Resonate Blends, Inc. 10-K

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is quoted under the symbol “KOAN” as of December 16, 2019 on the OTCQB operated by OTC Markets Group, Inc. Only a limited market exists for our securities. There is no assurance that a regular trading market will develop, or if developed, that it will be sustained. Therefore, a shareholder may be unable to resell his securities in our company. The following tables set forth the range of high and low bid prices for our common stock for the each of the periods indicated as reported by the OTCQB. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. Fiscal Year Ending December 31, 2019 Quarter Ended High $ Low $ December 31, 2019 .22 .10 September 30, 2019 .16 .07 June 30, 2019 .42 .12 March 31, 2019 .70 .30 Fiscal Year Ending December 31, 2018 Quarter Ended High $ Low $ December 31, 2018 0.95 0.25 September 30, 2018 1.97 0.07 June 30, 2018 0.20 0.10 March 31, 2018 0.60 0.10 On April 30, 2020, the last sales price per share of our common stock on the OTCQB was $.08 Penny Stock The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation. The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer’s account. 9 In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities. Holders of Our Common Stock As of April 30, 2020, we had 22,700,843 shares of our common stock issued and outstanding, held by 744 shareholders of record, other than those held in street name. Dividends There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where after giving effect to the distribution of the dividend: 1. we would not be able to pay our debts as they become due in the usual course of business, or; 2. our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution. We have not declared any dividends and we do not plan to declare any dividends in the foreseeable future. Recent Sales of Unregistered Securities The information set forth below relates to our issuances of securities without registration under the Securities Act of 1933 during the reporting period which were not previously included in a Quarterly Report on Form 10-Q or Current Report on Form 8-K. 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. Securities Authorized for Issuance under Equity Compensation Plans We have an Employee Stock Ownership Program (ESOP) in place for our employees. The plan has 10,000,000 shares available. Through December 31, 2019, we have issued 6,485,000 shares to employees with 3,515,000 shares held in reserve at our Transfer Agent. Item 6. Selected Financial Data A smaller reporting company is not required to provide the information required by this Item. Item 7. 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.” 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. 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. 10 Results of Operations for the Years Ended December 31, 2019 and 2018 Resonate Holdings Inc. Textmunication Inc. Resonate Blends LLC Total 2019 Total 2018 Revenues 1,050,161 - 1,050,161 1,066,408 Cost of Revenues - 392,674 392,674 314,638 Gross Profit - 657,487 - 657,487 751,770 Revenues for 2019 and 2018 remains constant primarily due the increase in clients was offset by cancellation few large label customers. Cost of revenues increased for 2019 compared with the 2018 and our margins were less as a result of additional development resources. Operating Expenses Resonate Holdings Inc. Textmunication Inc. Resonate Blends LLC Total 2019 Total 2018 Advertising 21,831 38,945 60,776 13,873 General and Administrative 30.985 142,789 8,157 181,931 132.908 Legal and Professional 169,628 49,828 - 219,456 256,370 Officer compensation 95,000 300,910 80,000 475,910 353,700 Salaries and related - 213,534 73,500 287,034 132,208 Sales commission - 82,236 - 82,236 64,053 Office rent - 22,050 - 22,050 20,294 Impairment of In House Software - - - - 85,092 Non Cash management fees 2,650,518 - - 2,650,518 - Total operating expenses 2,946,131 833,178 200,602 3,979,911 1,058,498 Our operating expenses for the year ended December 31, 2019 compared with 2018 increased primarily due to $2,650,518 as a stock-based compensation to our management team and company officers. The increase in officers’ compensation were due to additional hiring of six (6) employees at Resonate Blends, Inc., including a CEO, COO, CIO, Product Director, Chief Creative Designer and Marketing Director. We expect that our operating expenses for the rest of 2020 will be lower to that in the present year due to the departure of our CEO Wais Asefi and other employees employed at our mobile marketing subsidiary. Given our lack of operating capital, we may be forced to issue shares for services rendered to the company. We hope that increased revenues will lessen that trend for 2020 and beyond. Other Income/ Expenses We had net other expenses of $336,179 for the year ended December 31, 2019 and $31,373 for the same period ended December 31, 2018. Other expenses for the year ended December 31, 2019 consisted mainly of $106,961 in the loss on settlement of legal liabilities, $92,791 interest expenses, $118,124 amortization of debt discounts and $43,242 gain on settlement of derivative liabilities, offset by a gain of $24,939 from the settlement of notes payable. Other expense for 2018 consisted of $105,417 loss on settlement of notes payable, $42,534 on the amortization of debt discounts, and $2,792 in interest expense, offset by a $119.370 change in fair value of derivative liabilities based on the Black-Scholes option pricing model. 11 Net Income/Loss The Company had a net loss of $3,669,728 for the year ended December 31, 2019, as compared with net loss of $339,753 for the year ended December 31, 2018. Liquidity and Capital Resources As of December 31, 2019, we had total current assets of $105,742. Our total current liabilities as of December 31, 2019 were $717,970. We had a working capital deficit of $612,228 as of December 31, 2019. Cash flows from Operating Activities Operating activities used $809,386 in cash the year ended December 31, 2019, as compared with $54,145 for the year ended December 31, 2018. Our net loss was $3,669,728, offset by $3,035,465 in non-cash expenses, an increase in receivables of $38,037, a decrease in accounts payable and accrued expenses of $137,036 and a decrease in due to related party of $100. Our net loss of $339,753 was the main component of our negative operating cash flow in 2018, offset mainly by non-cash expenses of $73,810, an increase in receivables of $11,667 and an increase in accounts payable and accrued expenses of $221,812. Cash flows from Investing Activities Investing activities used $25,000 in cash the year ended December 31, 2019. Our negative investing cash flow in 2019 is the result of the investment in Joiant. Cash flows from Financing Activities Cash flows provided by financing activities during the year ended December 31, 2019 amounted to $819,012 as compared with $112,500 for the year ended December 31, 2018. Our positive cash flow in 2019 consisted mostly of proceeds from the sale of issuance of common stocks. Our positive cash flow in 2018 consisted mostly of proceeds from the sale of convertible promissory notes, offset by payments on loans payable. Our optimum level of growth for success will be achieved if we are able to raise $1,500,000 in the next twelve months. However, funds are difficult to raise in today’s economic environment. If we are unable to raise $1,500,000, our ability to implement our business plan and achieve our goals will be significantly diminished. We have experienced a history of losses. With Resonate Blends in development stage and Textmunication revenues stable, we are still reliant on outside capital as we have been in the past. We will need at a minimum $1,500,000 in capital to operate in the next 12 months. We are dependent on investment capital to continue our survival. We have raised money through convertible debt, almost always on unfavorable terms. There is no guarantee that these small convertible loans will be available to us in the future or on terms acceptable to us. We also plan to raise money in the sale of our equity securities. 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 December 31, 2019, we have an accumulated deficit of $19,159,721. 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 December 31, 2019, there were no off-balance sheet arrangements . Critical Accounting Policies Our critical accounting policies are disclosed in Note 2 of our audited financial statements included in the Form 10-K. Item 7A. Quantitative and Qualitative Disclosures About Market Risk A smaller reporting company is not required to provide the information required by this Item. 12