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, 2023 (unaudited) and December 31, 2022; F-2 Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022 (unaudited); F-3 Consolidated Statement of Stockholders’ Equity (Deficit) for the three months ended March 31, 2023 (unaudited); F-4 Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 (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 three months ended March 31, 2023 are not necessarily indicative of the results that can be expected for the full year. Resonate Blends, Inc. Consolidated Balance Sheets (Unaudited) March 31, 2023 December 31, 2022 ASSETS Current assets Cash and cash equivalents $ 1,042 $ 64,419 Other receivable 120,000 150,000 Inventory 115,072 160,492 Total current assets 236,114 374,911 Fixed assets, net 21,106 24,110 Investment 100 100 TOTAL ASSETS $ 257,320 $ 399,121 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities Accounts payable and accrued liabilities 236,894 319,618 Due to related parties 69,100 164,946 Convertible notes payable 1,507,712 988,800 Derivative liability 212,438 72,487 Total current liabilities 2,026,144 1,545,851 Total liabilities 2,026,144 1,545,851 Stockholders’ Deficit Series B - Preferred stock, 66,667 shares authorized, $ 0.0001 par value, 0 issued and outstanding - - Series C - Preferred stock, 2,000,000 shares authorized, $ 0.0001 par value, 2,000,000 issued and outstanding 200 200 Series Preferred stock 40,000 shares authorized, $ 0.0001 par value 40,000 issued and outstanding - - Common stock; $0.0001 par value; 200,000,000 shares authorized; 75,437,604 shares issued and outstanding 7,544 7,544 Common stock issuable 6,000 - Stock subscription receivable ( 261,059 ) ( 261,059 ) Additional paid-in capital 24,179,867 24,427,009 Accumulated deficit ( 25,701,376 ) ( 25,320,424 ) Total stockholders’ deficit ( 1,768,824 ) ( 1,146,730 ) TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT $ 257,320 $ 399,121 The accompanying notes are an integral part of these consolidated financial statements. F- 1 Resonate Blends, Inc. Consolidated Statements of Operations (Unaudited) March 31, 2023 March 31, 2022 Three Months Ended March 31, 2023 March 31, 2022 REVENUES $ 10,107 $ 27,652 COST OF REVENUES 8,572 12,857 Gross profit 1,535 14,795 OPERATING EXPENSES Advertising 13,284 165,471 General and administrative 67,172 27,516 Legal and professional 12,965 25,675 Officer compensation 5,000 235,000 Non cash management fees - 201,957 Total operating expenses 98,421 655,619 OPERATING LOSS ( 96,886 ) ( 640,824 ) OTHER INCOME (EXPENSES) Interest expense ( 46,403 ) ( 22,457 ) Gain (loss) on change in derivative liability ( 139,951 ) 1,166,839 Amortization of issuance costs ( 97,712 ) ( 31,795 ) Gain on settlement of notes payable - 18,277 Total operating income (expense) ( 284,066 ) 1,130,864 NET INCOME (LOSS) $ ( 380,952 ) $ 490,040 INCOME (LOSS) PER SHARE- basic and diluted $ ( 0.01 ) $ 0.01 WEIGHTED AVERAGE SHARES OUTSTANDING 75,437,604 47,796,859 The accompanying notes are an integral part of these consolidated financial statements. F- 2 Resonate Blends, Inc. Consolidated Statement of Stockholders’ Deficit (Unaudited) Shares Amount Shares Amount Shares Amount Capital Issuable Receivable Deficit Total Preferred Stock Preferred Stock Additional Common Series A Series C Common Stock Paid-in Stock Subscription Accumulated Shares Amount Shares Amount Shares Amount Capital Issuable Receivable Deficit Total Balance, December 31, 2021 - $ - 2,000,000 $ 200 45,046,637 $ 4,504 $ 21,867,416 $ - $ - $ ( 25,974,051 ) $ ( 4,101,931 ) Issuance of common stock in private placement - - - - 1,065,556 107 260,952 - ( 261,059 ) - - Issuance of common stock for debt conversions - - - - 780,000 78 131,447 - - - 131,525 Stock issuance for services - - - - 904,666 90 201,957 - - - 202,047 Net income - - - - - - - - 490,040 490,040 Balance, March 31, 2022 - $ - 2,000,000 $ 200 47,796,859 $ 4,779 $ 22,461,772 $ - $ ( 261,059 ) $ ( 25,484,011 ) $ ( 3,278,319 ) Balance, December 31, 2022 - $ - 2,000,000 $ 200 75,437,604 $ 7,544 $ 24,427,009 $ - $ ( 261,059 ) $ ( 25,320,424 ) $ ( 1,146,730 ) Balance - $ - 2,000,000 $ 200 75,437,604 $ 7,544 $ 24,427,009 $ - $ ( 261,059 ) $ ( 25,320,424 ) $ ( 1,146,730 ) Reclassification of convertible debt - - - - - - ( 247,142 ) - - - ( 247,142 ) Exercise of warrants - - - - - - - 6,000 - - 6,000 Net loss - - - - - - - - - ( 380,952 ) ( 380,952 ) Balance, March 31, 2023 - $ - 2,000,000 $ 200 75,437,604 $ 7,544 $ 24,179,867 $ 6,000 $ ( 261,059 ) $ ( 25,701,376 ) $ ( 1,768,824 ) Balance - $ - 2,000,000 $ 200 75,437,604 $ 7,544 $ 24,179,867 $ 6,000 $ ( 261,059 ) $ ( 25,701,376 ) $ ( 1,768,824 ) The accompanying notes are an integral part of these consolidated financial statements. F- 3 Resonate Blends, Inc. Consolidated Statements of Cash Flows (Unaudited) March 31, 2023 March 31, 2022 Three Months Ended March 31, 2023 March 31, 2022 Cash Flows from Operating Activities Net income (loss) $ ( 380,952 ) $ 490,040 Adjustments to reconcile net income (loss) to net cash used in operations Loss (gain) on derivative liability 139,951 ( 1,166,839 ) Non cash interest expense 97,712 22,457 Gain on settlement of notes payable - ( 18,277 ) Share professional fees/ compensation - 201,957 Depreciation and amortization 3,004 3,004 Changes in operating assets and liabilities Inventory 45,420 ( 23,531 ) Advances to suppliers - ( 12,951 ) Other receivables 30,000 - Accounts payable and accrued expenses 210,134 20,754 Net cash provided by (used in) operating activities 145,269 ( 483,386 ) Cash Flows from Investing Activities - - Cash Flows from Financing Activities Proceeds from issuance of convertible notes - 650,000 Proceeds from related party loans - 5,000 Proceeds from warrant exercise 6,000 - Repayment of related party advances ( 95,846 ) - Repayment of convertible notes ( 118,800 ) - Net cash provided by (used in) financing activities ( 208,646 ) 655,000 Net increase (decrease) in cash ( 63,377 ) 171,614 Cash, beginning of period 64,419 12,913 Cash, end of period $ 1,042 $ 184,527 Supplemental cash flow disclosures Cash paid for interest $ - $ - Cash paid for taxes $ - $ - Non-cash investing and financing activities Conversion of debt for common stock $ - $ - The accompanying notes are an integral part of these consolidated financial statements. F- 4 RESONATE BLENDS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2023 (UNAUDITED) NOTE 1 – ORGANIZATION AND BUSINESS OPERATIONS The Company Resonate Blends, 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. 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. 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. F- 5 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. 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. During the quarter ended March 31, 2023, these employment agreements were suspended. 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. 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. Reclassifications Certain reclassifications have been made to the March 31, 2022 classifications to make them comparable to March 31, 2023. 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, 2023, the Company has an accumulated deficit of $ 25,701,376 . 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. F- 6 N OTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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. Consolidation These consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated. 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. Accounts receivable and allowance for doubtful accounts Accounts receivables 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, 2023 and December 31, 2022, there’s no allowance for doubtful accounts and bad debts. Revenue Recognition The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, the core principle of which is that the Company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: ● Identification of the contract, or contracts, with a customer ● Identification of the performance obligations in the contract ● Determination of the transaction price ● Allocation of the transaction price to the performance obligations in the contract ● Recognition of the revenue when, or as, performance obligations are satisfied Revenue is generally recognized upon purchase of products by customers. 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. F- 7 The three levels of the fair value hierarchy are described below: Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2: Quoted prices in markets that are not active, or inputs that is observable, either directly or indirectly, for substantially the full term of the asset or liability; Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). Financial assets and liabilities measured at fair value on a recurring basis are summarized below for the quarter ended March 31, 2023 and year ended December 31, 2022. SUMMARY OF ASSETS AND LIABILITIES MEASURED AT VALUE ON RECURRING BASIS As of March 31, 2023 Level 1 Level 2 Level 3 Total Liabilities Derivative Liabilities - - 212,438 212,438 As of December 31, 2022 Level 1 Level 2 Level 3 Total Liabilities Derivative Liabilities - - 72,487 72,487 Inventory Inventory is stated at the lower of cost or net realizable value. Cost is determined on a first in, first out basis. Management compares the cost of inventory with the net realizable value and, if applicable, an allowance is made for writing down the inventory to its net realizable value, if lower than cost, inventory is reviewed for potential write-down for estimated obsolescence or unmarketable inventory based upon forecasts for future demand and market conditions. Net income (loss) per Common Share Basic net income (loss) per share is computed by dividing the net loss attributable to the common stockholders by the weighted average number of shares of common stock outstanding during the period. Fully diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Property and equipment Property and equipment are stated at cost, less accumulated depreciation provided on the straight-line method over the estimated useful lives of the assets, which range from three to seven years . Expenditures for renewals or betterments are capitalized, and repairs and maintenance are charged to expense as incurred the cost and accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts, and any gain or loss thereon is reflected in operations. Company policies capitalize property and equipment for cost over $ 1,000 , asset acquired under $ 1,000 are charge to operations. Income Taxes Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized. Because the Company has no net income, the tax benefit of the accumulated net loss has been fully offset by an equal valuation allowance. F- 8 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 Management has periodically advanced funds to the Company for operating expenses. At March 31, 2023 and December 31, 2022, amounts due related parties were $ 69,100 and $ 164,946 , respectively. These advances are non-interest bearing and payable upon demand. NOTE 4 – CONVERTIBLE NOTE PAYABLE Convertible notes payable consists of the following as of March 31, 2023 and December 31, 2022: SCHEDULE OF CONVERTIBLE NOTES PAYABLE March 31, 2023 December 31, 2022 Convertible notes face value $ 1,535,000 $ 988,800 Less: Discounts ( 27,288 ) - Less: Debt issuance cost - - Net convertible notes $ 1,507,712 $ 988,800 At March 31, 2023 and December 31, 2022, $ 200,000 of the convertible notes were 8 % Unsecured Convertible Promissory Notes (“Notes”) from an investor issued March 5, 2021. The note has an automatic conversion into equity on the maturity date , which was July 3, 2022 , or if a Qualified Financing (QF) of $ 5,000,000 is achieved, whichever occurs first. The maturity date pricing is $0.10. A QF converts into equity at the lesser of $1.00 or 75% of the average selling price of the aggregate offering. The noteholder has expressed to the Company not to convert his Note into shares in the near term. Consequently, we have mutually agreed not to accrue interest on the this Note going forward. During the year ended December 31, 2022, the Company entered into Securities Purchase Agreements with five accredited investors, pursuant to which we issued and sold to the investors convertible promissory notes with a total principal amount of $ 715,000 . We received $ 650,000 from the Notes after applying the original issue discount to the Notes. The Securities Purchase Agreements also included 812,500 warrants with a 5 year life and exercise price of $ 0.40 and 650,000 commitment shares. These notes have a Fixed Conversion Price or, at the option of the Holder in the event that the Borrower fails to complete a Qualified Offering before the five (5) month anniversary of the Issue Date, the Registration Conversion Price . The “Fixed Conversion Price” shall mean $ 0.15 per share. The “Registration Conversion Price” shall mean 75% multiplied by the Market Price (representing a discount rate of 25%). “Market Price” means the volume weighted average of the Common Stock during the twenty (20) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date . On June 27, 2022, we issued and sold to an accredited investor a convertible promissory note the principal amount of $ 138,800 under a Securities Purchase Agreement of the same date. We received $ 128,500 from the Note after applying the original issue discount to the Note. During the three months ended March 31, 2023, the Company repaid $ 118,800 of this note, leaving a balance of $ 20,000 at March 31, 2023. F- 9 This note has a Variable Conversion Price of 73 % of market price, market price is average of 3 lowest prices over previous 10 days. Finally, on September 8, 2022, we issued and sold a senior secured convertible promissory note to AJB Capital Investments LLC for a principal amount of $ 600,000 , together with guaranteed interest of 12 % per year calendar from the date hereof. All Principal and Interest owing hereunder, along with any and all other amounts, shall be due and owing on the Maturity Date March 8, 2023 . We received $ 540,000 from the Note after applying the original issue discount to the Note. The note is convertible at a Variable Conversion Price shall equal the volume weighted average trading price (i) during the previous twenty (20) Trading Day period ending on the date of issuance of this Note, or (ii) during the previous twenty (20) Trading Day period ending on the Conversion Date. The Maturity Date may be extended at the sole discretion of the Borrower up to six (6) months following the date of the original Maturity Date hereunder. In the event that the Maturity Date is extended, the interest rate shall equal fifteen percent (15%) per annum for any period following the original Maturity Date, payable monthly . The Securities Purchase Agreement contain a most favored nation provision that allows the Investor to claim any lower price from any future securities six months after this closing and a blocker on issuing variable rate investments. In connection with the investment, the Company issued Commitment Shares to the Investors in the amount of 5,571,429 shares collectively during the year ended December 31, 2022. As of March 31, 2023 and December 31, 2022, accrued interest payable on notes payable was $ 153,344 and $ 265,480 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 – DERIVATIVE LIABILITIES Certain of the above convertible notes contained an embedded conversion option with a conversion price that could result in issuing an undeterminable amount of future common stock to settle the host contract. Accordingly, the embedded conversion option is required to be bifurcated from the host instrument (convertible note) and treated as a liability, which is calculated at fair value, and marked to market at each reporting period. The Company used the Black-Scholes pricing model to estimate the fair value of its embedded conversion option and warrant liabilities on both the commitment date and the remeasurement date with the following inputs: SCHEDULE OF DERIVATIVE LIABILITIES March 31, 2023 December 31, 2022 Exercise price $ 0.027 - $ 0.029 $ 0.030 Expected volatility 338 % 220 % Risk-free interest rate 4.50 % 1.45 % Expected term (in years) 0.24 – 1.00 . 1 Expected dividend rate 0 % 0 % F- 10 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 $ 6,280 and $ 1,165 for the three months ended March 31, 2023 and 2022, 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 ; (iii) David Thielen as Chief Investment Officer (CIO) of the Company 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 . These agreements were suspended during the three months ended March 31, 2023. NOTE 6 – STOCKHOLDERS’ EQUITY During the first quarter of 2023, the Company did not issue any shares of common or preferred stock. The Company received proceeds of $ 6,000 from the exercise of 249,255 warrants. The 249,255 shares of common stock have yet to be issued at March 31, 2023. During the first quarter of 2022 the Company issued a total of 904,666 shares of common stock to vendors for compensation and services rendered. The fair market value of the shares issued accounted as expenses as follows: SCHEDULE OF COMPENSATION AND SERVICES RENDERED Professional Fees $ 195,509 Convertible promissory notes Total $ 195,509 NOTE 7 – SUBSEQUENT EVENTS On April 7, 2023, the Company paid the remaining $ 20,000 balance due on the 1800 Diagonal Lending, LLC convertible note that was issued on June 27, 2022 and retired the note. The principal amount of the note prior to interest and fees was $ 138,800 . On April 21, 2023, the Company signed a non-binding Letter of Intent (“LOI”) to acquire Pegasus Specialty Vehicles, LLC (“Pegasus”). F- 11