered into an Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of Obligations
(the “Conveyance Agreement”) with Mark S. Johnson and the Company’s 49% owned subsidiary, Aspire Consulting
Group, LLC, a Virginia limited liability company. Pursuant to the Conveyance Agreement, the Company transferred all assets and
business operations associated with its IT consulting solutions, including all of the capital stock of Aspire Consulting, to Mr.
Johnson. In exchange, Mr. Johnson agreed to cancel 20,000 shares of common stock in the Company and to assume and cancel all liabilities
relating to the Company’s former business.
Finally, the Company entered into Employment
Agreements with the following persons: (i) Geoffrey Selzer as Chief Executive Officer (CEO) of the Company with an annual
salary of $180,000; 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.
In connection with the name change, the Company’s
symbol was changed to “KOAN” that more resembles the Company’s new business focus.
Basis
of Presentation
Our
financial statements are presented in conformity with accounting principles generally accepted in the United States of America,
as reported on our fiscal years ending on December 31, 2019 and 2018. We have summarized our most significant accounting policies.
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 December 31, 2019, the Company has an accumulated deficit of $19,159,721. The company’s
ability to continue as a going concern is contingent upon the successful completion of additional financing arrangements and its
ability to achieve and maintain profitable operations. While the Company is expanding its best efforts to achieve the above plans,
there is no assurance that any such activity will generate funds that will be available for operations. These conditions raise
substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance
of these financial statements. These consolidated financial statements do not include any adjustments that might arise from this
uncertainty.
RESONATE
BLENDS, INC.
(formerly
TEXTMUNICATION HOLDINGS, INC.)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 and 2018
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash
The
Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.
The
Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial
institution. The balance at times may exceed federally insured limits. At December 31, 2019 and 2018 no cash balances exceeded
the federally insured limit.
Accounts
receivable and allowance for doubtful accounts
Accounts
receivable are stated at the amount management expects to collect. The Company generally does not require collateral to support
customer receivables. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts
receivable, historical collection information and existing economic conditions. As of December 31, 2019, and 2018 there’s
no allowance for doubtful accounts and bad debts. At December 31, 2019 and 2018, one customer represented 51% and 71%, respectively,
of the Company’s accounts receivable.
Revenue
Recognition
Revenues
are recognized when control of the promised is transferred to our customers, in an amount that reflects the consideration we expect
to be entitled to in exchange for those services.
The
Company currently derives a substantial majority of its revenue from fees associated with our subscription services, which generally
include mobile marketing platform services. Customers are billed for the subscription on a monthly basis. For all of the Company’s
customers, regardless of the method, the Company uses to bill them; subscription revenue is recorded as deferred revenue
in the accompanying consolidated balance sheets. As services are performed, the Company recognizes subscription revenue on a monthly
basis over the applicable service period. When the Company provides a free trial period, the Company does not begin to recognize
subscription revenue until the trial period has ended and the customer has been billed for the services.
Professional
services revenues are generated from SMS and RCS packages where client logs into a cloud-based application to send targeted SMS
messages to their subscriber’s base. Our custom web application SMS/RCS platform is typically billed on a fixed-price based
on the number of SMS/RCS allocated for each package our client purchases. Generally, revenue for SMS/RCS services are recognized
immediately as our clients have instant access to their web-based application to send out messages, the number of SMS/RCS messages
allocated to a client expires at the end of each month and renews beginning of each month. The Company offers whereby control
of the product passes to the customer when delivered and revenue is recognized at the time of delivery.
Results
for reporting periods beginning after January1, 2018 are presented under Topic 606, while prior period amounts are not adjusted
and continue to be reported in accordance with our historic accounting under Topic 605
We
did not have a cumulative impact as of January 1, 2018 due to the adoption of Topic 606 and there was not an impact to our consolidated
statement of operations for the year ended December 31, 2018 as a result of applying Topic 606.
Fair
Value of Financial Instruments
The
carrying amounts reflected in the balance sheets for cash, accounts payable and accrued expenses approximate the respective fair
values due to the short maturities of these items.
As
required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair
value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted
prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly
or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity
to develop its own assumptions.
RESONATE
BLENDS, INC.
(formerly
TEXTMUNICATION HOLDINGS, INC.)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 and 2018
The
three levels of the fair value hierarchy are described below:
Level
1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or
liabilities;
Level
2: Quoted prices in markets that are not active, or inputs that is observable, either directly or indirectly, for substantially
the full term of the asset or liability;
Level
3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable
(supported by little or no market activity).
The
fair value of the accounts receivable, accounts payable, notes payable are considered short term in nature and therefore their
value is considered fair value.
As
of December 31, 2018, there are no financial assets and liabilities measured at fair value.
Financial
assets and liabilities measured at fair value on a recurring basis are summarized below for the year ended December 31, 2019:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Financial Instruments
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
262,712
|
|
|
$
|
262,712
|
|
Net
income (loss) per Common Share
Basic
net income (loss) per share is computed by dividing the net loss attributable to the common stockholders by the weighted average
number of shares of common stock outstanding during the period. Fully diluted loss per share is computed similar to basic loss
per share except that the denominator is increased to include the number of additional common shares that would have been outstanding
if the potential common shares had been issued and if the additional common shares were dilutive.
Property
and equipment
Property
and equipment are stated at cost, less accumulated depreciation provided on the straight-line method over the estimated useful
lives of the assets, which range from three to seven years. Expenditures for renewals or betterments are capitalized, and repairs
and maintenance are charged to expense as incurred the cost and accumulated depreciation of assets sold or otherwise disposed
of are removed from the accounts, and any gain or loss thereon is reflected in operations. Company policy capitalizes property
and equipment for cost over $1,000, asset acquired under $1,000 are charge to operations.
Income
Taxes
Income
taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and
liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and
are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax
assets that, based on available evidence, are not expected to be realized. Because the Company has no net income, the tax benefit
of the accumulated net loss has been fully offset by an equal valuation allowance.
RESONATE
BLENDS, INC.
(formerly
TEXTMUNICATION HOLDINGS, INC.)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 and 2018
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Stock-Based
Compensation
The
Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation –
Stock Compensation which requires all share-based payments to employees, including grants of employee stock options, to be recognized
in the financial statements based on their fair values. The fair value of the equity instrument is charged directly to compensation
expense and credited to additional paid-in capital over the period during which services are rendered.
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.
Software
Development Costs
The
Company applies the principles of FASB ASC 985-20, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed (“ASC 985-20”). ASC 985-20 requires that software development costs incurred in conjunction with product
development be charged to research and development expense until technological feasibility is established. Thereafter, until the
product is released for sale, software development costs must be capitalized and reported at the lower of unamortized cost or
net realizable value of the related product.
The
Company also applies the principles of FASB ASC 350-40, Accounting for the Cost of Computer Software Developed or Obtained for
Internal Use (“ASC 350-40”). ASC 350-40 requires that software development costs incurred before the preliminary project
stage be expensed as incurred. We capitalize development costs related to these software applications once the preliminary project
stage is complete and it is probable that the project will be completed, and the software will be used to perform the function
intended.
During
2018, management determined that the software is unable to handle the expanding business and decided to scrap the entire project
and recognize as loss for the year. A total cost of $85,092 was written off during the year ended December 31, 2018.
Advertising
Expenses
Advertising
expenses are included in General and administrative expenses in the Statements of Operations and are expensed as incurred. The
Company incurred $21,831 and $13,873 in advertising expenses for the years ended December 31, 2019 and 2018, respectively.
RESONATE
BLENDS, INC.
(formerly
TEXTMUNICATION HOLDINGS, INC.)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 and 2018
(AUDITED)
Recent
Accounting Pronouncements
In
March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations
(Reporting Revenue Gross versus Net). ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations
and includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred
to the customers. ASU 2016-08 is effective January 1, 2018 to be in alignment with the effective date of ASU 2014-09.
In
April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations
and Licensing. The amendments in ASU 2016-10 clarify the following two aspects
of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles
for those areas. ASU 2016-10 is effective January 1, 2018 to be in alignment with the effective date of ASU 2014-09.
In
May 2016, the FASB issued ASU 2016-12, Revenue from Contracts from Customers (Topic 606): Narrow-Scope Improvements and Practical
Expedients. The amendments in this update affect the guidance in ASU 2014-09, which is not yet effective. The core principle
of the guidance in Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services. The amendments in ASU 2016-12 do not change the core principle of the guidance in Topic 606, but instead affect only
the narrow aspects noted in Topic 606. ASU 2016-12 is effective January 1, 2018 to be in alignment with the effective date of
ASU 2014-09. The Company will adopt the provisions of Topic 606 effective in January 1, 2018 and does not believe the adoption
of the new revenue recognition standard will have a material impact on the Company’s consolidated financial statements.
In
January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and
Financial Liabilities. ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of
financial instruments including requirements to measure most equity investments at fair value with changes in fair value recognized
in net income, to perform a qualitative assessment of equity investments without readily determinable fair values, and to separately
present financial assets and liabilities by measurement category and by type of financial asset on the balance sheet or the accompanying
notes to the financial statements. ASU 2016-01 will be effective for the Company beginning on January 1, 2018 and will be applied
by means of a cumulative effect adjustment to the balance sheet, except for effects related to equity securities without readily
determinable values, which will be applied prospectively. Management has reviewed this pronouncement and has determined that it
would not have a material impact to the consolidated financial statements.
In
February 2016, the FASB issued ASU 2016-02, Leases, which requires an entity to recognize long-term lease arrangements
as assets and liabilities on the balance sheet of the lessee. Under ASU 2016-02, a right-of-use asset and lease obligation will
be recorded for all long-term leases, whether operating or financing, while the income statement will reflect lease expense for
operating leases and amortization/interest expense for financing leases. The amendments also require certain new quantitative
and qualitative disclosures regarding leasing arrangements. ASU 2016-02 will be effective for the Company beginning on January
1, 2019. Lessees must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning
of the earliest comparative period presented in the financial statements. Early adoption is permitted. Management does not believe
the adoption of ASU 2016-02 will have a material impact on the Company’s consolidated financial statements.
In
March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging: Effect of Derivative Contract Novations on Existing Hedge Accounting
Relationships, which clarifies that a change in the counterparty to a derivative instrument that has been designated as a hedging
instrument would not, in and of itself, be considered a termination of the derivative instrument, provided that all other hedge
accounting criteria continue to be met. ASU 2016-05 is effective for the Company beginning on January 1, 2017. Early adoption
is permitted, including in an interim period. Management evaluated ASU 2016-05 and determined that the adoption of this new accounting
standard did not have a material impact on the Company’s consolidated financial statements.
RESONATE
BLENDS, INC.
(formerly
TEXTMUNICATION HOLDINGS, INC.)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 and 2018
(AUDITED)
In
March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments,
which aims to reduce the diversity of practice in identifying embedded derivatives in debt instruments. ASU 2016-06 clarifies
that the nature of an exercise contingency is not subject to the “clearly and closely” criteria for purposes of assessing
whether the call or put option must be separated from the debt instrument and accounted for separately as a derivative. ASU 2016-06
is effective for the Company beginning on January 1, 2017. Management evaluated ASU 2016-06 and determined that the adoption of
this new accounting standard did not have a material impact on the Company’s consolidated financial statements.
In
March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting.
ASU 2016-09 simplifies several aspects of the accounting and presentation of share-based payment transactions, including the
accounting for related income taxes consequences and certain classifications within the statement of cash flows. ASU 2016-09 is
effective for the Company beginning on January 1, 2017. Management evaluated the impact of adopting ASU 2016-09 and determined
that the new accounting standard did not have a material impact on the Company’s consolidated financial statements.
In
August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments” (“ASU 2016-15”). ASU 2016-15 will make eight targeted changes to how cash receipts and cash
payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after
December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which
case it would be required to apply the amendments prospectively as of the earliest date practicable.
In
November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230)”, requiring that the statement of
cash flows explain the change in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted
cash equivalents. This guidance is effective for fiscal years, and interim reporting periods therein, beginning after December
15, 2017 with early adoption permitted. The provisions of this guidance are to be applied using a retrospective approach which
requires application of the guidance for all periods presented. Management has reviewed this pronouncement and has determined
that it would not have a material impact to the consolidated financial statements.
In
May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718), Scope of Modification Accounting. The amendments
in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity
to apply modification accounting in Topic 718. The amendments in this Update are effective for all entities for annual periods,
and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption
in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been
issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance.
Management has reviewed this pronouncement and has determined that it would not have a material impact to the consolidated financial
statements.
RESONATE
BLENDS, INC.
(formerly
TEXTMUNICATION HOLDINGS, INC.)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 and 2018
(AUDITED)
In
July 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic
815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments
(or embedded features) with down round features. When determining whether certain financial instruments should be classified as
liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument
is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified
instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be
accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity
classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic
260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction
of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down
round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20,
Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of
this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content
in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the
amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after
December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for
all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments
should be reflected as of the beginning of the fiscal year that includes that interim period.
NOTE
3 – RELATED PARTY TRANSACTIONS
Loans
due to related parties are due on demand and have no interest. Amounts outstanding as of December 31, 2019 and 2018 was approximately
$11,750 and $11,750, respectively
NOTE
4 - CONVERTIBLE NOTE PAYABLE
Convertible
notes payable consists of the following:
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Total convertible notes payable
|
|
|
277,750
|
|
|
|
20,000
|
|
Less discounts
|
|
|
(116,346
|
)
|
|
|
(0
|
)
|
Convertible notes, net of discount
|
|
$
|
161,404
|
|
|
$
|
20,000
|
|
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.
The
following table presents details of the changes in the Company’s derivative liabilities associated with its convertible
notes for the year ended December 31, 2019:
|
|
Amount
|
|
Balance December 31, 2018
|
|
$
|
0
|
|
Add derivative liability due to new convertible notes
|
|
|
219,469
|
|
Change in fair market value of derivative liabilities
|
|
|
43,242
|
|
Balance December 31, 2019
|
|
$
|
262,711
|
|
Settlement
Agreements
During
the year ended December 31, 2019, the Company issued 1,280,000 shares of common stock with a fair value of $164,033 for the settlement
of liabilities payable. The conversion of the derivative liabilities has been recorded through additional paid-in capital.
RESONATE
BLENDS, INC.
(formerly
TEXTMUNICATION HOLDINGS, INC.)
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 and 2018
NOTE
5 – INVESTMENT IN ASPIRE CONSULTING GROUP, LLC
On
January 5, 2016, the Company entered into a Share Exchange Agreement with Aspire Consulting Group, LLC, a Virginia limited liability
company and certain members of Aspire. Pursuant to the terms of the Exchange Agreement, the Company agreed to acquire 49% of all
of the issued and outstanding membership units of Aspire in exchange for the issuance of 66,667 shares of the Company’s
newly created Series B Convertible Preferred Stock to the Members valued at $460,002.
The
Company has concluded that it has the ability to exercise significant influence, but not control, over an Aspire through its acquired
49% equity interest and therefore has accounted for the acquisition of the interest under the equity method.
The
following table presents details of the Company’s investment in Aspire as of December 31, 2017 and 2016:
|
|
Amount
|
|
Balance December 31, 2017
|
|
$
|
452,336
|
|
Loss from equity method
|
|
|
(1,653
|
)
|
Balance December 31, 2018
|
|
$
|
450,683
|
|
Loss from equity method
|
|
|
(11,125
|
)
|
Spin out
|
|
|
(439,558
|
)
|
Balance December 31, 2019
|
|
$
|
-
|
|
On
October 25, 2019 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.
NOTE
6 – COMMITMENTS AND CONTINGENCIES
Office
Lease
On
January 6, 2015 the Company signed an amendment to its lease originally signed on May 9, 2008. The amended lease commenced January
1, 2015 and expires on thirty days’ notice. Current month to month lease is for $1,838 a month. Rent expense was approximately
$22,049 and $22,294 for the years ended December 31, 2019 and 2018, respectively.
Executive
Employment Agreement
On
October 25, 2019 the Company entered into Employment Agreements with the following persons: (i) Geoffrey Selzer as Chief
Executive Officer (CEO) of the Company with an annual salary of $180,000; 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.
RESONATE BLENDS, INC.
(formerly TEXTMUNICATION HOLDINGS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2019 and 2018
Litigations
Claims and Assessments
On
October 12, 2018, the Company, Wais Asefi, the Company’s former CEO, and David Thielen, the Company’s COO, entered
into a Settlement Agreement and Release (the “Agreement”) with Lester Einhaus (“Holder”) concerning a
$25,000 convertible note issued by the Company to the Holder on September 23, 2015 (the “Note”). Case detail as follows:
Lester
Einhaus vs. Textmunication
United
States District Court – Northern District
Filed
on 6/14/2017
Case:
1:17-cv-04478
The
Agreement requires the Company to issue to the Holder 475,000 shares of the Company’s common stock, subject to the condition
that the Holder does not own more than 4.99% of the Company’s outstanding shares at any time. As such, the shares will be
issued out in tranches; with the first such tranche was due within 10 days of signing the Agreement for 198,000 shares.
The Holder agreed to a daily leak out of the greater of 10,000 shares or 15% of the trading volume. An anti-dilution provision
in the Agreement required an additional 379,386 shares to be issued. During the year ended December 31, 2019, all required
shares were issued by the Company and no further liability exists.
NOTE
7 – INCOME TAXES
For
the year ended December 31, 2019, the cumulative net operating loss carry-forward from continuing operations is approximately
$19,065,529 and will expire beginning in the year 2030.
The
cumulative tax effect at the expected rate of 21% of significant items comprising our net deferred tax amount is as follows as
of December 31, 2019 and 2018:
|
|
2019
|
|
|
2018
|
|
Deferred tax asset attributable to:
|
|
|
|
|
|
|
|
|
Net operating loss carryover
|
|
$
|
4,003,761
|
|
|
$
|
2,597,027
|
|
Valuation allowance
|
|
|
(4,003,761
|
)
|
|
|
(2,587,027
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
Due
to the enactment of the Tax Reform Act of 2017, the corporate tax rate for those tax years beginning with 2018 has been reduced
to 21%.
Note
8 – STOCKHOLDERS’ EQUITY
The Company is authorized to issue an
aggregate of 100,000,000 shares of common stock with a par value of $0.0001. The Company is also authorized to issue 10,000,000
shares of “blank check” preferred stock with a par value of $0.0001, which includes 4,000,000 shares of Series A preferred
stock (“Series A”) and 2,000,000 shares of Series C preferred stock (“Series C”).
Under
the Certificate of Designation, holders of Series A Preferred Stock will participate on an equal basis per-share with holders
of our common stock in any distribution upon winding up, dissolution, or liquidation. Holders of Series A Preferred Stock are
entitled to vote together with the holders of our common stock on all matters submitted to shareholders at a rate of three hundred
(300) votes for each share held.
RESONATE BLENDS, INC.
(formerly TEXTMUNICATION HOLDINGS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2019 and 2018
During
the year ended December 31, 2018,
|
●
|
the
Company’s Board of Directors approved a one to one thousand (1:1000) reverse stock split, which became effective July
9, 2018. The Company consolidated financial statements have been retroactively restated to the reflect the effect of the stock
split
|
|
●
|
the
Company entered into a subscription agreement for 9.98% of the company common shares outstanding for $100,000.
|
During
the year ended December 31, 2018, the Company issued 1,380,933 shares of common stock with a fair value of $354,010 for the conversion
of convertible notes payable. The converted portion of the notes also had associated derivative liabilities with fair values on
the date of conversion of 866,361. The conversion of the derivative liabilities has been recorded through additional paid-in capital
During
the first quarter of 2019 the company issued a total of 6,685,000 shares to employees and vendors for compensation and services
rendered. The fair market value of the shares issues accounted as expenses as follows:
Management Fees
|
|
$
|
2,074,600
|
|
Payment to subcontractors
|
|
|
446,982
|
|
Total
|
|
|
2,521,582
|
|
During
the second quarter of 2019 the company issued 40,000 shares of preferred stock warrants for $200,000 cash.
During
the third quarter of 2019 the company issued 1,280,000 common stocks in settlement of liabilities. The fair market value
of the liabilities accounted as additional paid in capital of $164,033.
During
the year ended December 31, 2019, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”)
with the purchasers identified therein (collectively, the “Purchasers”) providing for the issuance and sale to the
Purchasers of an aggregate of up to 40,000 shares of our Series D Convertible Preferred Stock (the “Preferred Shares”)
and related warrants for gross proceeds to the Company of $200,000. On December 9, 2019, we exercised our right to redeem the
Preferred Shares by paying the Purchasers $260,000 or 130% of the amount paid for the Preferred Shares, as called for under the
Securities Purchase Agreement.
During the last quarter year end December
31, 2019, the company issued 4,274,936 shares of common stocks to acquire Resonate Blends, LLC, and Entourage LLC, both
California limited liability companies. As a result of the transaction, both companies became wholly owned subsidiaries
of the Company. The Company recognized a loss of $834,022 on the acquisitions.
NOTE
9 – SUBSEQUENT EVENTS
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.
On
January 21, 2020, we executed a convertible promissory note with Geneva Roth Remark Holdings, Inc. for $113,300 together with
any interest at the rate of 10% per annum from the issue date. If we decide to let this Note convert, the variable conversion
price is 75% multiplied by the market price, representing a market discount of 25%. We have the ability to prepay this Note beginning
on the Issue Date and ending on the date which is one hundred twenty (120) days following the Issue Date with a prepayment percentage
of 113%. The period beginning on the date which is one hundred twenty-one (121) days following the Issue Date and ending on the
date which is one hundred eight (180) days following the Issue Date, the prepayment percentage is 118%.
RESONATE BLENDS, INC.
(formerly TEXTMUNICATION HOLDINGS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2019 and 2018
On
March 3, 2020, we executed a settlement agreement with Cicero on both the Note and email marketing program. We agreed to pay back
the Note by making payments to Cicero of $10,000 monthly commencing on April 15, 2020 with a balloon payment due on September
15, 2020. Five equal monthly payments of $10,000 each will be made by the 15th of each month starting on April 15, 2020 through
August 15, 2020. A final payment of $60,000 will be made on September 15, 2020 to close out the payment of the Note in its entirety.
To settle the email marketing program, the Company will issue to Cicero 500,000 shares of restricted common stock upon execution
of this Agreement. Such shares will be issued to Cicero within 5 business days of the date hereof. There will be a twelve (12)
month leak-out period that will start once the shares are eligible to be resold, with no more than 5,000 shares allowed to be
sold on any given trading day. After the issuance of the 500,000 shares, the Contract is paid in full.
As
previously disclosed, on June 11, 2019, we sold 40,000 shares of our Series D Convertible Preferred Stock (the “Preferred
Shares”) for gross proceeds to us of approximately $200,000. The Preferred Shares were sold along with warrants to purchase
83,333 shares of our common stock (the “Warrants”). The Warrants have an exercise price of $0.30 per share and are
exercisable sixty months from the issuance date. The Warrants provide for cashless exercise in the event we have not registered
the common shares underlying the Warrants. On March 10, 2020, we entered into Exchange Agreements with three Warrant holders to
exchange their outstanding Warrants for shares of our common stock. Each Warrant holder shall receive 184,000 shares of our common
stock (the “Exchange Shares”) valued at $0.25 per share in exchange for the Warrant holder’s surrender of the
Warrant. Each Warrant holder agreed that it will not sell any of the Exchange Shares for sixty (60) days commencing on the Closing
Date (“Lockup Period”). After the Lockup Period, each Warrant holder agreed that it will not sell more than 61,333
Exchange Shares, plus any Additional Shares (described below) issued in relation to such Exchange Shares in any calendar month.
On
March 13, 2020, we entered into Securities Purchase Agreements (the “Purchase Agreements”) with three accredited investors
(the “Investors”), pursuant to which we issued and sold to the Investors three promissory notes, dated March 13, 2020,
each in the principal amount of $141,999.99 for an aggregate principal amount of $425,999.97 (the “Notes”). We received
$399,999.99 from the Notes after applying the original issue discount to the Notes, $232,270.79 of which was used to retire an
existing convertible promissory note and the balance to our account, after legal costs, amounted to $157,229.20. The maturity
date for repayment of the Notes is April 20, 2021 and the Notes bear interest at 15% per annum. We are required to repay the Notes
by making nine equal instalments of $17,613 to each of the three Investors starting on July 13, 2020 and ending on March 13,
2021. As additional consideration, we agreed to issue to each Investor 250,000 shares of our common stock. We are required to
issue additional shares in the event our common stock trades at less than $0.20 per share in any 10 day trading period. We have
a right to repurchase the total 750,000 shares issued by paying each Investor $50,000 within 170 calendar days. The shares may
only be sold under a leak out provision that restricts sales to no more than 10% of our average daily trading volume for the prior
30 days and no more than $35,000 in any calendar month. All principal and accrued interest on the Notes is convertible into shares
of our common stock upon an event of default. The conversion price amounts to 65% of the lowest one day VWAP for our common stock
during the 10 trading days prior to the issue date. The conversion price is subject to adjustment as provided in the Notes.
The
company has evaluated subsequent events for recognition and disclosure through March 20, 2019 which is the date the financial
statements were available to be issued. No other matters were identified affecting the accompanying financial statements and related
disclosures.