Item
1. Financial Statements
Our
consolidated financial statements included in this Form 10-Q are as follows:
These
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States
of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Operating results for the interim period ended September 30, 2021 are not necessarily
indicative of the results that can be expected for the full year.
RESONATE
BLENDS , INC.
(FORMERLY
TEXTMUNICATION HOLDINGS, INC.)
CONSOLIDATED
BALANCE SHEETS
The
accompanying notes are an integral part of these unaudited consolidated financial statements
RESONATE
BLENDS, INC.
(FORMERLY
TEXTMUNICATION HOLDINGS, INC.)
CONSOLIDATED
STATEMENTS OF OPERATIONS
The
accompanying notes are an integral part of these unaudited consolidated financial statements
RESONATE
BLENDS , INC.
(FORMERLY
TEXTMUNICATION, INC.)
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
|
|
|
|
Preferred
Stock Series A
|
|
|
|
Preferred
stock - Series C
|
|
|
|
Common
Stock
|
|
|
|
Additional
|
|
|
|
Accumulated
|
|
|
|
Total
Stockholders’
|
|
|
Balance December 31, 2019
|
|
|
4,000,000
|
|
|
$
|
400
|
|
|
|
2,000,000
|
|
|
$
|
200
|
|
|
|
17,133,936
|
|
|
$
|
1,715
|
|
|
$
|
18,570,178
|
|
|
$
|
(19,159,721
|
)
|
|
$
|
(587,228
|
)
|
|
Net Loss for the quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(608,828
|
)
|
|
|
(608,828
|
)
|
|
Common stock issuance
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,571,778
|
|
|
|
255
|
|
|
|
275,440
|
|
|
|
|
|
|
|
275,696
|
|
|
Balance March 31, 2020
|
|
|
4,000,000
|
|
|
$
|
400
|
|
|
|
2,000,000
|
|
|
$
|
200
|
|
|
|
19,705,714
|
|
|
$
|
1,970
|
|
|
$
|
18,845,618
|
|
|
$
|
(19,768,549
|
)
|
|
$
|
(920,360
|
)
|
|
Net Loss for the quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,182,083
|
)
|
|
|
(1,182,083
|
)
|
|
Non-Cash Compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,495,129
|
|
|
|
250
|
|
|
|
249,265
|
|
|
|
|
|
|
|
249,515
|
|
|
Conversion of notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
750,000
|
|
|
|
75
|
|
|
|
74,925
|
|
|
|
|
|
|
|
75,000
|
|
|
Common stock issue
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000,000
|
|
|
|
100
|
|
|
|
99,900
|
|
|
|
|
|
|
|
100,000
|
|
|
Balance June 30, 2020
|
|
|
4,000,000
|
|
|
|
400
|
|
|
|
2,000,000
|
|
|
|
200
|
|
|
|
23,950,843
|
|
|
|
2,395
|
|
|
|
19,269,708
|
|
|
|
(20,950,632
|
)
|
|
|
(1,677,928
|
)
|
|
Net Loss for the quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(351,399
|
)
|
|
|
(351,399
|
)
|
|
Common stock Issuance for Cash
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,903,333
|
|
|
|
290
|
|
|
|
389,710
|
|
|
|
|
|
|
|
390,000
|
|
|
Conversion of notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
900,000
|
|
|
|
90
|
|
|
|
89,910
|
|
|
|
|
|
|
|
90,000
|
|
|
Cancellation of shares held by Textmunication
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,755,029
|
)
|
|
|
(476
|
)
|
|
|
(332,376
|
)
|
|
|
|
|
|
|
(332,852
|
)
|
|
Non cash compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,335,279
|
|
|
|
134
|
|
|
|
93,336
|
|
|
|
|
|
|
|
93,470
|
|
|
Shares issues for legal settlement
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
|
|
-
|
|
|
|
455,555
|
|
|
|
46
|
|
|
|
31,842
|
|
|
|
|
|
|
|
31,888
|
|
|
Cancellation of preferred stock
|
|
|
-4000000
|
|
|
|
-400
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
|
|
|
|
|
-
|
|
|
Balance September 30, 2020
|
|
|
-
|
|
|
|
-
|
|
|
|
2,000,000
|
|
|
|
200
|
|
|
|
24,789,981
|
|
|
|
2,479
|
|
|
|
19,542,530
|
|
|
|
(21,302,031
|
)
|
|
|
(1,756,821
|
)
|
The
accompanying notes are an integral part of these unaudited consolidated financial statements
RESONATE
BLENDS , INC.
(FORMERLY
TEXTMUNICATION, INC.)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
The
accompanying notes are an integral part of these unaudited consolidated financial statements
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(UNAUDITED)
NOTE
1 – ORGANIZATION AND BUSINESS OPERATIONS
The
Company
Resonate
Blends, Inc. formerly Textmunication Holdings, Inc. (the “Company”) was incorporated on in October 1984 in the State of Georgia
as Brock Control Systems. Founded by Richard T. Brock, the Company was in the sales automation market and an early developer of enterprise
customer management systems. The Company went public at the end of March of 1993. In February of 1996, the Company changed its name to
Brock International Inc., and in March of 1998, the Company again changed our name to Firstwave Technologies, Inc.
On
January 20, 2020, Wais Asefi resigned as Chairman and as a member of our Board of Directors. Mr. Asefi’s resignation is in support
of Resonate Blends strategic direction of becoming a pure play cannabis company. The Company does not believe that Mr. Asefi has any
disagreements on matters relating to our operations, policies or practices. Also, on January 20, 2020, our Board of Directors appointed
Geoffrey Selzer as our Chairman.
In
connection with the name change, the Company’s symbol was changed to “KOAN” that more resembles the Company’s
new business focus.
On
May 22, 2020, Resonate Blends, Inc. (the “Company”) entered into a Stock Purchase Agreement (the “SPA”) with
Wais Asefi, Nick Miniello, Juleon Asefi, and Curt Byers (collectively, the “Asefi Group”) to sell to the Asefi Group its
subsidiary, Textmunication, Inc., a California corporation (“Textmunication”). Textmunication operates the Company’s
SMS business activities. The Company will retain its cannabis operations based in Calabasas, California.
The
consideration for the sale of Textmunication consists of the cancellation by the Asefi Group of 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 September 30, 2021, the Company has an accumulated deficit of $27,441,709. 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. As of September 30, 2021, the company balances exceeded the federally insured
limit by approximately $140,534 deposited under one institution. Management is making certain arrangements to mitigate this risk during
the next quarter.
Revenue
Recognition
The
Company did have any revenues from continuing operations for the periods presented. The Company’s policy is that revenues will
be recognized when control of the product is transferred to our customers, in an amount that reflects the consideration we expect to
be entitled to in exchange for those services.
Fair
Value of Financial Instruments
The
carrying amounts reflected in the balance sheets for cash, accounts payable and accrued expenses approximate the respective fair values
due to the short maturities of these items.
As
required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value
hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in
active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly;
and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The
three levels of the fair value hierarchy are described below:
Level
1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level
2: Quoted prices in markets that are not active, or inputs that is observable, either directly or indirectly, for substantially the full
term of the asset or liability;
Level
3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported
by little or no market activity).
Financial
assets and liabilities measured at fair value on a recurring basis are summarized below for the quarter ended September 30, 2021 and
year ended December 31, 2020.
SUMMARY OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON RECURRING BASIS
|
As of September 30, 2021
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
3,380,960
|
|
|
|
3,380,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
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 and another payment
on June 27, 2021 for $40,000.
The final payment was made on August 11, 2021 for $25,000.
The final payment on August 11, 2021 settled 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.
The
outstanding balances as of September 30, 2021 and December 31, 2020 are $0 and $187,500 respectively.
NOTE
4 - CONVERTIBLE NOTE PAYABLE
Convertible
notes payable consists of the following as of September 30, 2021 and December 31, 2020:
SCHEDULE OF CONVERTIBLE NOTES PAYABLE
|
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
|
Convertible notes face value
|
|
$
|
1,865,000
|
|
|
$
|
517,544
|
|
|
Less: Discounts
|
|
|
-
|
|
|
|
(12,751
|
)
|
|
Less: Debt issuance cost
|
|
|
(61,771
|
)
|
|
|
|
|
|
Net convertible notes
|
|
$
|
1,803,229
|
|
|
$
|
504,793
|
|
The
convertible notes as of September 30, 2021 are 8% Unsecured Convertible Promissory Notes from various accredited investors issued from
January 1, 2021 to September 30, 2021. All notes have an automatic conversion into equity on the maturity date, which is January 2, 2022,
or if a Qualified Financing (QF) of $5,000,000 is achieved, whichever occurs first. The maturity date 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
offering.
The
three months ended September interest accrued for the convertible notes payable at $12,263, $12,671 and $12,263 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 $405
and $310 for the quarter ended September 30, 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 third quarter of 2021 the company issued a total of 716,554 shares of common stock to vendors for compensation and services rendered.
The fair market value of the shares issued accounted as expenses as follows:
SCHEDULE OF COMPENSATION AND SERVICES RENDERED
|
Professional Fees
|
|
$
|
328,632
|
|
|
Convertible promissory notes
|
|
|
-
|
|
|
Total
|
|
$
|
328,632
|
|
NOTE
7 – DISCONTINUED OPERATIONS
On
July 20, 2020, the Company finalized a Stock Purchase Agreement (the “SPA”) with Wais Asefi, Nick Miniello, Juleon Asefi,
and Curt Byers (collectively, the “Asefi Group”) to sell to the Asefi Group its subsidiary, Textmunication, Inc., a California
corporation (“Textmunication”). Textmunication operates the Company’s SMS business activities. The Company retained
its cannabis operations based in Calabasas, California. The Company has accounted for this spinout as a discontinued operation and retroactively
reclassified all previously presented financial information. The following summarizes the results of operations for Textmunication, Inc.
for the three months ended June 30, 2020
SCHEDULE OF DISCONTINUED OPERATIONS
|
|
|
2020
|
|
|
Revenues
|
|
$
|
305,590
|
|
|
Cost of Revenues
|
|
|
(90,559
|
)
|
|
Operating expenses
|
|
|
(347,565
|
)
|
|
Loss from operations of discontinued operations
|
|
|
(132,534
|
)
|
NOTE
8 – SUBSEQUENT EVENTS
As
previously disclosed, on September 9, 2021, Resonate Blends, Inc. (the “Company”) entered into binding letter of intent (the
“Agreement”) with L & G USA Inc., a Delaware corporation and L & G Canada Inc., an Ontario corporation (together
“Seller”), and the stockholders of Seller (the “Stockholders”), pursuant to which the Company planned to acquire
substantially all of the assets from Seller associated with the Lemon & Grass business and the Koan business (the “Acquisition”).
On
October 27, 2021, the Company terminated the Agreement. The Company is still in discussions with Seller, and the Company may or may not
go through with a transaction with Seller, but if the Company does, the terms will change from the previous Agreement.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking
Statements
Certain
statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives,
and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,”
“project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,”
“plan,” “may,” “will,” “would,” “will be,” “will continue,” “will
likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions
for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for
purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions
that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements.
Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a
material adverse effect on our operations and future prospects on a consolidated basis include but are not limited to changes in economic
conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles.
These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed
on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new
information, future events or otherwise. Further information concerning our business, including additional factors that could materially
affect our financial results, is included herein and in our other filings with the SEC.
Company
Overview
On
October 25, 2019, Resonate Blends, Inc. (formerly Textmunication Holdings Inc.) announced its entry into the cannabis industry by acquiring
Resonate Blends LLC (“Resonate” or the “Company”), a California-based cannabis wellness lifestyle product company
built on a proprietary system of experiential targets. Resonate is building a value-added, brand-focused cannabis organization offering
premium brands of consistent quality. The Company also acquired Entourage Labs LLC (“Entourage Labs”), a sister company of
Resonate. Entourage Labs is the Intellectual Property (IP) subsidiary of Resonate.
Based
in Calabasas, California, Resonate Blends, Inc. is a cannabis holding company centered on valued-added holistic Wellness and Lifestyle
brands. The Company’s strategy is to ignite future growth by building a purpose-driven portfolio of innovative, trusted national
brands, emerging brands, research organizations, and a variety of retail channels. The Company’s focus is finding mutual value
between product and consumer by optimizing quality, supply chain resources and financial performance. The Company offers a family of
premium cannabis-based products of consistent quality based on unique formations calibrated to Resonate Blends effects system in what
we believe is the industry gold standard in user experience.
The
Company believes the greatest long-term value creation in the cannabis industry will be in the establishment of high quality and consistent
consumer brands. Resonate hopes to become a national leader through its vision in creating a family of brands designed specifically to
deliver reliable, effective, beneficial experiences.
Resonate
is committed to helping you live the life you love. We do not make the medicinal vs. recreational distinction. This is a temporary legal
separation in some states that we expect will soon cease to exist. We believe in wellness for the whole person. We know that people with
pain or anxiety also want to enjoy friends, concerts and have satisfying intimate experiences. We are designing experiences which will
improve all areas of our lives.
To
accomplish this, Resonate is Mastering the Art of Experience. This is our mission. By integrating science, technology, education, branding,
marketing, sales and delivery - with every customer interaction we aim to provide exceptional experiences. Cannabis has a broad range
of unique characteristics, and we are dedicated to harnessing and amplifying those characteristics to support healthy empowered and engaged
lifestyles. From product development through customer communication, we prefect and demystify cannabis bringing innovative products to
an increasingly sophisticated market. Resonate Blends has a strong social mission and the Resonate team is building a successful business
by focusing our knowledge, skill and energy on creating wellness-lifestyle products which will improve community by helping individuals
live more satisfying, meaningful and connected lives. The need for these products currently is crucial.
To
communicate the breadth of wellness products that Resonate is developing, our team created The Resonate System. The Resonate System graphically
represents a spectrum of wellness products based on cannabis scaffolding. This system helps users easily select which product they want.
Products based on The Resonate System deliver relaxation, freedom from pain and anxiety, boosts in focus and creativity, sensuality,
human connection and joy. Our products are formulated around a system of interconnected experience targets that will allow you to know
exactly what to expect when using them.
While
respecting and honoring the natural power of plant medicine, Resonate also employs advanced science, leading technology and a deep understanding
of how various cannabis compounds, when working in the body, simultaneously can create unique effects and benefits (referred to as the
“Entourage Effect”). Our product developers blend cannabinoids and terpenes to formulate products with specific, controllable
and repeatable, beneficial effects. Through innovation, experimentation, testing and an iterative product development strategy, our team
has unlocked new plant constituent combinations resulting in unique, enjoyable and extremely effective wellness products unlike anything
else in the marketplace. Resonate has filed a provisional patent for protection of these formulations and products in the future.
Koan,
the Resonate Blends product family, is based around a comprehensive system of interconnected experience targets that allow people to
select the products that best fit their lifestyle and health objectives. Koan products are dedicated to the efficacy and precision of
functional experience targets across a broad range of product categories.
Resonate’s
initial products are a completely unique class of products called Cordials. These blends offer a wide range of experiences not currently
available in the cannabis market. Our Cordials are water-soluble and use nano-emulsification technology to allow for quick onset and
a sustained and nuanced experience. Single dose, healthful, subtle in taste, cordials are an ideal way for people to intentionally
improve their well-being. They can be shipped directly or substituted for alcohol as a cocktail mixer.
Resonate’s
Cordials have been developed in partnership with an award-winning advanced infusion technology partner and were launched to the retail
channel in late Q2 of 2021. The company is offering six unique blends at its initial release and expects to have additional blends by
late 2021 into early 2022.
We
have formalized contracts with our logistical and marketing partners and are building a digital native strategy supporting direct to
consumer sales. Based on customer demand, the company is creating a “singles” option for the Cordials which will be available later
2021 and a multi-dose option shipping in Q1 2022.
Intellectual
Property
Intellectual
Property (“IP”) development and protection continues as a core area of value creation for Resonate. The Company has developed
the world’s first Cannabis Cordial. The Koan Cordials combine THC (psychoactive), CBD (non-psychoactive) with botanical terpenes
to deliver an all-natural, plant-derived, single-dosed experience that can be enjoyed straight out of the bottle or poured into any beverage.
These multi-use products deliver specific, predictable, reliable, effects in a format that is completely unique in the industry.
The
Company believes the greatest long-term value creation in the Cannabis industry will be in the establishment of high-quality consumer
brands that deliver the expected experience. As cultivation, supplies and services become quickly commoditized, value-added brands represent
the best opportunity for Resonate and its shareholders to support and benefit from the growth expected in the Cannabis industry. It is
therefore critical for Resonate to protect its methods, formulations and packaging.
On
June 14, 2021, the Company successfully filed a Provisional Patent Application with the US Patent & Trademark Office (USPTO) entitled
“Cannabis Nano-Emulsions for Achieving a Reliable, Targeted, Specific and Repeatable User Experience.” The invention relates
to methods and formulations including a combination of cannabinoids and terpenes calculated and specifically formulated to achieve a
targeted, specific and repeatable user experience. The Company is also filing for patent protection on its unique product packaging.
Future
Koan Product - Resonate Growth Plans
For
the first 12-18 months, Resonate will concentrate on releasing product and brand building in our home state of California. Resonate
plans to follow the launch of its first six Koan products with others based on The Resonate System at regular intervals. Our formulas,
combined with the proprietary Vertosa technology, will allow the Company to quickly deliver controlled, predictable, enjoyable effects
in beverages, teas, and gummies. Vertosa is the leading provider of emulsification technology for cannabis manufacturers. Emulsification
allows cannabinoids to become water-soluble so that they can be added to Cordials, beverages, gummies, etc. Vertosa and Resonate are
engaged in joint research focusing on effects of various emulsification methods on cannabinoids. We are working on methods that improve
user experience by refining effects and managing bioavailability. Vertosa will also be providing the emulsification required for formulas
in Resonate’s product line.
The
cannabis industry is in its infancy. Resonate’s growth strategy is to create an innovative ecosystem of companies, investments
and research that all support The Resonate System and our mission of empowering the wellness market. In addition to creating our “house”
brands, the Company is also looking for other quality brands which could be incubated or targeted as either strategic partners or as
acquisitions. Integrating these companies, we believe will provide consistent product quality that yields expected results and that also
allows us to build a stable, successful company overall.
Resonate’s
first commercial release is a family of six precisely targeted effect blends. These products are category-breaking offerings as they
are neither tinctures nor beverages but have the benefits of both. They are emulsified, water soluble, single-serving blends that
can be enjoyed privately or shared socially. Resonate offers these across California in stylish mini bottles, each containing
a single serving. They can be sipped directly from the bottle or poured into beverages. Koan products offer the very high bioavailability
of tinctures not possible to deliver with edibles, take effect generally within minutes and provide benefits for approximately 3 hours.
Significantly, these formulas all provide a pleasant predictable experience, a gentle onset and exit and have no unpleasant sensations
or aftereffects sometimes associated with cannabis products. Our current products are as follows:
Calm
CBD
rich with a hint of THC, Calm is formulated to quiet your mind and ease you into a gentle sense of wellbeing.
Wonder
Our
highest THC offering, Wonder is carefully crafted to bring back that youthful sense of wonder and awe we feel when we are fully engaged
with our senses and environment.
Balance
Balance
is a subtle combination of cannabinoids and terpenes formulated to bring your mind, body and spirit back to an even state of harmony
and homeostasis.
Create
Create
is formulated to stimulate your senses, spark your imagination and channel your inner muse. Led by a stimulative blend of terpenes and
just the right amount of THC to inspire and facilitate the artist in you.
Play
We
formulated Play to help you become fully immersed in the moment and the people around you. From the park to the beach to the dance floor,
Play helps you find your groove and keep it going.
Delight
Put
on your rose-colored glasses and give everything some extra sparkle with Delight. Designed to open your senses, raise your spirits and
brighten your day.
Acquisition
of Assets
On
September 9, 2021, we entered into a binding letter of intent with L & G USA Inc., a Delaware corporation and L & G Canada Inc.,
an Ontario corporation (together “Seller”), and the stockholders of Seller, pursuant to which the Company planned to acquire
substantially all of the assets from Seller associated with the Lemon & Grass business and the Koan business (the “Acquisition”).
On
October 27, 2021, the Company terminated the agreement. The Company is still in discussions with Seller, and the Company may or may not
go through with a transaction with Seller, but if the Company does, the terms will change from the previous agreement.
Competitive
Landscape
The
cannabis market still primarily consists of products of varying quality and poor branding. Much of the branding is heavy “stoner”
or hospital medicinal, and differentiation between products is difficult. As a result, finding a product with controllable, consistent
effects is difficult. Even products of high and reliable quality all look alike and have no shelf appeal. In addition, there is a mismatch
between the fastest growing demographic and many current product offerings, which are designed to be inhaled. This is exactly why we
have developed Koan Cordials, tasty, single serving, healthy cannabis products with timeless, exceptional branding. As the market
matures, some companies are recognizing the importance of branding. Branded category leaders represent the 10 spots among best-selling
products and sales data supports the desire among consumers for branded products. This is further supported by Headset, data (the leading
industry provider of retail buying patterns), which shows that brands are leading every category in cannabis. Further, branded products
command higher prices. Some branded products generate pricing as high as 151%, over industry average. The Resonate team excels in product
branding.
There
is no product in the marketplace exactly like our Koan products currently. Other companies offer tinctures (which are concentrated herbal
extracts made by soaking the bark, berries, leaves (dried or fresh), or roots from one or more plants in alcohol or vinegar), tea, salves,
patches, and cosmetics and vapes, and some of them provide effects which may be similar to those the Koan products will provide, but
we believe that none are equal to ours with respect to quality, efficacy, consistency and scope. Our products are water soluble and can
be enjoyed privately or poured in beverages and shared socially. We believe that the total experience offered by our products cannot
be found elsewhere in the industry.
While
there are several very fine products in the premium cannabis space, there is not yet a dominant brand in any category. Some are leading
but no brand dominates. Data indicates that our targeted demographic seeks out trusted brands when making product selections. Resonate
is bringing to market custom, reliable, experience-targeted products. which can be sipped or shared, offered under a well-crafted brand
supported by an accessible information system. We provide The Resonate System so customers can understand what to expect and can make
informed confident selections.
Marketing
and Sales Plan
The
cannabis industry is changing daily in response to updated regulations, customer product education, new interest from various demographics
and now the COVID-19 pandemic. As a result, we are constantly attentive to these changes as they affect the marketing of our products.
Our initial marketing strategy was to launch in select dispensaries in Los Angeles and to support the launch with dispensary promotional
material and location-based marketing. However, in the current market the Company has decided to modify this strategy. Paradoxically,
retail restrictions and safety regulations were beneficial for us, as these allowed us to reprioritize our sales approach and to build
a marketing plan around on-line dispensaries with wide delivery networks. Although retail restrictions will eventually be relaxed, we
do not expect that storefront dispensaries will return to the dominant role they played in the cannabis industry before COVID-19 for
several reasons.
Dispensaries
are generally small, making social distancing difficult. Limitations on a customers’ ability to touch and smell products reduces
the value of in-person shopping. Restrictions on the number of people allowed in these small spaces will create waiting lines outside
stores, which will be inconvenient and even embarrassing for some. Finally, we have learned that a significant number of customers, particularly
in our targeted demographic, really prefer the privacy and convenience of having products delivered to their homes. For all these reasons,
we have decided to focus our sales efforts on select high-end retail dispensaries and on-line, delivery and e-commerce outlets.
In
response to the sudden change in customer buying preferences, Resonate has implemented a plan to sell directly to consumers. We are partnering
with an on-line platform which will allow us to communicate the value of our products directly to consumers. This platform will connect
consumers to a licensed retail and California-wide home delivery network. This direct-to-consumer approach has significant benefits for
us. First, it allows us to control our brand messaging and to assure that we can provide the information and education customers need
to make confident and informed product choices. Through this method, we also have access to customer information, which is not available
from dispensaries, which allows us to employ successful marketing techniques used by leading on-line retailers such as customer loyalty
programs, memberships, ambassadors, etc., to build brand awareness and increase sales. It is also better for us financially as it increases
our profit margin.
Therefore,
our marketing budget and energy is now being channeled into appropriate programmatic advertising, developing informational materials
for customers on our website, and developing professional and effective social media, search engine optimization and direct to consumer
marketing campaigns. We also offer market suppose and to select premium California dispensaries both in person and thorough the Leaf.VIP
budtender training program. We expect that building our brand online will complement retail sales by increasing customer awareness and
creating “pull-through” at brick-and-mortar facilities.
Resonate
has partnered with Good People LLC as its state-wide Koan Cordial sales team. Good People is working closely with Resonate Blends’
marketing team to plan events, train budtenders, schedule and track relevant promotions and inform the innovation pipeline with field
insights. In addition, Resonate is currently recruiting two internal sales managers to oversee all sales efforts in Northern and Southern
California. Koan Cordials dispensary buyer sample kits are now available through Good People and dispensaries are now stocking the product
in strategic geographical locations.
Partnerships
Product
Development:
The
Company signed a custom development contract with Vertosa in March of 2020, the leading provider of safe, reliable emulsion bases for
infused product developers. This contract was a major milestone for the Company as it selected its strategic partners to develop innovative
products and solutions.
Vertosa
is an award-winning strategic partner who will assist the Company in the launch of its first unique category of six water soluble products.
These multi-use products deliver specific, predictable, reliable, effects in a format that is completely unique in the industry. The
first product developed collaboratively is the Cordial product line, but both companies expect several other products to be developed
over time utilizing Vertosa’s emulsification technology.
The
Vertosa and Resonate teams share a mission of maximizing the benefits of cannabinoids and plant medicine. Resonate selected Vertosa as
a development partner because the Vertosa systems’ industry leading emulsification technology makes them highly stable, bioavailable,
and water compatible. All of Vertosa’s inactive base materials are FDA approved and are lab tested for quality. Vertosa’s
Hemp-derived CBD Emulsion System is now certified organic by CCOF, a United States Department of Agriculture-accredited
certifier and non-profit advocacy group, and the company has also received its Good Manufacturing Practice (GMP) certification,
confirming that its offerings follow regulations promulgated by the US Food and Drug Administration and are safe, pure, and effective.
In
addition, Vertosa is expanding into other legal states, and this paves the way for Resonate to follow behind moving beyond California
while still assuring strict standards and high production quality for our products.
Manufacturing:
The
Company partnered with The Galley, a California licensed Type N – Infused Products Manufacturer based in Santa Rosa, California.
The Galley produces and packages premium award-winning products and has worked with some of the most popular brands in the industry.
The Galley is built to FDA and CDPH standards and is focused on high demand areas of production
– Edibles, Topicals, Tinctures, Chocolate, Hard Candies, Gummies, Pre-Rolls, Flower, Vapes and Beverages. Resonate Blends
was granted a Type S: Shared Facility - Adult and Medicinal Cannabis Manufacturing License on July 23, 2021. The license allows Resonate
Blends to manufacture cannabis products at the licensed facility of The Galley.
Resonate
and The Galley entered into a Master Services Agreement in which The Galley will manufacture and package Resonate’s first family
of products to precise specifications.
The
Galley and Resonate have been in frequent contact throughout Resonate’s development period and are now supporting the production
of the Company’s unique family of wellness lifestyle products. Resonate’s first of its kind offerings are emulsified through
the advanced infusion technology provided by award-winning Vertosa and collaboratively developed to push the state of the art in its
cannabis products.
Distribution:
Because
of the unique nature of Resonate’s Koan products and the recent expansion of home delivery services in the cannabis industry, Resonate
has prioritized a direct-to-consumer method as a key sales strategy. Resonate has identified a technology partner who will add an e-commerce
feature to the Koan web site that will allow the Company to sell products directly to consumers using a licensed California state-wide
delivery network for fulfilment.
In
addition to direct sales, the company plans to offer products to select premium dispensaries throughout California. These products will
be delivered to retail establishments by a leading cannabis full-service distributor. The Company contracted with The Vault 3PL to provide
logistics and state-wide distribution for Resonate’s Koan Cordials, its product line of unique experience blends currently available
in California.
Resonate
is also developing relationships with a variety of complementary distribution channels such as subscription box companies and other non-storefront
reseller organizations.
To
summarize, we have signed and announced definitive agreements with various partners to execute on our overall business strategy. Our
partner Vertosa is expected to develop our unique formulations through its advanced nano-emulsification process, The Galley is expected
to assemble and package, the Good People to sell the products, the Vault 3PL Distribution to distribute our products and, we
just engaged with The Flower Agency to actively market our social media channels to the California market.
Our
principal executive office is located at 26565 Agoura Road, Suite 200, Calabasas, CA 91302. Our executive telephone number is (571) 888-0009.
Results
of Operation for Three and Nine Months Ended September 30, 2021 and 2020
Revenues
We
have generated $7,574 and $7,574 in sales for the three and nine months ended September 30, 2021, respectively, as compared with no sales
for the three and nine months ended September 30, 2020 on our current product line, but sales of $0 and $477,734 from the discontinued
operations of our sold subsidiary, Textmunication, Inc., for the three and nine months ended September 30, 2020, respectively.
We recently launched our first line of six Cordial products in California and we have started to generate revenues from the sale of these
products.
We
anticipate increased revenues on our six Cordials for the rest of the year. We anticipate a rollout of new packaging
configurations by early 2022 for our Cordials; to include both a one-pack and a multi-dose bottle which will bring the cost per dose
down considerably. We also plan on launching additional Cordial formulations by early 2022, which we hope will contribute to increasing
our revenues. As we have just launched our products, however, it may take some time for the markets to react, gain traction and result
in brand awareness among our customers. There can be no assurances, however, that customers will positively react to our products.
Operating
Expenses
Our
operating expenses were $762,912 for the three months ended September 30, 2021, as compared with $236,160 for the three months ended
September 30, 2020. Our operating expenses were $2,937,437 for the nine months ended September 30, 2021, as compared with $1,445,463
for the nine months ended September 30, 2020.
The
main reasons for the increased operating expense in 2021 was a result of our efforts to increase spending on advertising, as
well as increased legal and professional fees and non-cash management fees.
We
expect that our operating expenses will increase in 2021 over 2020 because of our product launch and the increased expenses associated
with operations.
Other
Income/Expenses
We
had other income of $866,917 for the three months ended September 30, 2021 compared with other expenses of $86,910 for
the same period ended September 30, 2020. We had other expenses of $3,398,548 for the nine months ended September 30, 2021 compared
with other expenses of $712,625 for the same period ended September 30, 2020.
We
recorded a gain on revaluation of derivative liabilities in the amount of $961,857 that contributed to our other income for the quarter
ended September 30, 2021. Our other expenses for the nine months ended September 30, 2021 was mainly attributable to a loss on revaluation
of derivative liabilities.
Net
Loss
We
had net income of $99,274 for the three months ended September 30, 2021, as compared with net loss of $351,399 for the three months ended
September 30, 2020. We had net loss of $6,340,715 for the nine months ended September 30, 2021, as compared with net loss of $2,142,310
for the nine months ended September 30, 2020.
Liquidity
and Capital Resources
As
of September 30, 2021, we had total current assets of $649,017, consisting of $390,534 in cash and $258,483 in prepaids and inventory.
Our total current liabilities as of September 30, 2021 were $5,387,805. We had a working capital deficit of $4,738,788 as of September
30, 2021, compared with a working capital deficit of $996,439 as of December 31, 2020.
Cash
Flows from Operating Activities
Operating
activities used $2,415,066 in cash for the nine months ended September 30, 2021, compared with cash used of $1,401,301 for the
nine months ended September 30, 2020. Our negative operating cash flow for the nine months ended September 30, 2021 was largely the result
of our net loss of $6,340,714, offset by share based compensation of $1,267,297. Our negative operating cash flow for the nine months
ended September 30, 2020 was largely the result of our net loss of $2,142,310, offset by loss on derivative liability of $536,819 and
share based compensation of $198,514.
Cash
Flows from Investing Activities
We
used cash on investing activities to purchase computer equipment for the nine months ended September 30, 2021 with no
cash used for the same period ended 2020.
Cash
Flows from Financing Activities
Cash
flows provided by financing activities during the nine months ended September 30, 2021 amounted to $2,727,322 compared with cash flows
provided by financing activities of $1,119,943 for the nine months ended September 30, 2020. Our positive cash flows for the nine months
ended September 30, 2021 consisted of proceeds from issuance of common stock of $1,367,115, proceeds from Convertible notes payable of
$1,865,000, offset by payments of notes payable of $504,793. Our positive cash flows for the nine months ended September 30, 2020 consisted
of proceeds from issuance of common stocks $540,000, proceeds from Convertible notes payable $806,000, offset by payments of notes payable
of $226,057.
From
December 1, 2020 through March 15, 2021, we sold units priced at $25,000 per unit where each unit consisted of (i) an 8.0% Note
in the principal amount of $25,000 convertible into Common Stock (the “Note) and (ii) a warrant for the purchase of 83,333 shares
of the Company’s Common Stock (the “Warrant”).
We
sold 90 Units for total proceeds of $2,265,000. After paying finder fees of $187,450 to our placement agent, we netted $2,077,550, which
will be used for working capital.
In
addition, we also entered into subscription agreements in connection with an equity placement offering of a maximum of $2,000,000 in
units (the “Equity Units”) where each Equity Unit consists of one share of Common Stock at a purchase price of $0.15 and
a warrant to purchase 0.5 share(s) of Common Stock at an exercise price of $0.225 per share. We sold 6,983,333 Equity Units for total
proceeds of $1,047,500. After paying finder fees of $100,763 to our placement agent, we netted $946,737, which was used to pay off the
remaining convertible note debt and will also be used for working capital.
Until
we can generate sufficient revenues to sustain operations, we are dependent on investment capital to continue our survival. There can
be no assurance of funds from these efforts or that any other type of additional financing will be available to us on acceptable terms,
or at all.
Going
Concern
As
of September 30, 2021, we have an accumulated deficit of $27,441,709. Our ability to continue as a going concern is contingent upon the
successful completion of additional financing arrangements and our ability to achieve and maintain profitable operations. While we are
expanding our best efforts to achieve the above plans, there is no assurance that any such activity will generate funds that will be
available for operations. These conditions raise substantial doubt about our ability to continue as a going concern. These financial
statements do not include any adjustments that might arise from this uncertainty.
Off
Balance Sheet Arrangements
As
of September 30, 2021, there were no off-balance sheet arrangements.
Critical
Accounting Policies
In
December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion
and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a
company’s financial condition and results, and requires management’s most difficult, subjective, or complex judgments, often
because of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies are
disclosed in Note 2 of our audited financial statements included in the Form 10-K filed with the Securities and Exchange Commission.
Recent
Accounting Pronouncements
No
new accounting pronouncements issued or effective during the fiscal year has had or is expected to have a material impact on the financial
statements.