Resonate Blends, Inc. - Quarter Report: 2021 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2021

For the transition period from __________ to__________

Commission File Number: 000-21202

Resonate Blends, Inc.

(Exact name of registrant as specified in its charter)

26565 Agoura Road, Suite 200

Calabasas, CA 91302

(Address of principal executive offices)

571-888-0009

(Registrant’s telephone number)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

[X] Yes [  ] No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [  ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [  ] Yes [X] No

Securities registered pursuant to Section 12(b) of the Act: None

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 39,626,389 common shares as of May 14, 2021

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

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 March 31, 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 THREE MONTHS ENDED MARCH 31, 2021 AND 2020

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 three months ended March 31

The accompanying notes are an integral part of these audited consolidated financial statements

RESONATE BLENDS , INC.

(FORMERLY TEXTMUNICATION, INC.)

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:

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.

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:

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:

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.

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

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.

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 at this time 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 plans to explore obtaining patent protection for 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 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 gently intentionally improve their well-being. They can be sipped 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 we have released our six unique blends in California. Everything from ordering inventory, opening up distribution channels and final preparation for our marketing efforts are now underway. We believe value-added brands focused on experience targets represent the greatest market opportunity in the maturing cannabis market. Our mission is to demystify and normalize cannabis use through innovative products built around the healing powers of plant medicine. Cordials are the first in a family of products designed around our unique Resonate System—the heart of our product development process.

We are in early discussions to license our products in two other cannabis friendly states, and we hope to have further updates on this new potential revenue stream following our launch of Cordials in California.

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 Hive Laboratory is expected to assemble, package and distribute our products and Way To Blue is expected to actively market and deliver social media channels to the California market.. This release will be followed with our second product line that is already in full development and is expected for targeted commercial release before the end of 2021.

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 Months Ended March 31, 2021 and 2020

Revenues

We have generated no revenues in our cannabis holding company or from our operating subsidiaries, Resonate Blends, LLC or Entourage Labs, LLC, for the three months ended March 31, 2021.

We have released our six unique Cordials in California We anticipate booking revenue from our product line in the 2nd quarter of 2021.

Operating Expenses

Our operating expenses were $778,012 for the three months ended March 31, 2021, as compared with $551,411 for the three months ended March 31, 2020.

The main reason for our increase operating expenses in 2021 was a result of professional fees in 2020 of $252,588 to obtain funds for company operations, while last quarter we only had expenses of $193,400 which were mainly for legal and professional fees.

We expect that our operating expenses will increase in 2021 over 2020 as a result of our product launch and the increased expenses associated with operations.

Other Income

We had other expenses of $280,450 for the three months ended March 31, 2021 compared with other income of $75,234 for the same period ended March 31, 2020.

The main reason for our increased other expenses in 2021 was a result of loss on revaluation of derivative liabilities approximately $248,649.

Net Income/Loss

We had net loss of $1,058,462 for the three months ended March 31, 2021, as compared with net loss of $608,828 for the three months ended March 31, 2020.

Liquidity and Capital Resources

As of March 31, 2021, we had total current assets of $1,756,043, consisting of $1,573,717 in cash and $182,326 in inventories. Our total current liabilities as of March 31, 2021 were $2,483,777. We had a working capital deficit of $727,734 as of March 31, 2021, compared with a working capital deficit of $996,439 as of December 31, 2020.

Cash Flows from Operating Activities

Operating activities used $957,982 in cash for the three months ended March 31, 2021, compared with cash used of $327,860 for the three months ended March 31, 2020. Our negative operating cash flow for the three months ended March 31, 2021 was largely the result of our net loss of $1,058,462, offset by loss on valuation of derivative liabilities of $248,649. Our negative operating cash flow for the three months ended March 31, 2020 was largely the result of the result out net loss of $608,828 offset mainly by share based compensation of $225,695.

Cash Flows from Investing Activities

We used $20,333 to purchase various office furniture and equipment for the three months ended March 31, 2021 and no cash on investing activities the three months ended March 31, 2020.

Cash Flows from Financing Activities

Net cash flows provided by financing activities during the three months ended March 31, 2021 amounted to $2,437,707 compared with cash flows provided by financing activities of $314,278 for the three months ended March 31, 2020. Our positive cash flows for the three months ended March 31, 2021 consisted of proceeds from issuance of common stock of $1,347,500 proceeds from Convertible notes payable of $1,595,000, offset by payments of notes payable of $504,793. Our positive cash flows for the three months ended March 31, 2020 consisted of proceeds from subscription $50,000, proceeds from convertible notes/loans payable $151,960 and proceeds from notes payable of $130,075, offset by payments of $17,757 on convertible notes payable.

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 are able to 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 March 31, 2021, we have an accumulated deficit of $21,159,457. 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 March 31, 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 as a result 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

A smaller reporting company is not required to provide the information required by this Item.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of March 31, 2020, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of March 31, 2021, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described below.

Our principal executive officers do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive officers have determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Management identified the following three material weaknesses that have caused management to conclude that, as of March 31, 2021, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level:

To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

To remediate the material weakness in our documentation, evaluation and testing of internal controls we plan to engage a third-party firm to assist us in remedying this material weakness once resources become available.

We intend to remedy our material weakness with regard to insufficient segregation of duties by hiring additional employees in order to segregate duties in a manner that establishes effective internal controls once resources become available.

Changes in Internal Control over Financial Reporting

No change in our system of internal control over financial reporting occurred during the period covered by this report, the period ended March 31, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

Item 1A: Risk Factors

For our cannabis operations, see risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2020 filed on April 15, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The information set forth below relates to our issuances of securities without registration under the Securities Act of 1933.

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.

These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.

Item 3. Defaults upon Senior Securities

None

Item 4. Mine Safety Disclosures

None

Item 5. Other Information

On May 22, 2020, we 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 our company and to further accept the payment of $200,000 from our future fundraising as consideration of all debts outstanding under Mr. Asefi’s employment agreement with us.

On May 13, 2021, we amended the Separation Agreement with Mr. Asefi to state the parties desire to reduce the total amount payable 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.

Item 6. Exhibits

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.