NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE QUARTER ENDED MARCH 31, 2021
(UNAUDITED)
NOTE
1 – ORGANIZATION AND BUSINESS OPERATIONS
The
Company
Resonate
Blends, Inc. formerly Textmunication Holdings, Inc. (the “Company”) was incorporated on in October 1984 in the State
of Georgia as Brock Control Systems. Founded by Richard T. Brock, the Company was in the sales automation market and an early
developer of enterprise customer management systems. The Company went public at the end of March of 1993. In February of 1996,
the Company changed its name to Brock International Inc., and in March of 1998, the Company again changed our name to Firstwave
Technologies, Inc.
On
January 20, 2020, Wais Asefi resigned as Chairman and as a member of our Board of Directors. Mr. Asefi’s resignation is
in support of Resonate Blends strategic direction of becoming a pure play cannabis company. The Company does not believe that
Mr. Asefi has any disagreements on matters relating to our operations, policies or practices. Also, on January 20, 2020, our Board
of Directors appointed Geoffrey Selzer as our Chairman.
In
connection with the name change, the Company’s symbol was changed to “KOAN” that more resembles the Company’s
new business focus.
On
May 22, 2020, Resonate Blends, Inc. (the “Company”) entered into a Stock Purchase Agreement (the “SPA”)
with Wais Asefi, Nick Miniello, Juleon Asefi, and Curt Byers (collectively, the “Asefi Group”) to sell to the Asefi
Group its subsidiary, Textmunication, Inc., a California corporation (“Textmunication”). Textmunication operates the
Company’s SMS business activities. The Company will retain its cannabis operations based in Calabasas, California.
The
consideration for the sale of Textmunication consists of the cancellation by the Asefi Group of 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 4,822,029 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 March 31, 2021, the Company has an accumulated deficit of $22,159,457. 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. Aa of March 31, 2021, the company balances exceeded the
federally insured limit by approximately $1,250,000 deposited under one institution. Management is making certain arrangements
to mitigate this risk during the next quarter.
Inventories
Inventories
are stated at the lower of cost and net realizable value. Cost is determined using the moving average method and net realizable
value is the estimated selling price less costs of disposal in the ordinary course of business.
The
cost of inventories includes direct costs plus shipping and packaging materials.
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.
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).
|
Financial
assets and liabilities measured at fair value on a recurring basis are summarized below for the quarter ended March 31, 2021 and
year ended December 31, 2020.
As of March 31, 2021
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
522,783
|
|
|
|
522,783
|
|
As of December 31, 2020
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
274,134
|
|
|
|
274,134
|
|
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.
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 $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.
On
May 22, 2020, the 4,000,000 shares of Series A Preferred Stock were returned to the Company’s transfer agent and cancelled
and on May 22, 2020 the 2,000,000 shares of Series C Preferred Stock were transferred to Mr. Selzer. The parties to the Separation
Agreement agreed to a payment schedule of $200,000 based on future monies raised by the Company - and not on a specific date –
as follows:
|
●
|
$12,500
when the initial $250,000 is raised by the Company;
|
|
●
|
$12,500
when a total of $500,000 is raised by the Company;
|
|
●
|
$10,000
when a total of $750,000 is raised by the Company;
|
|
●
|
$35,000
when a total of $1,750,000 is raised by the Company;
|
|
●
|
$35,000
when a total of $2,750,000 is raised by the Company;
|
|
●
|
$35,000
when a total of $3,750,000 is raised by the Company;
|
|
●
|
$35,000
when a total of $4,750,000 is raised by the Company; and
|
|
●
|
$25,000
when a total of $5,750,000 is raised by the Company.
|
The
outstanding balances as of March 31, 2021 and December 31, 2020 are $162,500 and $187,500 respectively.
NOTE
4 – CONVERTIBLE NOTE PAYABLE
Convertible
notes payable consists of the following as of March 31, 2021 and December 31, 2020:
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
Convertible notes face value
|
|
$
|
1,595,000
|
|
|
$
|
517,544
|
|
Less: Discounts
|
|
|
-
|
|
|
|
(12,751
|
)
|
Net convertible notes
|
|
$
|
1,595.000
|
|
|
$
|
504,793
|
|
The
convertible notes as of March 31, 2021 are 8% Unsecured Convertible Promissory Notes from various accredited investors issued
from January 1, 2021 to March 31, 2021 from the Company’s Reg D 506(c) private placement. All notes have a mandatory
conversion into equity on the maturity date, which is January 2, 2022, or at a Qualified Financing (QF) of $5,000,000,
whichever occurs first. The maturity date conversion pricing is the lesser of .10 or 75% of the VWAP with a 20-day
lookback. A QF converts into equity at the lesser of $1.00 or 75% of the average selling price of the aggregate QF offering.
The
three months ended March interest accrued for the convertible notes payable $26,704 and $17,556 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
October 16, 2019, the Company signed a lease agreement that expires on thirty days’ notice. Rent expense was approximately
790 and $0 for the quarter ended March 31, 2021 and 2020, 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; (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.
NOTE
6 – STOCKHOLDERS’ EQUITY
During
the first quarter of 2021 the company issued a total of 11,633,260 to various accredited investors and issued automatic convertible
notes for a total funds of $2,937,500.
Common shares issued
|
|
$
|
1,347,500
|
|
Convertible promissory notes
|
|
|
1,590,000
|
|
Total
|
|
$
|
2,937,500
|
|
Fees paid to secure financing
|
|
$
|
252,586
|
|
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 March 31, 2020
|
|
2020
|
|
Revenues
|
|
$
|
305,590
|
|
Cost of Revenues
|
|
|
(90,559
|
)
|
Operating expenses
|
|
|
(347,682
|
)
|
Loss from operations of discontinued operations
|
|
|
(132,651
|
)
|
NOTE
8 – SUBSEQUENT EVENTS
On
April 28, 2021, we executed an agreement to bring on Albert Richards, PhD, CFA, as an Advisor responsible for investment strategies
and Mergers & Acquisition guidance.
Mr.
Richards is a 20-year veteran of the financial services industry. Before starting Alambic Investment Management to develop systematic
stock selection strategies, he perfected the art of tearing apart financial statements to find value and opportunity. As a sell-side
analyst and head of research within two large global investment banks, Bert became adept at identifying and quantifying the key
drivers of equity valuation and company quality as well as the behavioral pitfalls that create market opportunities.
Prior
to becoming a founding partner of Alambic, Bert was Managing Director and Head of European Equity Research (1994-2000) for Citigroup
(previously Salomon Brothers), European Internet and Global Technology strategist (2000-2003) and Small and Mid-Cap strategist
(2003-2006). From 1986 to 1994 Mr. Richards worked in equity research for Credit Suisse First Boston in New York and London.
Mr.
Richards received his B.S. in Chemical Engineering from Iowa State University in 1981, an M.S. in Chemical Engineering from MIT
in 1983, a Ph.D. degree in Chemical Engineering from MIT in 1986, and an M.B.A. from the Sloan School of Management (MIT), also
in 1986. He was awarded the Chartered Financial Analyst.
On May 11, 2021, we added Colleen Quinn
as an Advisor in support of product research activities and consumer education programs. Ms. Quinn is an internationally celebrated
clinical aromatherapist, cosmetic chemist, and researcher. She specializes in cannabis research, formulations and
education.
Committed to delivering functional therapeutic plant-based products, Ms. Quinn has travelled
the globe on a quest for knowledge, innovation and the best quality ingredients from dedicated sustainable farmers in order
to create therapeutic benefits in skin and health care. She is constantly pushing back the boundaries of her knowledge
and skill. The DNA of plants is of consuming interest for her and she derives satisfaction from exploring the chemistry
of new ingredient pairings which create new and enhanced synergistic impacts. She has a particular interest in educating on
the health benefits of essential oils and cannabis in the treatment of a wide array of conditions.
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.
On May 13, 2021, we amended the Separation
Agreement to state the parties desire to reduce the total amount payable to Wais Asefi from $200,000 USD to $142,500 USD. In addition
to the earlier payments made to Mr. Asefi, a payment of $40,000 was made on May 14, 2021 with two additional payments due on June
27, 2021 for $40,000 and the final payment due on August 11, 2021 for $25,000. The final payment due on August 11, 2021 will settle
this agreement in full. Further under the amendment, Mr. Asefi nominated Textmunication, Inc., our prior subsidiary, as the recipient
of the funds due under the Separation Agreement.