What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-14 compared with 2023-05-22 · 208 added, 113 removed, 79 unchanged (80% of the section changed)

15 unchanged sentences

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.

Actual results may differ materially

from these expectations due to uncertainties related to the successful completion of our acquisition of Pegasus Specialty Vehicles, LLC,

or our failure to complete such acquisition;

the impact of the pendency of our acquisition on our business and operations;

and expected financing and the merger;

the possibility that any or all of the various conditions to the consummation of the merger may

not be satisfied or waived in a timely manner, if at all;

the possibility of business disruptions due to transaction-related uncertainty;

and the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement.

Other 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 , including the risks

and uncertainties identified under the heading “Risk Factors” in the Company’s most recent Annual Report on Form 10-K .

History and Experience in the Cannabis Space

October 25, 2019, we announced our entry into the cannabis industry by acquiring Resonate Blends LLC (“Resonate Blends”),

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Entourage Labs is the Intellectual Property (IP) subsidiary of Resonate Blends.

For the first two years, we concentrated on releasing

product and brand building in California, and looked into state expansion efforts as well.

Resonate followed the launch of its first six

Koan products, based on The Resonate System, by releasing “Love” in Q1-2022 and “Sleep” Cordials in Q2-2022.

address the price sensitivity of the market, Resonate also produced multi-serve versions of our most popular Cordials which significantly

reduced the cost per serving.

The Resonate products were designed for the discriminating wellness— focused consumer and that market

has been slower to develop than anticipated.

The current buyers of cannabis products seem interested in purchasing the highest level of

THC for the least amount of money.

the first two years, we concentrated on releasing product and brand building in California and investigated state expansion efforts as

Resonate followed the launch of its first six Koan products, based on The Resonate System, by releasing “Love” in Q1-2022

and “Sleep” Cordials in Q2-2022.

To address the price sensitivity of the market, Resonate also produced multi-serve versions

of our most popular Cordials which significantly reduced the cost per serving.

The Resonate products were designed for the discriminating

wellness— focused consumer and that market has been slower to develop than anticipated.

The current buyers of cannabis products

seem interested in purchasing the highest level of THC for the least amount of money.

we have won awards for our Koan Cordial brand, such as the LMCC award for “Best New Brand of 2021” and also a Cannabis Clio

Award for “Packaging and Design”, the current environment in California has made it difficult to scale our business

opportunities in a challenging market environment.

Burdens such as overregulation, high taxes, price compression, the growth of the

illicit market and the overpopulation of dispensaries in some areas, and no dispensaries in other areas – have made it difficult for many

brands in California to succeed.

Award for “Packaging and Design”, the current environment in California has made it difficult to scale our business opportunities

in a challenging market environment.

Burdens such as overregulation, high taxes, price compression, the growth of the illicit market

and the overpopulation of dispensaries in some areas, and no dispensaries in other areas – have made it difficult for many brands

in California to succeed.

legal cannabis industry Itself is laden with obstacles.

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We recently pivoted to the cannabis consumption lounges for new revenue traction.

These lounges are becoming

popular in California, and we’ve teamed with several new lounges to introduce our six (6) Cordial blends into this new environment.

These lounges are

becoming popular in California, and we’ve teamed with several new lounges to introduce our six (6) Cordial blends into this new

Company’s growth strategy is to create an innovative ecosystem of companies, investments and research that all support The Resonate

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We have a working capital

deficit of $2,632,858 as of March 31, 2023, and we are wholly dependent on capital to fund our business operations.

deficit of $2,118,418 as of June 30, 2023, and we are wholly dependent on capital to fund our business operations.

For these reasons,

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mostly on unfavorable terms, such as discounted conversion rights, original discounts, equity incentives and restrictive covenants.

we have been unable to raise the capital necessary to fully implement our business plan, we recently commenced a search for other

business opportunities that may benefit our shareholders and allow us to raise capital to build a stronger operation.

Recent negotiations with what we believe is a more viable business opportunity

for the holding company has emerged.

We signed a non-binding Letter of Intent (“LOI”) with Pegasus Specialty Vehicles, LLC

Pegasus is a manufacturer built on an innovative business model and manufacturing architecture providing best-in-class

traditional, electric (EV) and hydrogen solutions to the multi-billion dollar school bus industry and also the broader specialty vehicle

This leads us to believe that we will be revising our business plan and focus over the coming weeks and months.

If this opportunity

does not develop, however, we will continue to both seek new opportunities and look for capital to continue with our efforts in the cannabis

we have been unable to raise the capital necessary to fully implement our business plan, we recently commenced a search for other business

opportunities that may benefit our shareholders and allow us to raise capital to build a stronger operation.

Merger Agreement with Pegasus Specialty Vehicles, LLC

negotiations with what we believe is a more viable business opportunity for the holding company has emerged.

On June 20, 2023, we entered

into an Agreement and Plan of Merger (the “Merger Agreement”) with Pegasus Specialty Vehicles, LLC (“Pegasus”),

and Pegasus Specialty Holdings LLC, an Ohio limited liability company and our wholly-owned subsidiary (“Merger Sub”).

Merger Agreement provides that at the closing (the “Closing”), subject to the terms and conditions set forth in the Merger

Agreement, Merger Sub will merge with and into the Company (the “Merger”), with Pegasus surviving the Merger as a wholly-owned

subsidiary of our company.

At Closing of the Merger, the issued and outstanding common shares of Pegasus will automatically be converted

into the right to receive an aggregate of 623,500 shares of Series AA Preferred Stock of Parent (the “Merger Consideration”).

of our company, Pegasus, and Merger Sub has made various representations and warranties and agreed to certain covenants in the Merger

Agreement, including a covenant by us that we would raise $3,000,000 less costs in new financing at Closing, with $500,000 of such amount

less costs loaned pre-Closing to Pegasus under a secured promissory note.

Pegasus has a covenant that it would grant a security interest

to us in all of its assets on the $500,000 loan, subordinate to other security interests as to the same collateral.

of the Merger is subject to the satisfaction or, if permitted by applicable law, waiver, by us, Pegasus, or both of various conditions.

For Pegasus, these conditions include, without limitation, (i) an agreeable plan to spin out the existing cannabis assets and operations,

(ii) an agreeable plan to transfer the outstanding shares of Series C Preferred Stock of our company to Brian Barrington simultaneously

to the date of the aforementioned spin-out;

(iii) an agreeable plan to retire the Series E Designation;

(iv) financing by us of $3,000,000

(v) the filing of the Certificate of Designation for the Series AA Preferred Stock with the Secretary of State of Nevada;

and (vi) certain other customary conditions.

For us, these conditions include, without limitation, (i) a secured promissory note issued

by Pegasus to us in the amount of $500,000 with the collateral being a UCC lien subordinate to other lenders;

(ii) the payback by us

of certain advances contributed by corporate officers and others in our company in an amount not to exceed $140,000;

(iii) resolutions

of the equity holders of Pegasus approving the Merger Agreement and the transactions contemplated;

and (iv) certain other customary conditions.

Merger Agreement contains certain termination rights including the right of the parties to mutually agree upon termination, and by each

of Pegasus and our company unilaterally if the other party has committed a violation of the covenants, representations and warranties

in the Merger Agreement.

Merger Agreement, the Merger, and the transactions contemplated thereby were unanimously approved by the board of directors of our company,

and unanimously approved by the board of directors of Pegasus and Merger Sub.

Closing of the Merger is expected to occur as soon as practicable after the satisfaction or waiver of all the conditions to Closing in

the Merger Agreement, which is currently expected to be in the 3rd quarter of calendar year 2023.

on June 20, 2023, we signed a Securities Purchase Agreement (the “Purchase Agreement”) with an accredited investor (the “Investor”),

pursuant to which we issued and sold to the Investor a 15% OID Senior Promissory Note (non-convertible), dated June 20, 2023, in the

principal amount of $575,000 (the “Note”).

The Note is secured by all of Pegasus’ assets under a separate security

agreement between the Investor and Pegasus.

received $500,000 from the Note after applying the original issue discount to the Note, $30,000 of which was used to pay a commission

to a broker as placement agent and $30,000 was paid to the lender for its legal fees, and the balance was tendered to us to lend to Pegasus

under a Loan and Security Agreement (described below) (the “Loan”).

maturity date for repayment of the Note is September 20, 2023, and the Note bears interest at 15% per annum starting 60 days after issuance

and interest payable in cash monthly thereafter.

We may prepay the Note at any time, but if we repay the Note after 60 days, it is required

to pay a premium of 104% of the principal amount.

additional consideration, we agreed to issue to the Investor 1,318,000 shares of our common stock as commitment shares.

We are required

to issue additional commitment shares in the event the Note is not prepaid at 60 days.

Pursuant to a Registration Rights Agreement (the

“Registration Agreement”), we have agreed to register the Investor shares with the SEC no later than 90 days from the issuance

the Purchase Agreement, we agreed to certain restrictive covenants, including a restriction on borrowing and a most favored nation clause

in favor of Investor for any future offerings not specifically exempted.

on June 20, 2023, we and Pegasus entered into a Loan and Security Agreement in the principal amount of $575,000 whereby we lent to Pegasus funds received from the June 20, 2023 Purchase

Agreement less expenses secured by all of Pegasus’

assets but subordinate to the security interest of Investor and other lenders of Pegasus.

is a manufacturer built on an innovative business model and manufacturing architecture providing best-in-class traditional, electric

(EV) and hydrogen solutions to the multi-billion dollar school bus industry and also the broader specialty vehicle market.

us to believe that we will be revising our business plan and focus over the coming weeks and months.

If this opportunity does not develop,

however, we will continue to both seek new opportunities and look for capital to continue with our efforts in the cannabis industry.

principal executive office is located at 26565 Agoura Road, Suite 200, Calabasas, CA 91302.

The executive telephone number is (571) 888-0009.

of Operation for Three Months Ended March 31, 2023 and 2022

have generated $10,107 in sales for the three months ended March 31, 2023, as compared with $27,652 in sales for the three months

ended March 31, 2022 on our current product line.

We launched our first line of Cordial products in California in 2021, and we

have started to generate revenues from the sale of these products.

anticipate consistent revenues on our Cordials, including our newly launched Sleep Cordial, for the rest of 2023.

we rolled out a new packaging configuration for our Cordials:

to include a one-pack, a 4-pack to replace the 3-pack and a multi-dose

bottle which is expected to bring the cost per dose down considerably.

Our family of Cordial products are now fully in the market;

however, it may take some time for the markets to react, gain traction and result in brand awareness among our customers.

be no assurances, however, that customers will positively react to our products.

explained above, we are currently in negotiations to enter the electric vehicle (EV) bus and clean energy specialty vehicle sector.

this opportunity develops, we may be revising our business plan and focus over the coming months.

incurred $8,572 in cost of revenues for the three months ended March 31, 2023, resulting in a gross profit of $1,535 for the three

months ended March 31, 2023.

We have had little historical data to compare our margins for the sale of our new products, which were

introduced into the retail channel in late Q2 of 2021.

We incurred $12,857 in cost of revenues for the three months ended March 31,

2022, resulting in a gross profit of $14,795 for the three months ended March 31, 2022.

In addition, our gross margin percentage was

15% for the three months ended March 31, 2023 due to initial discounting in developing new market share, which we hope will

stabilize in the 35% to 43% range as we implement cost saving measures and roll out new products to increase sales for the balance

We are also implementing new packaging configurations which we expect to stabilize our overall gross margin.

operating expenses were $98,421 for the three months ended March 31, 2023, as compared with $655,619 for the three months ended March

main drivers for the overall decrease in operating expenses in 2023 were the reduction of advertising, salaries as well as not issuing

any shares for compensation or services.

we engage in a business combination with an opportunity within the electric vehicle (EV) bus and clean energy specialty vehicle sector,

our continued focus on sales, advertising, marketing and new product development costs to support our planned growth is expected to increase

throughout 2023.

spent $152,187 less on advertising for the three months ended March 31, 2023, than for the three months ended March 31, 2022.

more on advertising for the three months ended March 31, 2022 to introduce our Koan Cordials to the California retail channel, perform

Search Engine Optimization (SEO), conduct Programmatic advertising, hire a professional agency to promote our Cordials on social media

channels and other general advertising methods.

fees decreased by $12,710 for the three months ended March 31, 2023, over the three months ended March 31, 2022.

Our professional fees

were less for this quarter compared to the same quarter last year, but we expect that professional fees will increase in 2023 as we continue

to ramp up operations or if we engage in a business combination with an opportunity within the electric vehicle (EV) bus and clean energy

specialty vehicle sector.

and administrative expenses increased by $39,656 for the three months ended March 31, 2023, over the three months ended March 31,

We expect general and administrative expenses to remain fairly constant throughout 2023, but expenses could increase

significantly if we acquire new companies as part of our overall corporate strategy or We expect general and administrative expenses

to remain fairly constant throughout 2023, but expenses could increase significantly if we engage in a business combination with an

opportunity within the electric vehicle (EV) bus and clean energy specialty vehicle sector.

had other expenses of $284,066 for the three months ended March 31, 2023, compared with other income of $1,130,864 for the same period

ended March 31, 2022.

other expense for the three months ended March 31, 2023 was mainly attributable a loss on the remeasurement of derivative liabilities, interest expense and amortization of debt discounts on convertible notes.

other income for the three months ended March 31, 2022 was mainly attributable to the gain on remeasurement of derivative liabilities.

had a net loss of $(380,952) for the three months ended March 31, 2023, as compared with net income of $653,627 for the three months

ended March 31, 2022.

of Operation for Three and Six Months Ended June 30, 2023 and 2022

have generated $6,361 and $16,468 in sales for the three and six months ended June 30, 2023, respectively, as compared with $2,836 and

$30,488 in sales for the three and six months ended June 30, 2022, respectively, on our current product line.

anticipate some increased revenues on our seven Cordials including our

newly launched Sleep Cordial, for the rest of 2023, but the increase is not expected to be significant as a result the challenging market

conditions we have experienced in the cannabis industry in California, as disclosed above.

There can be no assurances, however, that customers

will positively react to our products.

For these reasons, there are no assurances that we will be successful in this or any of our endeavors

or become financially viable and continue as a going concern.

explained above, we are currently under contract of the Merger Agreement

to enter the electric vehicle (EV) bus and clean energy specialty vehicle sector.

If this opportunity develops, subject to closing conditions

and the availability of financing, we may be revising our business plan and focus over the coming months.

paid $4,685 and $13,257 in cost of revenues for the three and six months ended June 30, 2023, respectively, resulting in a gross profit

of $1,676 and $3,211 for the three six months ended June 30, 2023, respectively.

We paid $2,421 and $15,278 in cost of revenues for the

three and six months ended June 30, 2022, respectively, resulting in a gross profit of $415 and $15,210 for the three and six months

ended June 30, 2022, respectively.

have had little historical data to compare our margins for the sale of

our new products, which were introduced into the retail channel in late Q2 of 2021.

Our gross margin, which is the difference between

our revenues and our cost of revenues, is expected to increase in future quarters as we work to increase our efficiency and lessen costs.

In addition, our gross margin percentage, which was 26% for the three months ended June 30, 2023, and, if we are unable to consummate

the Merger Agreement with Pegasus, we hope our work to continue to penetrate the market and implement cost savings will result in a stabilized

35% to 43% gross margin range for the balance of 2023.

We are also implementing new packaging configurations which we expect to stabilize

our overall gross margin.

operating expenses were $50,231 and $148,652 for the three and six months ended June 30, 2023, respectively, as compared with $290,211

and $945,830 for the three and six months ended June 30, 2022, respectively.

main drivers for the overall decrease in operating expenses in 2023 were the reduction of legal, professional fees and salaries as well

as a significant decrease in non-cash management fees.

we engage in a business combination Pegasus, our continued focus on sales, advertising, marketing and new product development costs to

support our planned growth is expected to increase throughout 2023, subject to the issues we have been experiencing in the industry,

as explained above.

spent $221,840 less on advertising for the six months ended June 30, 2023, than for the six months ended June 30, 2022.

We spent more

on advertising for the six months ended June 30, 2022 to introduce our Koan Cordials to the California retail channel, perform Search

Engine Optimization (SEO), conduct Programmatic advertising, hire a professional agency to promote our Cordials on social media channels

and other general advertising methods.

fees decreased by $34,558 for the six months ended June 30, 2023, over the six months ended June 30, 2022.

Our professional fees were

less for this quarter compared to the same quarter last year, but we expect that professional fees will increase in 2023 as we continue

to ramp up operations or if we engage in a business combination with Pegasus as described above.

and administrative expenses increased by $15,068 for the six months ended

June 30, 2023, over the six months ended June 30, 2022.

We expect general and administrative expenses to remain fairly constant throughout

2023, but expenses could increase significantly if we engage in a business combination with Pegasus.

compensation decreased by $319,250 for the six months ended June 30, 2023, over the six months ended June 30, 2022.

Our officer compensation

was less for this quarter compared to the same quarter last year as we suspended payments of officer salaries during 2023, but we expect

that officer compensation will increase in 2023 as we continue to ramp up operations or if we engage in a business combination with Pegasus

as described above.

management fees decreased by $206,462 for the six months ended June 30, 2023, over the six months ended June 30, 2022.

Our non-cash management

fees were less for this quarter compared to the same quarter last year as we did not issue shares for services during 2023, but non-cash

management fees may increase in 2023 as we continue to ramp up operations or if we engage in a business combination with Pegasus as described

Income / Expense

had other expense of $353,755 and $637,821 for the three and six months

ended June 30, 2023, respectively, compared with other income of $501,526 and $1,632,390 for the three and six months ended June 30, 2022,

respectively.

other expense for the six months ended June 30, 2023 was mainly attributable a loss on the change in derivative liability, interest expense

and the amortization of debt issuance costs.

other income for the six months ended June 30, 2022 was mainly attributable the gain on revaluation of derivative liabilities.

Income / Loss

had net losses of $402,310 and $783,262 for the three and six months ended

June 30, 2023, respectively, as compared with net income of $211,730 and $701,770 for the three and six months ended June 30, 2022, respectively.

and Capital Resources

of March 31, 2023, we had total current assets of $236,114 consisting of $1,042 in cash, $120,000 in other receivable and $115,072 in

Our total current liabilities as of March 31, 2023 were $2,026,144.

We had a working capital deficit of $1,790,030 as of March

31, 2023 compared with a working capital deficit of $1,170,940 as of December 31, 2022.

Flows from Operating Activities

activities provided $145,269 in cash for the three months period ended March 31, 2023, compared with cash used of $483,386 for the three

months period ended March 31, 2022.

Our operating cash flow for the three months period ended March 31, 2023 was largely the result of

an increase in accounts payable of $210,134, offset by our net loss, net of non-cash charges, of $140,285.

Our negative operating cash

flow for the three months period ended March 31, 2022 was largely the result of our net loss, net of non-cash charges, of $467,658.

Flows from Investing Activities

did not use cash for investing activities for the three months ended March 31, 2023 or 2022.

Flows from Financing Activities

flows used in financing activities during the three months ended March 31, 2023 amounted to $208,646, compared with cash flows provided

by financing activities of $655,000 for the three months period ended March 31, 2022.

Our use of cash flows for the three months period

ended March 31, 2023 consisted of repayments of convertible and related party debt.

Our positive cash flows for the three months ended

March 31, 2022 consisted of proceeds from Convertible notes payable of $650,000.

of June 30, 2023, we had total current assets of $658,279 consisting of $2,260 in cash, $120,000 in other receivables, $435,000 in a

deposit on the acquisition of Pegasus Specialty Vehicles and $101,019 in inventories.

Our total current liabilities as of June 30, 2023

were $2,776,697.

We had a working capital deficit of $2,118,418 as of June 30, 2023 compared with a working capital deficit of $1,170,940

as of December 31, 2022.

Flows Provided by / Used in Operating Activities

activities provided $116,488 in cash for the six months period ended June

30, 2023, compared with cash used of $1,009,564 for the six months period ended June 30, 2022.

Our positive operating cash flow for the

six months period ended June 30, 2023, was largely the result of an increase in accounts payable and accrued expenses.

Our negative operating

cash flow for the six months ended June 30, 2022 was largely the result of our unrealized gain on derivative liability of $1,687,112,

offset by our net income of $701,770.

Flows Used in Investing Activities

For the six months ended June 30, 2023, the company used $435,000 in investing

activities as a deposit on the acquisition of Pegasus Specialty Vehicles.

We did not use cash for investing activities for the six months

ended June 30, 2022.

Flows Provided by Financing Activities

flows provided by financing activities during the six months ended June 30, 2023 amounted to $256,353, compared with cash flows

provided by financing activities of $1,031,474 for the six months ended June 30, 2022.

Our positive cash flows for the six months

period ended June 30, 2023, consisted of net proceeds from convertible debentures of $321,200, proceeds from the sale of warrants of

$30,000 offset by the repayment of related party advances of $94,847.

Our positive cash flows for the six months ended June 30,

2022, consisted of proceeds from issuance of common stock of $392,674, proceeds from convertible notes payable of $788,800, offset

by payments of notes payable of $150,000.

features of the debt instruments and payables concerning our financing activities are detailed in the footnotes to our financial statements.

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There is no guarantee that these small convertible loans will be available to us in the future or on terms acceptable to us.

also plan to raise money in the sale of our equity and debt 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.

of March 31, 2023, we have an accumulated deficit of $25,701,376.

recently raised $500,000 from the sale of the Note in connection with the covenant made in the Merger Agreement to raise $3,000,000 in

funding, with $500,000 available prior to Closing.

We plan to raise money in the sale of our equity and/or debt securities.

no assurance of funds from these efforts or that any other type of additional financing will be available to us on acceptable terms,

securities offered will not be or have not been registered under the Securities Act and may not be offered or sold in the United States

absent registration or an applicable exemption from registration requirements.

of June 30, 2023, we have an accumulated deficit of $26,103,686.

Our ability to continue as a going concern is contingent upon the successful

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Balance Sheet Arrangements

of March 31, 2023, there were no off-balance sheet arrangements.

of June 30, 2023, there were no off-balance sheet arrangements.

Accounting Policies

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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.

are disclosed in Note 2 of our audited financial statements included in the Form 10-K for the year ended December 31, 2022, filed with

the Securities and Exchange Commission.

Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis