The
accompanying notes are an integral part of these condensed consolidated financial statements
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE QUARTER ENDED June 30, 2022
(UNAUDITED)
NOTE
1 – ORGANIZATION AND BUSINESS OPERATIONS
The
Company
Resonate
Blends, Inc. formerly Textmunication Holdings, Inc. (the “Company”) was incorporated on in October 1984 in the State of Georgia
as Brock Control Systems. Founded by Richard T. Brock, the Company was in the sales automation market and an early developer of enterprise
customer management systems. The Company went public at the end of March of 1993. In February of 1996, the Company changed its name to
Brock International Inc., and in March of 1998, the Company again changed our name to Firstwave Technologies, Inc.
On
November 16, 2013, the Company entered into a Share Exchange Agreement (SEA) with Textmunication, Inc. a California corporation, whereby
the sole shareholder of the Company received 65,640,207 new shares of common stock of the Company in exchange for 100% of the Textmunication’s
issued and outstanding shares.
Textmunication
is an online mobile marketing platform service that will connect merchants with their customers and allow them to drive loyalty and repeat
business in a non-intrusive, value-added medium. For merchants we provide a mobile marketing platform where they can always send the
most up-to-date offers/discounts/alerts/events schedule, such as happy hours, trivia night, and other campaigns. The consumer can also
access specials and promotions that merchants choose to distribute through Textmunication by opting into keywords designated to the merchant’s
keywords.
On
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.
The
Company entered into Employment Agreements with the following persons: (i) Geoffrey Selzer as Chief Executive Officer (CEO) of the Company
with an annual salary of $180,000; and (ii) Pamela Kerwin as Chief Operating Officer (COO) of the Company with an annual salary of $120,000.
Both are eligible for salary increases upon milestone achievements and other benefits. The Employment Agreement for the CEO has a term
of 2 years and can’t be terminated without cause. Severance of six (6) weeks is available for termination of the COO without cause
before one-year of service and eight (8) weeks after one-year of service.
On
December 16, 2019 the Company filed Articles of Merger with the Secretary of State of Nevada in order to effectuate a merger with its
wholly owned subsidiary; Resonate Blends, Inc. Shareholder approval was not required under Section 92A.180 of the Nevada Revised Statutes.
As part of the merger, the Company’s board of directors authorized a change in our name to “Resonate Blends, Inc.”
and the Company’s Articles of Incorporation have been amended to reflect this name change.
In
connection with the name change, the Company’s symbol was changed to “KOAN” that more resembles the Company’s
new business focus.
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.
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.
On
May 22, 2020, 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.
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 and 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.
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 June 30, 2022, the Company has an accumulated deficit of $25,272,281. 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. However, as of June 30, 2022, the company balances were below the federally
insured limit by approximately $215,177 Management is making certain arrangements to mitigate this risk during the next quarter.
Revenue
Recognition
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 June 30, 2022 and year
ended December 31, 2021.
SUMMARY
OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON RECURRING BASIS
As of June 30, 2022 | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Liabilities | |
| | | |
| | | |
| | | |
| | |
Derivative Liabilities | |
| - | | |
| - | | |
| 598,902 | | |
| 598,902 | |
| |
| | |
| | |
| | |
| |
As of December 31, 2021 | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Liabilities | |
| | | |
| | | |
| | | |
| | |
Derivative Liabilities | |
| - | | |
| - | | |
| 2,286,014 | | |
| 2,286,014 | |
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 policies 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 and 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 June 30, 2022 and December 31, 2021 are $54,500
and $45,000, respectively which are owed to our CEO for funding certain corporate
initiatives.
NOTE
4 - CONVERTIBLE NOTE PAYABLE
Convertible
notes payable consists of the following as of June 30, 2022 and December 31, 2021:
SCHEDULE
OF CONVERTIBLE NOTES PAYABLE
| |
June 30, 2022 | | |
December 31, 2021 | |
Convertible notes face value | |
$ | 2,503,800 | | |
$ | 1,865,000 | |
Less: Discounts | |
| - | | |
| - | |
Less: Debt issuance cost | |
| - | | |
| - | |
Net convertible notes | |
| 2,503,800 | | |
$ | 1,865,000 | |
The
convertible notes as of June 30, 2022 are 8% Unsecured Convertible Promissory Notes (“Notes”) from various accredited investors
issued from January 1, 2021 to June 30, 2022. All notes have an automatic conversion into equity on the maturity date, which is July
3, 2022, or if a Qualified Financing (QF) of $5,000,000 is achieved, whichever occurs first. The maturity date pricing is $0.10. A QF
converts into equity at the lesser of $1.00 or 75% of the average selling price of the aggregate offering. The outstanding balance as
of June 30, 2022 for this Unsecured Convertible Promissory Notes amounts to $1,715,000. On January 2, 2022, Certain Noteholders elected
to convert collectively $150,000 of the Notes into equity at $0.10 to reduce the outstanding principal.
On
January 28, 2022, we entered into Securities Purchase Agreements (the “Purchase Agreements”) with two accredited investors,
pursuant to which we issued and sold to the investors two convertible promissory notes, dated January 28, 2022, each in the principal
amount of $275,000 for an aggregate principal amount of $550,000. We received $500,000 from the Notes after applying the original issue
discount to the Notes.
The
Purchase Agreements allow for additional notes to be issued to investors up to $750,000. On February 4, 2022, we issued and sold to two
accredited investors (the “Investors”) convertible promissory notes in the principal amount of $55,000 under a Securities
Purchase Agreement of the same date. We received $150,000 from the Notes after applying the original issue discount to the Notes.
On
March 3, 2022, we issued and sold to an accredited investor a convertible promissory note the principal amount of $55,000 under a Securities
Purchase Agreement of the same date. We received $50,000 from the Note after applying the original issue discount to the Note.
The
maturity date for repayment of the Notes is nine months from issuance and the Notes bear interest at 10% per annum. We may prepay the
Notes provided that we shall make payment to the investors of an amount in cash equal to the sum of the then outstanding principal amount
of this Notes, plus interest on the unpaid principal amount of the Notes, plus any Default Interest on the amounts, plus any amounts
owed to the Investor pursuant to the Purchase Agreement.
All
principal and accrued interest on the Notes are convertible into shares of our common stock. The conversion price shall equal a fixed
price of $0.15 per share or, at the option of the Investor in the event that we fail to complete a Qualified Offering before the five
(5) month anniversary of the issue date, the Registration Conversion Price. The “Registration Conversion Price” shall mean
75% multiplied by the volume weighted average of the Common Stock during the twenty (20) Trading Day period ending on the latest complete
Trading Day prior to the Conversion Date. The Investors shall be entitled to add to the principal amount of the Note $750.00 for each
conversion to cover investor’s deposit fees associated with each Notice of Conversion. “Qualified Offering” means any
offer and sale by us of an original issuance of equity securities, comprised of either Common Stock or preferred stock of the Company,
in a single transaction to investors pursuant to which at least an aggregate of $2,000,000.00 gross proceeds are received by the Company.
In
the event that by the five (5) month anniversary of the issue date a Qualified Offering (as defined above) has not occurred, then we
shall file with the SEC a registration statement on Form S-1 covering the resale of the maximum number of Registrable Securities, defined
as the Commitment Shares, Conversion Shares and Warrant Shares.
In
connection with the investment, we issued Commitment Shares to the Investors in the amount of 650,000 shares collectively and we also
issued a warrant (the “Warrant”) to the Investors to purchase 812,500 shares collectively of our common stock at an exercise
price of $0.40 per share. In the event that there is no effective registration statement five months from the issue date registering
the shares underlying the Warrant, then the Investors may exercise the Warrant using a cashless feature.
The
Securities Purchase Agreement contain a most favored nation provision that allows the Investor
to claim any lower price from any future securities six months after this closing and a blocker
on issuing variable rate investments.
Finally,
on June 27, 2022, we issued and sold to an accredited investor a convertible promissory note the principal amount of $138,800 under a
Securities Purchase Agreement of the same date. We received $128,500 from the Note after applying the original issue discount to the
Note.
The
Notes are convertible into shares of common stock, $0.0001 par value per share, of the Company upon the terms and subject to the limitations
and conditions set forth in such Note. On the Closing Date (i) the Buyer shall pay the purchase price for the Note to be issued and sold
to it at the Closing (as defined below) (the “Purchase Price”) by wire transfer of immediately available funds to the Company,
in accordance with the Company’s written wiring instructions, against delivery of the Note in the principal amount equal to the
Purchase Price as is set forth immediately below the Buyer’s name on the signature pages hereto, and (ii) the Company shall deliver
such duly executed Note on behalf of the Company, to the Buyer, against delivery of such Purchase Price.
The
six months ended June 2022 and 2021 interest accrued for the convertible notes payable at $22,178 and $58,728 respectively.
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 $2,502
and $1,465 for the six-months period ended June 30, 2022 and 2021, 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 second quarter of 2022, the Company issued a total of 50,000
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 | |
$ | 4,505 | |
Convertible promissory notes | |
| - | |
Total | |
$ | 4,505 | |
| |
| | |
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
On
July 15, 2022, we issued a total of 21,993,806
shares of common stock to certain note holders as a result of voluntary conversions of their 8%
convertible notes issued in early 2021. The aggregate dollar amount of debt reduced by the conversions was $1,917,382.
The convertible notes retired were 8% Unsecured Convertible Promissory Notes from various accredited investors. All notes had an
automatic conversion into equity on the maturity date, which was July 3, 2022.