NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE QUARTER ENDED SEPTEMBER 30, 2020
(UNAUDITED)
NOTE
1 – ORGANIZATION AND BUSINESS OPERATIONS
The
Company
Resonate
Blends, Inc. (formerly Textmunication Holdings, Inc.) (the “Company”) was incorporated in October 1984 in the
State of Georgia as Brock Control Systems. Founded by Richard T. Brock, the Company was in the sales automation market and an
early developer of enterprise customer management systems. The Company went public at the end of March of 1993. In February of
1996, the Company changed its name to Brock International Inc., and in March of 1998, the Company again changed our name to Firstwave
Technologies, Inc.
In
2007, the Company deregistered its common stock in order to avoid the expenses of being a public company. The Company reported
briefly on the OTC Disclosure & News Service in 2008 but not for long. The Company again changed its name to FSTWV, Inc.
On
October 28, 2013, the Company held a shareholder meeting to reincorporate the company in the State of Nevada and concurrently
change its name to Textmunication Holdings, Inc. The Company also voted to approve a 1 for 5 reverse split of its outstanding
common stock.
On
November 16, 2013, the Company entered into a Share Exchange Agreement (SEA) with Textmunication, Inc. a California corporation,
whereby the sole shareholder of the Company received 65,640,207 new shares of common stock of the Company in exchange for 100%
of the Textmunication issued and outstanding shares.
Textmunication
is an online mobile marketing platform service that will connect merchants with their customers and allow them to drive loyalty
and repeat business in a non-intrusive, value added medium. For merchants the company provides a mobile marketing platform where
they can always send the most up-to-date offers/discounts/alerts/events schedule, such as happy hours, trivia night, and other
campaigns. The consumer can also access specials and promotions that merchants choose to distribute through Textmunication by
opting into keywords designated to the merchant’s keywords.
On
July 9, 2018, the 1 – 1,000 Reverse Split of the Company’s common stock took effect at the open of business. All shares
and per share amounts have been retroactively adjusted to reflect the reverse split.
On
June 25, 2019, the Company issued a press release announcing it plans to change its business direction from its current SMS technology
business to focus on the emerging national cannabis market. The Company planned on using its mobile texting platform to enhance
communication efforts with the potential acquisitions.
On
October 25, 2019, the Company entered into a Membership Interest Purchase Agreement (the “Resonate Purchase Agreement”)
with Resonate Blends, LLC, a California limited liability company (“Resonate”), and the members of Resonate. As a
result of the transaction, Resonate became a wholly owned subsidiary of the Company. In accordance with the terms of the Purchase
Agreement, at the closing an aggregate of 5% of the Company’s outstanding shares of common stock for a total of 665,072
shares were issued to the holders of Resonate in exchange for their membership interests of Resonate. These shares have anti-dilution
protection. We have also agreed as part of the purchase price to issue: (ii) such number of shares of Series E Preferred Stock
that will convert into 5% of the outstanding shares of common stock in the Company on a fully-diluted basis upon an annualized
revenue run rate of Ten Million Dollars ($10,000,000.00) for any three (3) consecutive month trailing period; and (iii) such number
of shares of Series E Preferred Stock that will convert into 5% of the outstanding shares of common stock in the Company on a
fully-diluted basis upon the occurrence of the Company’s public market value reaching One Hundred Million US Dollars ($100,000,000).
The shares in (ii) and (iii) shall have anti-dilution protections, except that this provision only applies for 2.5% of the outstanding
shares acquired under each subsection.
Also,
on October 25, 2019, the Company entered into a Membership Interest Purchase Agreement (the “Entourage Labs Purchase Agreement”)
with Entourage Labs, LLC, a California limited liability company (“Entourage Labs”), and the members of Entourage
Labs. As a result of the transaction, Entourage Labs became a wholly owned subsidiary of the Company. In accordance with the terms
of the Purchase Agreement, at the closing an aggregate of 5% of the Company’s outstanding shares of common stock for a total
of 665,072 shares were issued to the holders of Entourage Labs in exchange for their membership interests of Entourage Labs. These
shares have anti-dilution protection. We have also agreed as part of the purchase price to issue: (ii) such number of shares of
Series E Preferred Stock that will convert into 5% of the outstanding shares of common stock in the Company on a fully-diluted
basis upon an annualized revenue run rate of Ten Million Dollars ($10,000,000.00) for any three (3) consecutive month trailing
period; and (iii) such number of shares of Series E Preferred Stock that will convert into 5% of the outstanding shares of common
stock in the Company on a fully-diluted basis upon the occurrence of the Company’s public market value reaching One Hundred
Million US Dollars ($100,000,000). The shares in (ii) and (iii) shall have anti-dilution protections, except that this provision
only applies for 2.5% of the outstanding shares acquired under each subsection.
In
addition, the Company entered into an Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of Obligations
(the “Conveyance Agreement”) with Mark S. Johnson and the Company’s 49% owned subsidiary, Aspire Consulting
Group, LLC, a Virginia limited liability company. Pursuant to the Conveyance Agreement, the Company transferred all assets and
business operations associated with its IT consulting solutions, including all of the capital stock of Aspire Consulting, to Mr.
Johnson. In exchange, Mr. Johnson agreed to cancel 20,000 shares of common stock in the Company and to assume and cancel all liabilities
relating to the Company’s former business.
Finally,
the Company entered into Employment Agreements with the following persons: (i) Geoffrey Selzer as Chief Executive Officer (CEO)
of the Company with an annual salary of $180,000; (ii) Pamela Kerwin as Chief Operating Officer (COO) of the Company with an annual
salary of $120,000; and David Thielen as Chief Investment Officer (CIO) with an annual salary of $120,000. All are eligible for
salary increases upon milestone achievements and other benefits. The Employment Agreement for the CEO has a term of 2 years and
can’t be terminated without cause. Severance of six (6) weeks is available for termination of the COO and CIO without cause
before one-year of service and eight (8) weeks after one-year of service.
On
December 16, 2019 the Company filed Articles of Merger with the Secretary of State of Nevada in order to effectuate a merger with
its wholly owned subsidiary; Resonate Blends, Inc. Shareholder approval was not required under Section 92A.180 of the Nevada Revised
Statutes. As part of the merger, the Company’s board of directors authorized a change in our name to “Resonate Blends,
Inc.” and the Company’s Articles of Incorporation have been amended to reflect this name change.
In
connection with the name change, the Company’s symbol was changed to “KOAN” that more resembles the Company’s
new business focus.
On
May 22, 2020, Resonate Blends, Inc. (the “Company”) entered into a Stock Purchase Agreement (the “SPA”)
with Wais Asefi, Nick Miniello, Juleon Asefi, and Curt Byers (collectively, the “Asefi Group”) to sell to the Asefi
Group its subsidiary, Textmunication, Inc., a California corporation (“Textmunication”). Textmunication operates the
Company’s SMS business activities. The Company will retain its cannabis operations based in Calabasas, California.
The
consideration for the sale of Textmunication consists of the cancellation by the Asefi Group of 4,822,029 shares of common stock
(the “Shares”) of the Company. The Shares have a market value of $337,542, based on our last sales price of $0.07
per share as of May 26, 2020. Upon the cancellation of the Shares, the Company agreed to execute a general release in favor of
Mr. Asefi.
Also
on May 22, 2020, the Company entered into a Separation and Release Agreement (the “Separation Agreement”) with Wais
Asefi. Pursuant to the Separation Agreement, Mr. Asefi agreed to separate from all officer positions and as a director of the
Company and to further accept the payment of $200,000 from the Company’s future fundraising as consideration of all debts
outstanding under Mr. Asefi’s employment agreement with the Company. Mr. Asefi further agreed to cancel his 4,000,000 shares
of Series A Preferred Stock and to transfer his 2,000,000 shares of Series C Preferred Stock to Geoffrey Selzer, the Company’s
current CEO and Director. Mr. Asefi further released the Company of all claims.
Also
on May 22, 2020, Mr. Selzer signed a Voting Agreement and agreed to vote his newly acquired 2,000,000 shares of Series C Preferred
Stock in favor of the sale of Textmunication to the Asefi Group.
On
May 22, 2020, Resonate Blends, Inc. (the “Company”) entered into a Stock Purchase Agreement (the “SPA”)
with Wais Asefi, Nick Miniello, Juleon Asefi, and Curt Byers (collectively, the “Asefi Group”) to sell to the Asefi
Group its subsidiary, Textmunication, Inc., a California corporation (“Textmunication”). Textmunication operates the
Company’s SMS business activities.
On
July 20, 2020, the parties closed on the transactions contained in the SPA. The Asefi Group cancelled 4,755,209 shares of common
stock (the “Shares”) of the Company. The Shares have a market value of $332,842, based on our last sales price of
$0.07 per share as of May 26, 2020. The Company also executed a general release in favor of Mr. Asefi.
Basis
of Presentation
The
accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles
generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read
in conjunction with the audited financial statements and notes thereto contained in the Company’s most recent Annual Financial
Statements filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of financial position and the results of operations for the interim period presented have been
reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be expected
for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited
financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted.
Going
concern
These
consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to
a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal
course of business. As of September 30, 2020, the Company has an accumulated deficit of $21,302,031. The company’s
ability to continue as a going concern is contingent upon the successful completion of additional financing arrangements and its
ability to achieve and maintain profitable operations. While the Company is expanding its best efforts to achieve the above plans,
there is no assurance that any such activity will generate funds that will be available for operations. These conditions raise
substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance
of these financial statements. These consolidated financial statements do not include any adjustments that might arise from this
uncertainty.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash
The
Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents.
The
Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial
institution. The balance at times may exceed federally insured limits. At September 30, 2020 no cash balances exceeded
the federally insured limit.
Accounts
receivable and allowance for doubtful accounts
Accounts
receivable are stated at the amount management expects to collect. The Company generally does not require collateral to support
customer receivables. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts
receivable, historical collection information and existing economic conditions. As of September 30, 2020 and 2019 no allowance
for doubtful accounts was set up.
Revenue
Recognition
The Company did not have any revenues from
continuing operations for the periods presented. The Company’s policy is that revenues will be recognized when control of
the product is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange
for those services.
Results for reporting periods beginning after January 1, 2020
are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our
historic accounting under Topic 605. We did not have any cumulative impact as a result of applying Topic 606.
Fair
Value of Financial Instruments
The
carrying amounts reflected in the balance sheets for cash, accounts payable and accrued expenses approximate the respective fair
values due to the short maturities of these items.
As
required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair
value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted
prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly
or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity
to develop its own assumptions.
The
three levels of the fair value hierarchy are described below:
Level
1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or
liabilities;
Level
2: Quoted prices in markets that are not active, or inputs that is observable, either directly or indirectly, for substantially
the full term of the asset or liability;
Level
3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable
(supported by little or no market activity).
The
fair value of the accounts receivable, accounts payable, notes payable are considered short term in nature and therefore their
value is considered fair value.
Net
income (loss) per Common Share
Basic
net income (loss) per share is computed by dividing the net loss attributable to the common stockholders by the weighted average
number of shares of common stock outstanding during the period. Fully diluted loss per share is computed similar to basic loss
per share except that the denominator is increased to include the number of additional common shares that would have been outstanding
if the potential common shares had been issued and if the additional common shares were dilutive.
Property
and equipment
Property
and equipment are stated at cost, less accumulated depreciation provided on the straight-line method over the estimated useful
lives of the assets, which range from three to seven years. Expenditures for renewals or betterments are capitalized, and repairs
and maintenance are charged to expense as incurred the cost and accumulated depreciation of assets sold or otherwise disposed
of are removed from the accounts, and any gain or loss thereon is reflected in operations. Company policy capitalize property
and equipment for cost over $1,000, asset acquired under $1,000 are charge to operations.
Income
Taxes
Income
taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and
liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and
are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax
assets that, based on available evidence, are not expected to be realized. Because the Company has no net income, the tax benefit
of the accumulated net loss has been fully offset by an equal valuation allowance.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Stock-Based
Compensation
The
Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation –
Stock Compensation which requires all share-based payments to employees, including grants of employee stock options, to be recognized
in the financial statements based on their fair values. The fair value of the equity instrument is charged directly to compensation
expense and credited to additional paid-in capital over the period during which services are rendered.
The
Company follows ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than
Employees for Acquiring, or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants
and other non-employees. In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services
provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value
of the option or warrant, whichever can be more clearly determined. The fair value of the equity instrument is charged directly
to compensation expense and additional paid-in capital over the period during which services are rendered.
Investments
in Securities
Investments
in securities are accounted for using the equity method if the investment provides the Company the ability to exercise significant
influence, but not control, over an investee. Significant influence is generally deemed to exist if the Company has an ownership
interest in the voting stock of the investee between 20% and 50%, although other factors, such as representation on the investee’s
Board of Directors, are considered in determining whether the equity method is appropriate.
NOTE
3 – RELATED PARTY TRANSACTIONS
As
of September 30, 2020, the Company had notes payable to related party of $332,852. The amount payable was in relation to
the agreed amount to buyout of shares held by former officer and employees of Textmunication Inc. As of December 31, 2019,
there were approximately $11,650 of related party payables.
NOTE
4 - CONVERTIBLE NOTE PAYABLE
On
January 22, 2020, we executed a convertible promissory note with Geneva Roth Remark Holdings, Inc. for $113,300 with note discounted
of $10,300 and interest at the rate of 10% per annum from the issue date. This note will mature on January 22, 2021 with penalty
clause of 22% per annum should the note be defaulted. If we decide to let this Note convert, the variable conversion price is
75% multiplied by the market price, representing a market discount of 25%. We have the ability to prepay this Note beginning on
the Issue Date and ending on the date which is one hundred twenty (120) days following the Issue Date with a prepayment percentage
of 113%. The period beginning on the date which is one hundred twenty-one (121) days following the Issue Date and ending on the
date which is one hundred eight (180) days following the Issue Date, the prepayment percentage is 118%.
On
March 3, 2020 Resonate Blends, Inc. (“Resonate”) agreed to pay Cicero Holding, Inc. (“Cicero”) five payments
of $10,000 plus a final balloon payment of $60,000 by September 15, 2020. This settlement was on a previous $100,000 convertible
note issued to Textmunication Holdings, Inc. on October 2, 2019. To date, Resonate has made two payments of $10,000 each –
or $20,000 total. On June 23, 2020, both Parties agreed to amend the settlement agreement dated March 3, 2020. Resonate issued
900,000 common shares to Cicero with a leak-out of 120,000 shares per month to retire the remaining $90,000 owed on the Note.
On
March 13, 2020 we executed a convertible promissory note with Armada Capital Partners LLC. for $142,000 with note discounted of
$8,667 and interest at the rate of 15% per annum from the issue date. This note will mature on April 20, 2021 with penalty clause
of 18% per annum should the note be defaulted. If we decide to let this Note convert, the variable conversion price is 65% multiplied
by the market price, representing a market discount of 35%. We have the ability to prepay this Note beginning on the Issue Date
at our discretion.
On
March 13, 2020 we executed a convertible promissory note with BHP Capital NY for $142,000 with note discounted of $8,667 and interest
at the rate of 15% per annum from the issue date. This note will mature on April 20, 2021 with penalty clause of 18% per annum
should the note be defaulted. If we decide to let this Note convert, the variable conversion price is 65% multiplied by the market
price, representing a market discount of 35%. We have the ability to prepay this Note beginning on the Issue Date at our discretion.
On
March 13, 2020 we executed a convertible promissory note with Jefferson Street Capital LLC for $142,000 with note discounted of
$8,667 and interest at the rate of 15% per annum from the issue date. This note will mature on April 20, 2021 with penalty clause
of 18% per annum should the note be defaulted. If we decide to let this Note convert, the variable conversion price is 65% multiplied
by the market price, representing a market discount of 35%. We have the ability to prepay this Note beginning on the Issue Date
at our discretion.
On
June 18, 2020, we executed a convertible promissory note with Geneva Roth Remark Holdings, Inc. for $85,800 together with any
interest at the rate of 10% per annum from the issue date. If we decide to let this Note convert, the variable conversion price
is 75% multiplied by the market price, representing a market discount of 25%. We have the ability to prepay this Note beginning
on the Issue Date and ending on the date which is one hundred twenty (120) days following the Issue Date with a prepayment percentage
of 113%. The period beginning on the date which is one hundred twenty-one (121) days following the Issue Date and ending on the
date which is one hundred eight (180) days following the Issue Date, the prepayment percentage is 118%.
On
July 20, 2020, we executed a Securities Purchase Agreement (“SPA”) with FirstFire and issued the FirstFire Note with
a principal amount of $225,000, a $25,000 original issue discount and interest at 8% per annum. The principal balance and accrued
but unpaid interest may be converted to our common stock at $0.10 per share or, upon default, at 75% of the lowest trading price
in the last 20 days in our trading market.
On
July 20, 2020, the parties closed on the transactions contained in the SPA. The Asefi Group will cancel 4,822,029 shares of common
stock (the “Shares”) of the Company. The Shares have a market value of $337,542, based on our last sales price of
$0.07 per share as of May 26, 2020. The Company also executed a general release in favor of Mr. Asefi.
On
July 21, 2020, we paid off the Geneva Note in its entirety with proceeds acquired from the below new convertible promissory note
(the FirstFire Note”) we issued to FirstFire Global Opportunities Fund LLC. The amount paid to Geneva was $140,397.01.
Convertible
notes payable consists of the following as of September 30, 2020 and December 31, 2019:
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Convertible Note face value
|
|
$
|
555,427
|
|
|
$
|
277,750
|
|
Less: Discounts
|
|
|
(28,624
|
)
|
|
|
(116,345
|
)
|
Net Convertible notes payable
|
|
$
|
526,803
|
|
|
$
|
161,404
|
|
As
of September 30, 2020, and December 31, 2020 accrued interest on notes payable were $28,860 and $10,556, respectively.
The
Company accounts for the fair value of the conversion features of its convertible debt in accordance with ASC Topic No. 815-15
“Derivatives and Hedging; Embedded Derivatives” (“Topic No. 815-15”). Topic No. 815-15 requires the Company
to bifurcate and separately account for the conversion features as an embedded derivative contained in the Company’s convertible
debt. The Company is required to carry the embedded derivative on its balance sheet at fair value and account for’ any unrealized
change in fair value as a component of results of operations. The Company values the embedded derivatives using the Black-Scholes
pricing model.
NOTE
5 – COMMITMENTS AND CONTINGENCIES
Office
Lease
On
January 6, 2015, the Company signed an amendment to its lease originally signed on May 9, 2008. The amended lease commenced January
1, 2015 and expires on thirty days’ notice. Rent expense was approximately $5,607 and $11,025 for the three nine
ended September 30, 2020 and 2019, respectively. We also have a co-share office located in Calabasas, California for our
executive team at Resonate. We pay $99 month for the office space.
Executive
Employment Agreement
On
October 25, 2019 the Company entered into Employment Agreements with the following persons: (i) Geoffrey Selzer as Chief Executive
Officer (CEO) of the Company with an annual salary of $180,000; (ii) Pamela Kerwin as Chief Operating Officer (COO) of the Company
with an annual salary of $120,000. On August 3, 2020, the Company entered into an Employment Agreement with David Thielen as Chief
Investment Officer (CIO) with an annual salary of $120,000. All are eligible for salary increases upon milestone achievements
and other benefits. The Employment Agreement for the CEO has a term of 2 years and can’t be terminated without cause. Severance
of six (6) weeks is available for termination of the COO and CIO without cause before one-year of service and eight (8) weeks
after one-year of service.
NOTE
6 – STOCKHOLDERS’ EQUITY
For
the nine months ended September 30, 2020, the company issued a total of 5,332,186 shares of common stock to vendors for
compensation and services rendered. The fair market value of the shares issues accounted as expenses as follows:
Professional Fees
|
|
$
|
110,500
|
|
Payment to obtain loan
|
|
|
165,195
|
|
Payment to management staff
|
|
|
198,514
|
|
|
|
$
|
474,209
|
|
NOTE
7 – DISCONTINUED OPERATONS
On
July 20, 2020, the Company finalized a Stock Purchase Agreement (the “SPA”) with Wais Asefi, Nick Miniello, Juleon
Asefi, and Curt Byers (collectively, the “Asefi Group”) to sell to the Asefi Group its subsidiary, Textmunication,
Inc., a California corporation (“Textmunication”). Textmunication operates the Company’s SMS business activities.
The Company retained its cannabis operations based in Calabasas, California. The Company has accounted for this spinout as a discontinued
operation and retroactively reclassified all previously presented financial information. The following summarizes the results
of operations for Textmunication, Inc.
|
|
Nine Months Ended
|
|
|
|
2020
|
|
|
2019
|
|
Revenues
|
|
$
|
477,734
|
|
|
$
|
758,101
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
101,347
|
|
|
|
285,085
|
|
Operating expenses
|
|
|
468,815
|
|
|
|
581,764
|
|
|
|
|
570,162
|
|
|
|
866,849
|
|
|
|
|
|
|
|
|
|
|
Loss from operations of discontinued operation
|
|
|
(92,428
|
)
|
|
|
(108,748
|
)
|
Gain on disposal of discontinued operations
|
|
|
108,206
|
|
|
|
-
|
|
Gain (loss) from discontinued operations
|
|
$
|
15,778
|
|
|
$
|
(108,748
|
)
|
NOTE
8 – SUBSEQUENT EVENTS
The
company has evaluated subsequent events for recognition and disclosure through September 29, 2020 which is the date the financial
statements were available to be issued. No other matters were identified affecting the accompanying financial statements and related
disclosures.