Resonate Blends, Inc. 10-Q

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. 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. Recent Acquisition, Change in Control and Change in Business Plan Change in Control . Effective March 14, 2024, Geoffrey Selzer, our former Chief Executive Officer and Director, and Jim Morrison, our current President and Director, entered into a Securities Purchase Agreement (the Control Agreement), pursuant to which Mr. Selzer sold all 2,000,000 outstanding shares of the Company’s Series C Preferred Stock to Mr. Morrison. Mr. Morrison now possesses voting control of the Company. EMGE Acquisition Transaction . On February 26, 2024, the Company entered into a Share Exchange Agreement, as amended (the “Exchange Agreement”), with Emergent Health Corp., a Wyoming corporation (EMGE), and the holders (the “EMGE Preferred Shareholders”) of Series Class A Preferred Stock and the Series C Convertible Non-Voting Preferred Stock (the “EMGE Equity Interests”). On March 14, 2024, the parties closed the Exchange Agreement. At the closing of the Exchange Agreement: (a) the EMGE Preferred Shareholders exchanged all of their respective EMGE Equity Interests for an equal number of shares of the Company’s to-be-designated Series F Convertible Preferred Stock (the “Exchange Shares”) that shall convert into 93% of the common stock of the Company on a fully-diluted basis (the “Series F Preferred Stock”), which shares of Series F Preferred Stock are currently issuable to the EMGE Preferred Shareholders and are to be issued upon the Company’s filing of a Certificate of Designation with the State of Nevada; (b) the Company consummated the Conveyance Agreement; and (c) all persons serving as directors and officers of the Company prior to the consummation of the Exchange Agreement resigned and appointed four new members of the Company’s Board of Directors. Effective August 8, 2024, the Company entered into a Reformation of Share Exchange Agreement (the “Reformation Agreement”) with EMGE and the EMGE Preferred Shareholders. The Reformation Agreement was entered into after the Company, EMGE and the EMGE Preferred Shareholders having independently determined that the structure of the Exchange Agreement resulted in the parties’ experiencing consequences that were unintended and that would not, in the long term, be beneficial to the parties and that a reformation of the Exchange Agreement from a share-for-share structure to a share-for-asset structure would be beneficial to each of the parties. By the Reformation Agreement, share-for-share structure of the Exchange Agreement was reformed to become a share-for-asset structure (the “Reformation”). Effecting the Reformation produced the following actions (the “Reformation Actions”): (a) First, the issuances of the Company Exchange Shares to the EMGE Preferred Shareholders were rescinded. (b) Next, the assignments of the EMGE Equity Interests by the EMGE Preferred Shareholders to the Company were rescinded. (c) The Company, then, re-issued the Exchange Shares to EMGE, in consideration of the following assets of EMGE (the “Acquired Assets”): ● All of the capital stock of Evolutionary Biologics, Inc.; ● All of the capital stock of Apollo Biowellness, Inc.; ● All of the capital stock of Nanosthetic, Inc.; and ● All of the capital stock of Nanogistics, Inc. 4 In addition, the Reformation Actions resulted in the Company’s no longer being the controlling shareholder of EMGE. Conveyance Agreement . On March 14, 2024, in conjunction with our acquisition of EMGE, we entered into an Agreement of Conveyance, Transfer and Assignment of Subsidiary (the Conveyance Agreement) with two of our then-wholly-owned subsidiaries, Resonate Blends, LLC, a California limited liability company, and Entourage Labs, LLC, a California limited liability company (collectively, Resonate Blends, LLC and Entourage Labs, LLC are referred to as the “Subsidiary”), and our former Chief Executive Officer and Director, Geoffrey Selzer. Pursuant to the Conveyance Agreement, we assigned our ownership in the Subsidiary to Mr. Selzer. In consideration of our assignment of the Subsidiary, Mr. Selzer (a) assumed and agreed to pay, perform and discharge, fully and completely, all liabilities of the Subsidiary, (b) indemnified us for any loss arising from or in connection with any of such liabilities and (c) agreed to pay us (i) 20% of any proceeds from the sale of the Subsidiary that occurs prior to the one-year anniversary of the Conveyance Agreement and (ii) 10% of any proceeds from the sale of the Subsidiary that occurs after the one-year anniversary and prior to the two-year anniversary of the Conveyance Agreement. New Business Plan . The business plan and operations of EMGE now represent the entirety of our company’s business operations. The discussion below concerning the six months ended June 30, 2024, include the operating results of the acquired EMGE assets from March 14, 2024, through June 30, 2024. The discussion below concerning our company’s results of operations for the six months ended June 30, 2023, relate only to our company prior to the consummation of the Exchange Agreement, as amended and reformed. None of the information in the discussion below should be considered to be an indication of our company’s operating results for the year ending December 31, 2024, and beyond . Current Status In connection with the EMGE transaction, we obtained a loan from a third party and, subsequent to the closing of the EMGE transaction, we have obtained an additional loan from another third party. We remain, nevertheless, dependent on additional investment capital to continue our survival. Historically, we have raised money through convertible debt, almost always on unfavorable terms. There is no guarantee that any capital, including through convertible loan transactions, will be available to us in the future or, if available, on terms acceptable to us . The terms of the recently obtained loans are discussed below. AJB Capital Investments, LLC . In March 2024, the Company obtained a loan from AJB Capital Investments, LLC (“AJB”) which netted the Company $252,000 in proceeds. In consideration of such loan, the Company issued a $280,000 face amount promissory note (the “AJB Note”), with OID of $28,000, bearing interest at 12% per annum, with principal and interest payable on September 4, 2024. The Company has the right to repay the AJB Note at any time. Should the Company be in default, which shall not have been cured, the AJB Note is convertible into shares of the Company’s common stock at a conversion price that shall equal the volume weighted average trading price (a) during the previous 20 trading-day period ending on the date of issuance of the AJB Note or (b) during the previous 20 trading-day period ending on the relevant conversion date, whichever is lower. The AJB Note is secured by all assets of our company. In addition, we issued to AJB a pre-funded common stock purchase warrant (the “AJB Warrant”) to purchase 3,428,571 shares of our common stock, with a nominal exercise price of $.00001 per share. The AJB Warrant may be exercised on a cashless basis, Ray Vollintine . In March 2024, the Company obtained a loan from Ray Vollintine (“Vollintine”) which netted the Company $250,000 in proceeds. In consideration of such loan, the Company issued a $280,000 face amount promissory note (the “Vollintine Note”), with OID of $30,000, bearing interest at 12% per annum, with principal and interest payable on September 29, 2024. The Company has the right to repay the Vollintine Note at any time. The Vollintine Note is convertible at any time and from time to time into shares of the Company’s common stock at a conversion price that shall equal to $.035; provided, however, that, upon an event of default, the conversion price shall be the lower of (a) $.035 or (b) the volume weighted average trading price during the previous 20 trading-day period ending on the date of issuance of the Vollintine Note or during the previous 20 trading-day period ending on the relevant conversion date, whichever is lower. The Vollintine Note is unsecured. In addition, we issued to Vollintine a pre-funded common stock purchase warrant (the “Vollintine Warrant”) to purchase 7,200,000 shares of our common stock, with a nominal exercise price of $.00001 per share. The Vollintine Warrant may be exercised on a cashless basis, As further consideration for Vollintine’s purchasing the Vollintine Note, we entered into a make-whole agreement that assures that Vollintine shall derive not less than $250,000 in net proceeds from Vollintine’s sales of the common stock underlying the Vollintine Warrant. 5 Results of Operation for Six Months Ended June 30, 2024 and 2023 Revenues . We reported $721,278 (unaudited) and $16,468 (unaudited) in sales for the six months ended June 30, 2024 (“Interim 2024”) and 2023 (“Interim 2023”), respectively. All of our revenues for Interim 2024 were attributable to the business operations of EMGE for the period from the acquisition date, March 14, 2024. All revenues reported for Interim 2023 were attributable to the Subsidiary. Gross Profit . For Interim 2024, our cost of revenue was $297,922 (unaudited), compared to cost of revenue of $13,257 (unaudited) for Interim 2023, resulting in a gross profit of $453,356 (unaudited) for Interim 2024 and a gross profit of $3,211 (unaudited) for Interim 2023. All cost of revenue and gross profit for Interim 2024 were attributable to the business operations of EMGE for the period from the acquisition date, March 14, 2024. All cost of revenue and gross profit reported for Interim 2023 were attributable to the Subsidiary. Operating Expenses . Our operating expenses were $1,530,560 (unaudited) and $148,652 (unaudited) for Interim 2024 and Interim 2023, respectively. Our operating expenses for the remainder of 2024 can be expected to increase as the effects of the acquisition of EMGE impact our operating results. No prediction as to the level of operating expenses for all of 2024 can be made in this regard, however. Other Income/Expense . We had other expense of $173,068 (unaudited) for Interim 2024, compared to $637,821 (unaudited) in other expense for Interim 2023. Net Income/Loss . For Interim 2024, we had a net loss of $1,250,272 (unaudited), compare to a net loss of $783,262 (unaudited) for Interim 2023. Liquidity and Capital Resources In connection with the EMGE transaction, we obtained a loan from a third party and, subsequent to the closing of the EMGE transaction, we have obtained an additional loan from another third party. We remain, nevertheless, dependent on additional investment capital to continue our survival. Historically, we have raised money through convertible debt, almost always on unfavorable terms. There is no guarantee that any capital, including through convertible loan transactions, will be available to us in the future or, if available, on terms acceptable to us . The terms of the recently obtained loans are discussed below. AJB Capital Investments, LLC . In March 2024, the Company obtained a loan from AJB Capital Investments, LLC (AJB) which netted the Company $252,000 in proceeds. In consideration of such loan, the Company issued a $280,000 face amount promissory note (the AJB Note), with OID of $28,000, bearing interest at 12% per annum, with principal and interest payable on September 4, 2024. The Company has the right to repay the AJB Note at any time. Should the Company be in default, which shall not have been cured, the AJB Note is convertible into shares of the Company’s common stock at a conversion price that shall equal the volume weighted average trading price (a) during the previous 20 trading-day period ending on the date of issuance of the AJB Note or (b) during the previous 20 trading-day period ending on the relevant conversion date, whichever is lower. The AJB Note is secured by all assets of our company. In addition, we issued to AJB a pre-funded common stock purchase warrant (the AJB Warrant) to purchase 3,428,571 shares of our common stock, with a nominal exercise price of $.00001 per share. The AJB Warrant may be exercised on a cashless basis. In March 2024, the Company obtained a loan from Ray Vollintine (Vollintine) which netted the Company $250,000 in proceeds. In consideration of such loan, the Company issued a $280,000 face amount promissory note (the Vollintine Note), with OID of $30,000, bearing interest at 12% per annum, with principal and interest payable on September 29, 2024. The Company has the right to repay the Vollintine Note at any time. The Vollintine Note is convertible at any time and from time to time into shares of the Company’s common stock at a conversion price that shall equal to $.035; provided, however, that, upon an event of default, the conversion price shall be the lower of (a) $.035 or (b) the volume weighted average trading price during the previous 20 trading-day period ending on the date of issuance of the Vollintine Note or during the previous 20 trading-day period ending on the relevant conversion date, whichever is lower. The Vollintine Note is unsecured. In addition, we issued to Vollintine a pre-funded common stock purchase warrant (the Vollintine Warrant) to purchase 7,200,000 shares of our common stock, with a nominal exercise price of $.00001 per share. The Vollintine Warrant may be exercised on a cashless basis, As further consideration for Vollintine’s purchasing the Vollintine Note, we entered into a make-whole agreement that assures that Vollintine shall derive not less than $250,000 in net proceeds from Vollintine’s sales of the common stock underlying the Vollintine Warrant. 6 As of June 30, 2024, we had total current assets of $993,130 (unaudited), consisting of $17,030 (unaudited) in cash and $970,000 (unaudited) in advances to former acquisition partner-company. Our total current liabilities as of June 30, 2024, were $4,050,658 (unaudited). Our working capital deficit was $3,057,528 (unaudited) as of June 30, 2024, compared to our working capital deficit of $2,150,975 (unaudited) as of December 31, 2023. Going Concern As of June 30, 2024, we have an accumulated deficit of $27,986,675 (unaudited). 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 June 30, 2024, 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, 2023, 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.