Resonate Blends, Inc. 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2023 ☐ Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to__________ Commission File Number: 000-21202 Resonate Blends, Inc. (Exact name of registrant as specified in its charter) Nevada 58-1588291 (State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.) 26565 Agoura Road , Suite 200 Calabasas , CA 91302 (Address of principal executive offices) 571 - 888-0009 (Registrant’s telephone number) (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. ☐ Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☒ Smaller reporting company ☐ Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 86,623,596 common shares as of November 20, 2023 TABLE OF CONTENTS Page PART I – FINANCIAL INFORMATION 3 Item 1: Financial Statements 3 Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 4 Item 3: Quantitative and Qualitative Disclosures About Market Risk 9 Item 4: Controls and Procedures 10 PART II – OTHER INFORMATION 12 Item 1: Legal Proceedings 12 Item 1A: Risk Factors 12 Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 12 Item 3: Defaults Upon Senior Securities 12 Item 4: Mine Safety Disclosures 12 Item 5: Other Information 12 Item 6: Exhibits 12 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements Our consolidated financial statements included in this Form 10-Q are as follows: F-1 Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022; F-2 Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022 (unaudited); F-3 Consolidated Statement of Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2023 and 2022 (unaudited); F-5 Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (unaudited); and F-6 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 and nine months ended September 30, 2023 are not necessarily indicative of the results that can be expected for the full year. 3 Resonate Blends, Inc. Consolidated Balance Sheets (Unaudited) September 30, 2023 December 31, 2022 ASSETS Current assets Cash and cash equivalents $ 588 $ 64,419 Inventory 100,883 160,492 Other receivable 120,000 150,000 Deposit on acquisition of Pegasus Specialty Vehicles LLC 720,000 - Total current assets 941,471 374,911 Fixed assets, net 17,567 24,110 Investment 100 100 TOTAL ASSETS $ 959,138 $ 399,121 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities Accounts payable and accrued liabilities $ 361,351 $ 319,618 Due to related parties 70,099 164,946 Convertible notes payable 1,652,609 988,800 Senior promissory note 575,000 - Derivative liability 300,997 72,487 Total current liabilities 2,960,056 1,545,851 Total liabilities 2,960,056 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 D Preferred stock 40,000 shares authorized, $ 0.0001 par value 40,000 issued and outstanding - - Preferred stock value - - Common stock; $ 0.0001 par value; 200,000,000 shares authorized; 82,841,096 and 75,437,604 shares issued and outstanding 8,284 7,544 Common stock issuable - - Stock subscription receivable ( 261,059 ) ( 261,059 ) Additional paid-in capital 24,583,513 24,427,009 Accumulated deficit ( 26,331,856 ) ( 25,320,424 ) Total stockholders’ deficit ( 2,000,918 ) ( 1,146,730 ) TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT $ 959,138 $ 399,121 The accompanying notes are an integral part of these consolidated financial statements. F- 1 Resonate Blends, Inc. Consolidated Statements of Operations (Unaudited) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Three Months Ended Nine Months Ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 REVENUES $ - $ 10,429 $ 16,468 $ 40,917 COST OF REVENUES - 9,718 13,257 24,996 Gross profit - 711 3,211 15,921 OPERATING EXPENSES Advertising 135 94,978 13,572 330,255 General and administrative 22,785 44,179 114,220 150,682 Legal and professional 24,055 62,969 62,835 136,307 Officer compensation - 16,750 5,000 341,000 Non cash management fees - - - 206,462 Total operating expenses 46,975 218,876 195,627 1,164,706 OPERATING LOSS ( 46,975 ) ( 218,165 ) ( 192,416 ) ( 1,148,785 ) OTHER INCOME (EXPENSES) Interest expense ( 155,756 ) ( 70,052 ) ( 307,865 ) ( 92,853 ) Gain (loss) on change in derivative liability 123,227 526,415 ( 228,510 ) 2,213,527 Amortization of issuance costs ( 143,633 ) - ( 277,608 ) ( 31,795 ) Gain (loss) on settlement of notes payable ( 5,033 ) ( 176,096 ) ( 5,033 ) ( 176,222 ) Total operating income (expense) ( 181,195 ) 280,267 ( 819,016 ) 1,912,657 NET INCOME (LOSS) $ ( 228,170 ) $ 62,102 $ ( 1,011,432 ) $ 763,872 INCOME (LOSS) PER SHARE- basic and diluted $ ( 0.00 ) $ 0.00 $ ( 0.01 ) $ 0.01 WEIGHTED AVERAGE SHARES OUTSTANDING 81,748,762 75,412,604 77,912,142 75,412,604 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 ) Stock issuance for services - - - - 50,000 5 4,500 - - - 4,505 Net income - - - - - - - - - 211,730 211,730 Balance, June 30, 2022 - - 2,000,000 200 47,846,859 4,784 22,466,272 - ( 261,059 ) ( 25,272,281 ) ( 3,062,084 ) Stock issuance for services - - - - 25,000 3 2,246 - - - 2,249 Stock issuance for debt conversion - - - - 21,969,316 2,197 1,973,944 - - - 1,976,141 Stock issuance in private placement - - - - 5,571,429 557 243,360 - - - 243,917 Net income - - - - - - - - - 62,102 62,102 Balance, September 30, 2022 - $ - 2,000,000 $ 200 75,412,604 $ 7,541 $ 24,685,822 $ - $ ( 261,059 ) $ ( 25,210,179 ) $ ( 777,675 ) Balance - $ - 2,000,000 $ 200 75,412,604 $ 7,541 $ 24,685,822 $ - $ ( 261,059 ) $ ( 25,210,179 ) $ ( 777,675 ) The accompanying notes are an integral part of these consolidated financial statements. F- 3 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, 2022 - $ - 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 ) Exercise of warrants - - - - 1,273,273 127 29,873 ( 6,000 ) - - 24,000 Stock issuance for services - - - - 250,000 25 2,278 - - - 2,303 Issuance of common stock for commitment fees - - - - 1,368,000 137 45,548 - - - 45,685 Net loss - - - - - - - - - ( 402,310 ) ( 402,310 ) Balance, June 30, 2023 - - 2,000,000 200 78,328,877 7,833 24,257,566 - ( 261,059 ) ( 26,103,686 ) ( 2,099,146 ) Balance - - 2,000,000 200 78,328,877 7,833 24,257,566 - ( 261,059 ) ( 26,103,686 ) ( 2,099,146 ) Recognition of stock issued for services - - - - - - 3,592 - - - 3,592 Stock issuance for services - - - - - - 3,592 - - - 3,592 Issuance of common stock in private placement - - - - 137,500 14 9,986 - - - 10,000 Conversion of convertible debt - - - - 3,282,219 328 241,900 - - - 242,228 Issuance of common stock for commitment fees - - - - 1,092,500 109 70,469 - - - 70,578 Net loss - - - - - - - - - ( 228,170 ) ( 228,170 ) Net Income (loss) - - - - - - - - - ( 228,170 ) ( 228,170 ) Balance, September 30, 2023 - $ - 2,000,000 $ 200 82,841,096 $ 8,284 $ 24,583,513 $ - $ ( 261,059 ) $ ( 26,331,856 ) $ ( 2,000,918 ) Balance - $ - 2,000,000 $ 200 82,841,096 $ 8,284 $ 24,583,513 $ - $ ( 261,059 ) $ ( 26,331,856 ) $ ( 2,000,918 ) The accompanying notes are an integral part of these consolidated financial statements. F- 4 Resonate Blends, Inc. Consolidated Statements of Cash Flows (Unaudited) September 30, 2023 September 30, 2022 Nine Months Ended September 30, 2023 September 30, 2022 Cash Flows from Operating Activities Net income (loss) $ ( 1,011,432 ) $ 763,872 Adjustments to reconcile net income (loss) to net cash used in operations Loss (gain) on derivative liability 228,510 ( 2,213,527 ) Non cash interest expense 277,608 - Gain on settlement of notes payable - - Share professional fees/ compensation 122,158 206,462 Depreciation and amortization 6,543 6,513 Stock subscription receivable - ( 261,059 ) Changes in operating assets and liabilities Inventory 59,609 50,488 Advances to suppliers - ( 8,762 ) Other receivables 30,000 ( 126,811 ) Accounts payable and accrued expenses 376,820 107,970 Due to related party - ( 2,000 ) Net cash provided by (used in) operating activities 89,816 ( 1,476,854 ) Cash Flows from Investing Activities Deposit on acquisition of Pegasus Specialty Vehicles LLC ( 720,000 ) - Net cash provided by (used in) investing activities ( 720,000 ) - Cash Flows from Financing Activities Proceeds from issuance of convertible notes 760,000 1,388,800 Proceeds from subscription - 349,981 Proceeds from private placement 10,000 - Proceeds from warrant exercise 30,000 - Repayment of related party advances ( 94,847 ) - Repayment of convertible notes ( 138,800 ) - Net cash provided by (used in) financing activities 566,353 1,738,781 Net increase (decrease) in cash ( 63,831 ) 261,927 Cash, beginning of period 64,419 12,913 Cash, end of period $ 588 $ 274,840 Supplemental cash flow disclosures Cash paid for interest $ - $ - Cash paid for taxes $ - $ - Non-cash investing and financing activities Conversion of debt for common stock $ 242,228 $ 2,265,000 The accompanying notes are an integral part of these consolidated financial statements. F- 5 RESONATE BLENDS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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- 6 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. On June 20, 2023, the Company entered into an Agreement and Plan of Merger with Pegasus Specialty Vehicles, LLC, an Ohio limited liability company, and Pegasus Specialty Holdings LLC, an Ohio limited liability company and wholly-owned subsidiary of the Company. 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 September 30, 2022 classifications to make them comparable to September 30, 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 September 30, 2023, the Company has an accumulated deficit of $ 26,331,856 . 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- 7 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 September 30, 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- 8 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 September 30, 2023 and year ended December 31, 2022. SUMMARY OF ASSETS AND LIABILITIES MEASURED AT VALUE ON RECURRING BASIS As of September 30, 2023 Level 1 Level 2 Level 3 Total Liabilities Derivative Liabilities - - $ 300,997 $ 300,997 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. Generally, the Company only keeps inventory on hand for sales made and in which a deposit has been received. 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- 9 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 September 30, 2023 and December 31, 2022, amounts due related parties were $ 70,099 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 September 30, 2023 and December 31, 2022: SCHEDULE OF CONVERTIBLE NOTES PAYABLE September 30, 2023 December 31, 2022 Convertible notes face value $ 1,660,000 $ 988,800 Less: Discounts ( 7,391 ) - Less: Debt issuance cost - - Net convertible notes $ 1,652,609 $ 988,800 At September 30, 2023 and December 31, 2022, $ 200,000 of the convertible notes was an 8 % Unsecured Convertible Promissory Note 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. On July 10, 2023, the note was converted to 3,282,219 shares of common stock. 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. The Company is currently working with each of the accredited investor on payoff options. 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 nine months ended September 30, 2023, the Company repaid the entire note. F- 10 On September 8, 2022, we issued and sold a senior secured convertible promissory note to AJB Capital Investments LLC (“AJB”) 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 maturity date for repayment of the Notes is nine months from issuance and the Notes bear interest at 10 % per annum. On September 29, 2023, we entered into an amendment with AJB extending the maturity date of the Note through December 28, 2023 . In exchange for this amendment, we issued AJB 3,000,000 shares (“extension shares”) of common stock. We can redeem certain shares if all principal and interest is repaid in full prior to the new maturity date. 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 prior to the issuance of the 3,000,000 extension shares on September 29, 2023. During the nine months ended September 30, 2023, the Company issued 3 convertible promissory notes totaling $ 345,000 , net of debt issuance costs of $ 20,000 . These notes are convertible into common stock into the next funding round expected to be priced at $ .08 per share issued in a Series Preferred with a 4 % coupon payable until the Preferred is converted into common stock. A 2 -year cash Warrant with 50 % coverage priced at $ .25 is also available as part of this conversion. A total of 812,500 commitment shares and 250,000 warrants issued. This Note has a personal guarantee for the full principal amount to Resonate Blends, Inc. by Darshan Vyas, Principal of Pegasus. Resonate Blends, Inc. in return will guarantee the Lender. As of September 30, 2023 and December 31, 2022, accrued interest payable on notes payable was $ 252,091 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 September 30, 2023 December 31, 2022 Exercise price $ 0.041 - $ 0.053 $ 0.030 Expected volatility 470 % 220 % Risk-free interest rate 4.64 % 1.45 % Expected term (in years) 1.00 .1 Expected dividend rate 0 % 0 % F- 11 NOTE 6 – SENIOR PROMISSORY NOTE On June 20, 2023, the Company signed a Securities Purchase Agreement (“SPA”) with an accredited investor, pursuant to which the Company issued and sold to the accredited investor a 15 % original issue discount Senior Promissory Note (non-convertible), dated June 20, 2023, in the principal amount of $ 575,000 . The Senior Promissory Note is secured by all of the Company’s assets under a separate security agreement between the accredited investor and the Company. The Company received $ 435,000 from the Senior Promissory Note after applying the original issue discount and commissions and fees. The proceeds were utilized as a deposit on the Company’s acquisition of Pegasus Specialty Vehicles, LLC (See Note 7). The maturity date for repayment of the Senior Promissory Note is September 20, 2023 and bears interest at 15 % per annum starting 60 days after issuance and interest payable in cash monthly thereafter. The Company may prepay the Senior Promissory Note at any time, but is required to pay a premium of 104 % of the principal amount if repaid after 60 days. As additional consideration, the Company issued 1,318,000 shares of its common stock as commitment shares. The Company was required to issue an additional 330,000 commitment shares due to the Senior Promissory Note not being prepaid at 60 days as required in the SPA. The Company is currently working with investor to address the entire Note payoff. In the agreements, the Company agreed to certain restrictive covenants, including a restriction on borrowing and a most favored nation clause in favor of the accredited investor for any future offerings not specifically exempted. On June 20, 2023, the Company and Pegasus Specialty Vehicles, LLC entered into a Loan and Security Agreement whereby the Company lent to Pegasus the principal amount of $ 575,000 secured by all of the Pegasus’ assets, but subordinate to the security interest of accredited investor and another lender of Pegasus. NOTE 7 – AGREEMENT AND PLAN OF MERGER WITH PEGASUS SPECIALTY VEHICLES, LLC On June 20, 2023, the Company entered into an Agreement and Plan of Merger with Pegasus Specialty Vehicles, LLC, an Ohio limited liability company (“Pegasus”), and Pegasus Specialty Holdings LLC, an Ohio limited liability company and wholly-owned subsidiary of the Company (“Pegasus Sub”). The Merger Agreement provides that at the closing, subject to terms and conditions, Pegasus Sub will merge with and into Pegasus, with Pegasus surviving as a wholly-owned subsidiary of the 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 the Company. The Company, Pegasus, and Pegasus Sub have each made various representations and warranties and agreed to certain covenants in the Merger Agreement, including a covenant by the Company that it would raise $ 3,000,000 less costs in new financing at Closing, with $ 435,000 loaned pre-Closing to Pegasus under a secured promissory note with a face value of $ 575,000 . Pegasus granted a security interest to the Company in all of Pegasus’ assets on the $ 575,000 loan, subordinate to other security interests as to the same collateral. The Company received $ 500,000 from the Note after applying the Original Issue Discount (OID), $ 30,000 of which was used to pay commission to a broker as placement agent, $ 30,000 was paid to the lender for its legal fees and $ 5,000 for a due diligence fee paid to the lender. The balance was tendered to the Company to lend to Pegasus under a Loan and Security Agreement as described below. Consummation of the Merger is subject to the satisfaction or, if permitted by applicable law, waiver, by the Company, Pegasus, or both of various conditions. For Pegasus, these conditions include, without limitation, (i) an agreeable plan to spin out the existing Company cannabis assets and operations, (ii) an agreeable plan to transfer the outstanding shares of Series C Preferred Stock of the 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 the Company of $3,000,000 less costs; (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 the Company, these conditions include, without limitation, (i) a secured promissory note issued by Pegasus to the Company in the amount of $500,000 with the collateral being a UCC lien subordinate to other lenders; (ii) the payback by the Company of certain advances contributed by corporate officers and others in the 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. F- 12 The Merger Agreement contains certain termination rights including the right of the parties to mutually agree upon termination, and by each of the Company and Pegasus unilaterally if the other party has committed a violation of the covenants, representations and warranties in the Merger Agreement. The Merger Agreement, the Merger, and the transactions contemplated thereby were unanimously approved by the board of directors of Pegasus, and unanimously approved by the board of directors of the Company. The 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 4th quarter of calendar year 2023. NOTE 8 – 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 $ 8,406 and $ 5,796 for the nine months ended September 30, 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 9 – STOCKHOLDERS’ EQUITY During the nine months ended September 30, 2023, the Company issued the following shares of common stock: ● The Company issued 1,273,273 shares of common stock for the exercise of a warrant for proceeds of $ 30,000 ; ● The Company issued 250,000 shares of common stock under a consulting agreement with a 1 year term. The shares were valued at $ 14,250 , the fair value at the issuance date. Of this amount, $ 5,895 was recognized during the nine months ended September 30, 2023, with the remaining $ 8,355 unrecognized. ● The Company issued a total of 2,460,500 shares of common stock as commitment fees under borrowing agreements. The Company recognized $ 116,263 in expenses, the fair value of the common stock on the issuance dates. ● The Company issued 137,500 shares of common stock for $ 10,000 in a private placement. ● The Company issued a total of 3,282,219 shares of common stock as to convert a convertible note of $ 200,000 and accrued interest of $ 42,228 . During the nine months ended September 30, 2022, the Company issued the following shares of common stock: ● The Company issued 979,666 shares of common stock for services for $ 208,801 . ● The Company issued 6,636,985 shares of common stock for $ 243,917 in private placements. ● The Company issued a total of 22,749,316 shares of common stock as to convert convertible notes and accrued interest of $ 2,107,666 . NOTE 10 – SUBSEQUENT EVENTS On October 13, 2023, we issued a Promissory Note to an accredited investor in the principal amount of $ 55,000 . We received $ 50,000 from the note after applying the original issue discount of $ 5,000 in the transaction. All principal on the note is convertible at the investors’ option into our common stock in the next funding round which, if it occurs, is expected to be priced at approximately $ .08 per share issued in a preferred stock. We were required to issue a total of 112,500 shares of our common stock in connection with the notes as commitment shares. On October 26, 2023, we issued a three-month Promissory Note to an accredited investor in the principal amount of $ 57,500 . We received $ 45,000 from the note after paying the placement agent a fee of $ 5,000 and the original issue discount of $ 7,500 in the transaction. We were required to issue a total of 250,000 shares of our common stock in connection with the notes as commitment shares. On November 13, 2023, we issued a Promissory Note to an accredited Noteholder for $ 80,000 with a nine (9) month maturity date. The Note carries twelve ( 12 % ) interest rate per annum. After the allowances for the $ 3,500 in legal fees and a $ 1,500 due diligence fee, the Company received $ 75,000 . The Company has the right to prepay the Note prior to 180 days with a set prepayment fee. If the Note isn’t paid in full at Day 180, the Noteholder has the right to convert the Note at a 37% discount with the conversion price determined on the basis of the lowest closing bid price for the Common Stock during the prior ten (10) trading day period . F- 13 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. 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; the timing 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. Overview Our History and Experience in the Cannabis Space On October 25, 2019, we announced our entry into the cannabis industry by acquiring Resonate Blends LLC (“Resonate Blends”), a California-based cannabis wellness lifestyle product company built on a proprietary system of experiential targets. Resonate Blends is a brand-focused cannabis organization offering premium brands of consistent quality. We also acquired Entourage Labs LLC (“Entourage Labs”), a sister company of Resonate Blends. 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 investigated 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. 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. While 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. 4 The legal cannabis industry Itself is laden with obstacles. There are significant restrictions on marketing activities and excessively high banking fees for compliant financial institutions. Layer upon layer of taxes raise prices of legal cannabis products so that they become cost prohibitive for customers. Many of the California dispensaries are in financial trouble and are unable to pay for the products that they have purchased. The distributor therefore prevents those accounts from ordering additional products. These and other constraints have made it difficult to build a successful business in the cannabis industry at this time. The cannabis industry is still in its infancy, so we expect continued headwinds. 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. The Company’s growth strategy is to create an innovative ecosystem of companies, investments and research that all support The Resonate System and its mission of empowering the wellness market. We have a product line of Cordials and have introduced our brand and products to the market through dispensaries in California and now into cannabis consumption lounges. Although we have had some success in establishing our presence in the California market, as of the date of this filing, we have not achieved significant revenues. We have a working capital deficit of $2,118,418 as of September 30, 2023, and we are wholly dependent on capital to fund our business operations. 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. Since late 2019, we have been attempting to raise money to implement our business plan but have not been able to secure all the funds necessary to do so. The lack of sufficient funds, the present economy, the restrictions on commercial banking and the saturated nature of the cannabis industry have prevented this from happening. We have recently relied on convertible loans for working capital expenses. These loans were mostly on unfavorable terms, such as discounted conversion rights, original discounts, equity incentives and restrictive covenants. As 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. The Merger Agreement with Pegasus Specialty Vehicles, LLC Recent 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”). The 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”). Each 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. Consummation 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 less costs; (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. 5 The 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. The 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. The 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 4th quarter of calendar year 2023. Also 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. We 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”). The 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. As 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 of the Note. In 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. Also 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. 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. 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 industry. The principal executive office is located at 26565 Agoura Road, Suite 200, Calabasas, CA 91302. The executive telephone number is (571) 888-0009. 6 Results of Operation for Three and Nine Months Ended September 30, 2023 and 2022 Revenues We have generated $0 and $16,468 in sales for the three and nine months ended September 30, 2023, respectively, as compared with $10,429 and $40,917 in sales for the three and nine months ended September 30, 2022, respectively, on our current product line. We don’t anticipate increased revenues on our seven Cordials including our newly launched Sleep Cordial, for the rest of 2023, due to 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. As 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. Gross Profit We paid $0 and $13,257 in cost of revenues for the three and nine months ended September 30, 2023, respectively, resulting in a gross profit of $0 and $3,211 for the three nine months ended September 30, 2023, respectively. We paid $9,718 and $24,996 in cost of revenues for the three and nine months ended September 30, 2022, respectively, resulting in a gross profit of $711 and $15,921 for the three and nine months ended September 30, 2022, respectively. 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. If we are unable to consummate the Merger Agreement with Pegasus, we hope our work to continue to penetrate the market. We are also implementing new packaging configurations which we expect to stabilize our overall gross margin. Operating Expenses Our operating expenses were $46,975 and $195,627 for the three and nine months ended September 30, 2023, respectively, as compared with $218,876 and $1,164,706 for the three and nine months ended September 30, 2022, respectively. The 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. Unless 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. We spent $316,683 less on advertising for the nine months ended September 30, 2023, than for the nine months ended September 30, 2022. We spent more on advertising for the nine months ended September 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. Professional fees decreased by $73,472 for the nine months ended September 30, 2023, over the nine months ended September 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. General and administrative expenses decreased by $36,462 for the nine months ended September 30, 2023, over the nine months ended September 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. 7 Officer compensation decreased by $336,000 for the nine months ended September 30, 2023, over the nine months ended September 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. Non-cash management fees decreased by $206,462 for the nine months ended September 30, 2023, over the nine months ended September 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 above. Other Income / Expense We had other expense of $181,195 and $819,016 for the three and nine months ended September 30, 2023, respectively, compared with other income of $280,267 and $1,912,657 for the three and nine months ended September 30, 2022, respectively. Our other expense for the nine months ended September 30, 2023 was mainly attributable a loss on the change in derivative liability, interest expense and the amortization of debt issuance costs. Our other income for the nine months ended September 30, 2022 was mainly attributable the gain on revaluation of derivative liabilities. Net Income / Loss We had net losses of $228,170 and $1,011,432 for the three and nine months ended September 30, 2023, respectively, as compared with net income of $61,102 and $763,872 for the three and nine months ended September 30, 2022, respectively. Liquidity and Capital Resources As of September 30, 2023, we had total current assets of $941,471 consisting of $588 in cash, $120,000 in other receivables, $720,000 in a deposit on the acquisition of Pegasus Specialty Vehicles and $100,883 in inventories. Our total current liabilities as of September 30, 2023 were $2,960,056. We had a working capital deficit of $2,018,585 as of September 30, 2023 compared with a working capital deficit of $1,170,940 as of December 31, 2022. Cash Flows Provided by / Used in Operating Activities Operating activities provided $89,816 in cash for the nine months period ended September 30, 2023, compared with cash used of $1,476,854 for the nine months period ended September 30, 2022. Our positive operating cash flow for the nine months period ended September 30, 2023, was largely the result of an increase in accounts payable and accrued expenses. Our negative operating cash flow for the nine months ended September 30, 2022 was largely the result of our unrealized gain on derivative liability of $2,213,527, offset by our net income of $763,872. Cash Flows Used in Investing Activities For the nine months ended September 30, 2023, the company used $720,000 in investing activities as a deposit on the acquisition of Pegasus Specialty Vehicles. We did not use cash for investing activities for the nine months ended September 30, 2022. Cash Flows Provided by Financing Activities Cash flows provided by financing activities during the nine months ended September 30, 2023 amounted to $566,353, compared with cash flows provided by financing activities of $1,738,781 for the nine months ended September 30, 2022. Our positive cash flows for the nine months period ended September 30, 2023, consisted of net proceeds from convertible debentures of $621,200, proceeds from the sale of warrants of $30,000, proceeds from the sale of common stock of $10,000 offset by the repayment of related party advances of $94,847. Our positive cash flows for the nine months ended September 30, 2022, consisted of proceeds from issuance of common stock of $349,981 and proceeds from convertible notes payable of $1,388,800. 8 The features of the debt instruments and payables concerning our financing activities are detailed in the footnotes to our financial statements. 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 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. 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. Any 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. Going Concern As of September 30, 2023, we have an accumulated deficit of $26,331,856. 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 September 30, 2023, 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 for the year ended December 31, 2022, filed with the Securities and Exchange Commission. Recent Accounting Pronouncements No new accounting pronouncements issued or effective during the fiscal year has had or is expected to have a material impact on the financial statements. Item 3. Quantitative and Qualitative Disclosures About Market Risk A smaller reporting company is not required to provide the information required by this Item. 9 Item 4. Controls and Procedures Disclosure Controls and Procedures We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of September 30, 2023, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2023, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described below. Our principal executive officers do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive officers have determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Management identified the following three material weaknesses that have caused management to conclude that, as of September 30, 2023, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level: 1. We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act as of the period ending September 30, 2023. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness. 2. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness. 3. Effective controls over the control environment were not maintained. Specifically, a formally adopted written code of business conduct and ethics that governs our employees, officers, and directors was not in place. Additionally, management has not developed and effectively communicated to employees its accounting policies and procedures. This has resulted in inconsistent practices. Further, our Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness. 10 To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented. To remediate the material weakness in our documentation, evaluation and testing of internal controls we plan to engage a third-party firm to assist us in remedying this material weakness once resources become available. We intend to remedy our material weakness with regard to insufficient segregation of duties by hiring additional employees in order to segregate duties in a manner that establishes effective internal controls once resources become available. Changes in Internal Control over Financial Reporting No change in our system of internal control over financial reporting occurred during the period covered by this report, the period ended September 30, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 11 PART II – OTHER INFORMATION Item 1. Legal Proceedings We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us. Item 1A: Risk Factors See risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2022 filed on April 17, 2023. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The information set forth below relates to our issuances of securities without registration under the Securities Act of 1933 during the nine months ended September 30, 2023: ■ The Company issued 1,273,273 shares of common stock for the exercise of a warrant for proceeds of $30,000; ■ The Company issued 250,000 shares of common stock under a one year consulting agreement; ■ The Company issued a total of 2,460,500 shares of common stock as commitment fees under borrowing agreements; and ■ The Company issued a total of 250,000 shares of common stock to vendors for compensation and services rendered. ■ The Company issued a total of 137,500 shares of common stock for proceeds of $10,000 ■ The Company issued a total of 3,282,219 shares of common stock for the conversion of convertible debt. These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock. Item 3. Defaults upon Senior Securities None Item 4. Mine Safety Disclosures None Item 5. Other Information None Item 6. Exhibits Exhibit Number Description of Exhibit 3.1 Certificate of Amendment dated July 20, 2020 31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101** The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Extensible Business Reporting Language (XBRL). **Provided herewith 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Resonate Blends, Inc. Date: November 20, 2023 By: /s/ Geoffrey Selzer Geoffrey Selzer Title: President, Chief Executive Officer, Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer and Director 13