Resonate Blends, Inc. 10-Q

Item 1. Financial Statements Our consolidated financial statements included in this Form 10-Q are as follows: F-1 Consolidated Balance Sheets as of March 31, 2020 (unaudited) and December 31, 2019; F-2 Consolidated Statements of Operations for the for the three months ended March 31, 2020 and 2019 (unaudited); F-3 Consolidated Statement of Stockholders’ Equity (Deficit) for the three months ended March 31, 2020 (unaudited); F-4 Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (unaudited); and F-5 Notes to Consolidated Financial Statements. 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, 2020 are not necessarily indicative of the results that can be expected for the full year. 3 RESONATE BLENDS, INC. (FORMERLY TEXTMUNICATION HOLDINGS, INC.) CONSOLIDATED BALANCE SHEETS March 31, 2020 December 31, 2019 ASSETS Current assets Cash and cash equivalents $ 39,557 $ 53,139 Receivables 45,512 52,603 Total current assets 85,069 105,742 Investment in equity method investee 25,000 25,000 TOTAL ASSETS 109,069 130,742 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities Accounts payable and accrued liabilities 217,932 175,243 Due to related parties 11,625 11,650 Convertible notes payable, net of discount 496,653 161,404 Derivative liability 179,480 262,712 Settlement liability 106,964 106,961 Short term loan 16,775 - Total current liabilities 1,029,429 717,970 Total liabilities 1,029,429 717,970 Stockholders’ deficit Series A - Preferred stock, 10,000,000 shares authorized, $0.0001 par value, 4,000,000 issued and outstanding 400 400 Series C - Preferred stock, 2,000,000 shares authorized, $0.0001 par value, 2,000,000 issued and outstanding 200 200 Common stock; $0.0001 par value; 100,000,000 shares authorized; 19,705,714 and 17,153,936 shares issued and outstanding as of March 31, 2020 and December 31, 2019 , respectively. 1,970 1,715 Additional paid-in capital 18,845,618 18,570,178 Accumulated deficit (19,768,548 ) (19,159,721 ) Total Stockholders’ deficit (920,360 ) (587,228 ) TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY $ 109,069 $ 130,742 The accompanying notes are an integral part of these unaudited consolidated financial statements F- 1 RESONATE BLENDS, INC. (FORMERLY TEXTMUNICATION HOLDINGS, INC.) CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended March 31 2020 March 31, 2019 REVENUES $ 305,590 $ 243,443 COST OF REVENUES 90,559 88,398 Gross profit 215,031 155,045 Operating expenses Advertising 14,466 2,630 General and administrative expenses 315,382 80,461 Legal and Professional fees 286,213 19,162 Officer Compensation 66,800 45,000 Salaries and Related 198,703 54,437 Sales Commission 17,412 18,957 Office Rent - 5,512 Impairment of inhouse software - Non cash management fees - 2,521,582 Total operating expenses 898,976 2,747,741 Loss from operations (683,945 ) (2,592,696 ) Other Income (expense) Other Income 1,530 Interest expense (7,114 ) - Gain (loss) on change of derivative liability 82,231 - Amortization of debt discount - - Gain (loss) on settlement of derivative liabilities - - Legal settlement - Gain on settlement of notes payable - - Total other income (expense) 75,117 1,530 Income (loss) from investment in equity method investee - (159 ) NET INCOME (LOSS) (608,828 ) (2,591,325 ) Basic weighted average common shares outstanding 17,872,298 5,526,452 Net Income (loss) per common share: basic and diluted (0.03 ) (0.4689 ) The accompanying notes are an integral part of these unaudited consolidated financial statements F- 2 RESONATE BLENDS, INC. (FORMERLY TEXTMUNICATION HOLDINGS, INC.) CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019 Preferred stock Series A Preferred stock - Series B Preferred stock - Series C Preferred stock - Series D Common Stock Additional Paid-in Accumulated Total Stockholders’ Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Capital Deficit Deficit As of March 31, 2020 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 (608,828 ) (608,828 ) Common stock issuance 2,551,718 255 275,440 275,696 Balance March 31, 2020 4,000,000 400 2,000,000 200 19,685,654 1,970 18,845,618 (19,768,549 ) (920,360 ) As of March 31, 2019 Balance, December 31, 2018 4,000,000 $ 400 66,667 $ 7 2,000,000 $ 200 - $ - 4,456,452 $ 446 $ 15,404,716 $ (15,489,993 ) $ (84,224 ) Net Loss (2,591,325 ) (2,591,325 ) Settlement of liabilities 438,000 44 196,732 196,776 Stock issuance for services 6,685,000 669 2,520,913 2,521,582 Balance March 31, 2019 4,000,000 $ 400 66,667 $ 7 2,000,000 $ 200 - $ - 11,579,452 $ 1,159 $ 18,122,361 $ (18,081,318 ) $ 42,809 The accompanying notes are an integral part of these unaudited consolidated financial statements F- 3 RESONATE BLENDS, INC. (FORMERLY TEXTMUNICATION HOLDINGS, INC.) CONSOLIDATED STATEMENTS OF CASH FLOWS For three months ended March 31 2020 2019 Cash Flows from Operating Activities Net Income (loss) $ (608,828 ) $ (2,591,325 ) Adjustments to reconcile - Amortization of debt discount - Loss on derivative liability - Impairment of software cost - Non cash interest expense 5,468 Legal Settlement - Share based compensation 225,695 2,521,582 Gain (Loss) on the settlement of debt - Gain on settlement of derivative liabilities - Income (Loss) from equity method investee 159 Changes in assets and liabilities - Receivables 7,091 4,799 Accounts payable and accrued expenses 42,689 10,394 Due to Related party 25 - Net cash provided by operating activities (327,860 ) (54,391 ) Investments in Joiant - Disposal of Investment in Aspire - - Net cash provided by investing activities - - Cash Flows from Financing Activities Proceeds from subscription 50,000 Proceeds from convertible notes / loans payable 151,960 Proceeds from notes payables 130,075 - Payments on preferred stocks buy back - Payments on convertible notes payable (17,757 ) - Acquisition of Resonate Blends - - Net cash provided by financing activities 314,278 - Net increase in cash (13,582 ) (54,391 ) Cash, beginning of period 53,139 68,513 Cash, end of period 39,557 14,122 Supplemental disclosure of cash flow information Cash paid for interest 1,529 Cash paid for tax - Non-Cash investing and financing transactions 1,500 Conversion of debt for common stock - $ 196,776 The accompanying notes are an integral part of these audited consolidated financial statements F- 4 RESONATE BLENDS, INC. (FORMERLY TEXTMUNICATION HOLDINGS, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 2020 (UNAUDITED) NOTE 1 – ORGANIZATION AND BUSINESS OPERATIONS The Company Resonate Blends, Inc. formerly Textmunication Holdings, Inc. (the “Company”) was incorporated 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. In 2007, the Company deregistered its common stock in order to avoid the expenses of being a public company. The Company reported briefly on the OTC Disclosure & News Service in 2008 but not for long. The Company again changed its name to FSTWV, Inc. On October 28, 2013, the Company held a shareholder meeting to reincorporate the company in the State of Nevada and concurrently change its name to Textmunication Holdings, Inc. The Company also voted to approve a 1 for 5 reverse split of its outstanding common stock. 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 July 9, 2018, the 1 – 1,000 Reverse Split of the Company’s common stock took effect at the open of business. All shares and per share amounts have been retroactively adjusted to reflect the reverse split. 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. F- 5 RESONATE BLENDS, INC. (FORMERLY TEXTMUNICATION HOLDINGS, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 2020 (UNAUDITED) Finally, 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. B asis 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, 2020, the Company has an accumulated deficit of $19,768,548. 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. At March 31, 2020, no cash balances exceeded the federally insured limit. F- 6 RESONATE BLENDS, INC. (FORMERLY TEXTMUNICATION HOLDINGS, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 2020 (UNAUDITED) Accounts receivable and allowance for doubtful accounts Accounts receivable are stated at the amount management expects to collect. The Company generally does not require collateral to support customer receivables. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic conditions. As of March 31, 2020, and 2019 no allowance for doubtful accounts was set up. Revenue Recognition Revenues are recognized when control of the promised is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. The Company currently derives a substantial majority of its revenue from fees associated with our subscription services, which generally include mobile marketing platform services. Customers are billed for the subscription on a monthly basis. For all of the Company’s customers, regardless of the method, the Company uses to bill them, subscription revenue is recorded as deferred revenue in the accompanying consolidated balance sheets. As services are performed, the Company recognizes subscription revenue on a monthly basis over the applicable service period. When the Company provides a free trial period, the Company does not begin to recognize subscription revenue until the trial period has ended and the customer has been billed for the services. Professional services revenues are generated from SMS and RCS packages where client logs into a cloud-based application to send targeted SMS messages to their subscribers’ base. Our custom web application SMS/RCS platform is typically billed on a fixed-price based on the number of SMS/RCS allocated for each package our client purchases. Generally, revenue for SMS/RCS services is recognized immediately as our clients have instant access to their web-based application to send out messages, the number of SMS/RCS messages allocated to a client expires at the end of each month and renews beginning of each month. The Company offers whereby control of the product passes to the customer when delivered and revenue is recognized at the time of delivery. Results for reporting periods beginning after January 1, 2019 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605. We did not have a cumulative impact as of January 1, 2019 due to the adoption of Topic 606 and there was not an impact to our consolidated statement of operations for the year ended December 31, 2018 as a result of applying Topic 606. 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). F- 7 RESONATE BLENDS, INC. (FORMERLY TEXTMUNICATION HOLDINGS, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 2020 (UNAUDITED) The fair value of the accounts receivable, accounts payable, notes payable are considered short term in nature and therefore their value is considered fair value. 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. F- 8 RESONATE BLENDS, INC. (FORMERLY TEXTMUNICATION HOLDINGS, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 2020 (UNAUDITED) Investments in Securities Investments in securities are accounted for using the equity method if the investment provides the Company the ability to exercise significant influence, but not control, over an investee. Significant influence is generally deemed to exist if the Company has an ownership interest in the voting stock of the investee between 20% and 50%, although other factors, such as representation on the investee’s Board of Directors, are considered in determining whether the equity method is appropriate. NOTE 3 – RELATED PARTY TRANSACTIONS As of March 31, 2020, the Company had advances due to a related party. The loans are due on demand and have no interest. Amounts outstanding as of March 31, 2020 and December 31, 2019 were approximately $11,625 and $11,650, respectively NOTE 4 - CONVERTIBLE NOTE PAYABLE Convertible notes payable consists of the following as of March 31, 2020 and December 31, 2019: March 31, 2020 December 31, 2019 Total convertible notes payable 649,300 277,750 Less discounts (152,647 ) (116,346 ) Convertible notes, net of discount $ 496,653 $ 20,000 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. The following table presents details of the changes in the Company’s derivative liabilities associated with its convertible notes for the three months ended March 31, 2020: Amount Balance December 31, 2019 $ 262,711 Change in fair market value of derivative liabilities (83,231 ) Balance March 31, 2020 $ 179,480 NOTE 5 – COMMITMENTS AND CONTINGENCIES Office Lease On January 6, 2015 the Company signed an amendment to its lease originally signed on May 9, 2008. The amended lease commenced January 1, 2015 and expires on thirty days’ notice. Rent expense was approximately $5,512 and $5,268 for the three months ended March 31, 2020 and 2019, respectively. We also have a co-share office located in Calabasas, California for our executive team at Resonate. We pay $99 month for the office space. 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; 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. NOTE 6 – STOCKHOLDERS’ EQUITY During the first quarter of 2020, the company issued a total of 1,501,778 shares of common stock to vendors for compensation and services rendered. The fair market value of the shares issues accounted as expenses as follows: Professional fees $ 60,500 Payment to obtain loan 165,195 Total 225,695 F- 9 RESONATE BLENDS, INC. (FORMERLY TEXTMUNICATION HOLDINGS, INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 2020 (UNAUDITED) NOTE 7 – SUBSEQUENT EVENTS 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 June 18, 2020, we executed a convertible promissory note with Geneva Roth Remark Holdings, Inc. for $85,800 together with any interest at the rate of 10% per annum from the issue date. If we decide to let this Note convert, the variable conversion price is 75% multiplied by the market price, representing a market discount of 25%. We have the ability to prepay this Note beginning on the Issue Date and ending on the date which is one hundred twenty (120) days following the Issue Date with a prepayment percentage of 113%. The period beginning on the date which is one hundred twenty-one (121) days following the Issue Date and ending on the date which is one hundred eight (180) days following the Issue Date, the prepayment percentage is 118%. On March 3, 2020 Resonate Blends, Inc. (“Resonate”) agreed to pay Cicero Holding, Inc. (“Cicero”) five payments of $10,000 plus a final balloon payment of $60,000 by September 15, 2020. This settlement was on a previous $100,000 convertible note issued to the Company on October 2, 2019. To date, Resonate has made two payments of $10,000 each – or $20,000 total. On June 23, 2020, both Parties agreed to amend the settlement agreement dated March 3, 2020. Resonate will issue 900,000 common shares to Cicero with a leak-out of 120,000 shares per month to retire the remaining $90,000 owed on the Note. F- 10 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. COVID-19 Extension Disclosure Resonate Blends, Inc. has relied upon the Securities and Exchange Commission’s Order under Section 36 of the Securities Exchange Act of 1934 Granting Exemptions From Specified Provisions of the Exchange Act and Certain Rules Thereunder dated March 4, 2020 (Release No. 34-88318) (the “Order”) to delay the filing of its Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the “Quarterly Report”) due to circumstances related to the coronavirus disease (“COVID-19”). On May 14, 2020, the Company filed a Current Report on Form 8-K to indicate its intention to rely on the Order for such extension. After the diagnosis of the coronavirus (“COVID-19”) in close proximity of the Company’s employees in March 2020, the Company closed its corporate offices and requested that all employees work remotely until further notice. Employees affected include certain of its key personnel responsible for assisting the Company in the preparation of its financial statements. In view of these ongoing circumstances, the Company was unable to timely provide its auditors and accountants with financial records, and therefore allow the Company to file a timely and accurate Quarterly Report on Form 10-Q for the period ending March 31, 2020 by the prescribed date without undue hardship and expense to the Company. 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 brand-focused vertically integrated cannabis organization offering trusted 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 research organizations, innovative and emerging brands, and 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 support the industry. 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. We are currently finalizing development in cooperation with an award-winning strategic partner in preparation for the launch of our first product line of six products. We believe that these multi-use products will deliver specific, predictable, reliable, effects in a format that is completely unique in the industry. We have formalized contracts with our logistical and marketing partners, and we are on target for our upcoming product release. This release will be followed before year end with our second product line that is already in full development. 4 Our holding company, Resonate Blends, Inc., is now comprised of Resonate Blends LLC, the cannabis operations and product development side of the company; Entourage Labs LLC, which is our Intellectual Property (IP) subsidiary, and Textmunication, Inc., our mobile marketing subsidiary for the health, fitness and wellness sectors which, upon 20 days from mailing a definitive 14C information statement, has been sold. Our company and a group of shareholders (hereinafter referred to as, the “Asefi Group”), including Wais Asefi, our former Chief Executive Officer and director, have entered into a Purchase Agreement, dated as of May 22, 2020, pursuant to which we have agreed to sell Textmunication, Inc. to the Asefi Group. The consideration for the sale of Textmunication, Inc. consists of 4,822,029 shares of common stock of our company that belong to Wais Asefi and other members of the Asefi Group, and which will be cancelled in the transaction. The 4,822,029 shares have a current market value of $337,542, based on our last sales price of $.07 per share as of May 22, 2020. The Purchase Agreement contains customary representations, warranties and covenants made by our company and the Asefi Group, including covenants relating to the conduct of their respective businesses between the date of signing of the Purchase Agreement and the closing (the “Closing”), and customary non-solicitation provisions. The transactions contemplated by the Purchase Agreement are also subject to customary conditions, including our company’s receipt of a Broker Opinion of Value through Pricing Analysis from an independent firm and the approval our company’s stockholders. The Purchase Agreement may be terminated by: (a) by mutual written consent of the parties; (b) by either party if the sale is not consummated within two months following execution, subject to certain limitations; (c) by either party if a governmental entity issues an order, decree or ruling or takes any other action, in any case having the effect of permanently restraining, enjoining or otherwise prohibiting the sale, which order, decree, ruling or other action is final and non-appealable; (d) by either party if the requisite approval of our company’s. stockholders is not obtained, subject to certain limitations; (e) by our company., upon the Asefi Group’s breach of any representation, warranty, covenant or agreement, or if any representation or warranty of the Asefi Group becomes untrue, in either case such that the conditions set forth in the Purchase Agreement would not be satisfied as of the time of such breach or as of the time such representation or warranty becomes untrue, subject to cure provisions; (f) by the Asefi Group, upon our company’s breach of any representation, warranty, covenant or agreement, or if any representation or warranty of our company becomes untrue, in either case such that the conditions set forth in the Purchase Agreement would not be satisfied as of the time of such breach or as of the time such representation or warranty becomes untrue, subject to cure provisions; or (g) by our company. if a material adverse effect with respect to the Asefi Group occurs after the date of execution, subject to cure provisions. Textmunication is a developing player in the mobile marketing and loyalty industry, providing cutting-edge mobile marketing solutions, rewards and loyalty to our clients. With a powerful yet intuitive suite of services, clients are able to reach more customers faster and reward them for repeat business. We help clients reach their marketing and revenue goals by educating clients with the most effective tools in mobile marketing, rewards, paperless redemption and loyalty. In the past 4 years, our mobile marketing business has not been able to generate sufficient revenue to be able to sustain administrative expenses and has been unable to raise sufficient capital from the public market for the current and future competitive environment. The board of directors, with the leadership of our new CEO, has decided to change the company’s business focus to the cannabis industry and has plans to dispose of the mobile marketing business. This determination of the board of directors has been based on evaluating various strategic alternatives and conducting an extensive review of our financial condition, results of operations and business prospects, that attempting to raise additional capital, continuing to operate as a going concern was not reasonably likely to create greater value for our stockholders pursuing the mobile business model. The Company submitted the required information to affect a new corporate name and stock symbol change to Financial Industry Regulatory Authority (FINRA). On December 16, 2019, the new corporate name was announced as Resonate Blends, Inc. and its common stock now trades on the OTCQB under the symbol “KOAN”, a symbol named after the Company’s upcoming product brand. 5 Aspire Consulting Group LLC, an IT Services firm out of Gaithersburg, Maryland is no longer in the holding company as of October 25, 2019. Our principal executive office is located at 26565 Agoura Road, Suite 200, Calabasas, CA 91302 and our mobile marketing offices are located at 1940 Contra Costa Blvd. Pleasant Hill, CA 94523. Our executive telephone number is (571) 888-0009 and our mobile marketing main number is (800) 677-7003. Results of Operation for Nine Months Ended March 31, 2020 and 2019 Revenues For the three months ended March 31, 2020, we earned revenues in the amount of $305,590 as compared with revenues of $243,443 for the three months ended March 31, 2019. The increase of approximately 26% compared to 2019 is due primarily to successful marketing efforts and effective use our new platform. All revenues generated were from our subsidiary, Textmunication, Inc. We are finalizing our product line for our cannabis operations, and expect to achieve revenues in the coming months with the launch of these new products. Cost of Revenues Cost of revenues was $90,559 for the three months ended March 31, 2020, as compared with $88,398 for the same period ended March 31, 2019. Our cost of revenues for 2020 was in the same level compared with the 2019 increased slightly in relation to increase in revenues. Our gross profit was $215,031 for the three months ended March 31, 2020 or approximately 70% of revenues, as compared with $$155,045 for the same period ended March 31, 2019, or approximately 63% of revenues. A slight increase in gross margin primarily due to lower cost incurred from our service providers. Operating Expenses Our operating expenses were $898,976 for the three months ended March 31, 2020, as compared with $2,747,741 for the three months ended March 31, 2019. The main reason for our decreased operating expenses in 2020 was a result of 6,685,000 shares issued to employees and vendors for services rendered at a value of $2,521,582 offset by this year’s increased in Legal and Professional fees $152,693 and officer compensation $266,811. Other Income We had other income of $75,117 for the three months ended March 31, 2020 compared with other income of $1,530 for the same period ended March 31, 2019, mainly attributable to the changes in value of the derivative liability. Net Income/Loss We had net loss of $608,828 for the three months ended March 31, 2020, as compared with net loss of $2,591,325 for the three months ended March 31, 2019. Liquidity and Capital Resources As of March 31, 2020, we had total current assets of $85,069 consisting of cash and receivables. Our total current liabilities as of March 31, 2020 were $1,029,429. We had a working capital deficit of $944,360 as of March 31, 2020, compared with a working capital deficit of $612,228 as of December 31, 2019. Cash Flows from Operating Activities Operating activities used $327,860 in cash for the three months ended March 31, 2020, compared with cash used of $54,391 for the three months ended March 31, 2019. 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. Our negative operating cash flow for the three months ended March 31, 2019 was largely the result of our net loss of $2,591,325, offset mainly by share based compensation of $2,521,582. 6 Cash Flows from Investing Activities We used no cash on investing activities for both the three months ended March 31, 2020 and 2019. Cash Flows from Financing Activities Cash flows provided by financing activities during the three months ended March 31, 2020 amounted to $314,278 compared with cash flows provided by financing activities of $0 for the three months ended March 31, 2019. 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. The features of the debt instruments and payables concerning our financing activities are detailed in the footnotes to our financial statements. 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 March 31, 2020, we have an accumulated deficit of $19,768,548. 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, 2020, 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. 7 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.