NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2021 and 2020
NOTE 1 – BASIS
OF PRESENTATION AND GOING CONCERN
The Company
Resonate Blends, Inc.
formerly Textmunication Holdings, 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 that will connect merchants with their customers and allow them to drive loyalty and repeat
business in a non-intrusive, value added medium. For merchants we provide a mobile marketing platform where they can always send the
most up-to-date offers/discounts/alerts/events schedule, such as happy hours, trivia night, and other campaigns. The consumer can also
access specials and promotions that merchants choose to distribute through Textmunication by opting into keywords designated to the merchant’s
keywords.
On July 9, 2018, the
1 – 1,000 Reverse Split of the Company’s common stock took effect at the open of business. All shares and per share amounts
have been retroactively adjusted to reflect the reverse split.
On June 25, 2019, the
Company issued a press release announcing it plans to change its business direction from its current SMS technology business to focus
on the emerging national cannabis market. The Company planned on using its mobile texting platform to enhance communication efforts with
the potential acquisitions.
On October 25, 2019,
the Company entered into a Membership Interest Purchase Agreement (the “Resonate Purchase Agreement”) with Resonate Blends,
LLC, a California limited liability company (“Resonate”), and the members of Resonate. As a result of the transaction, Resonate
became a wholly owned subsidiary of the Company. In accordance with the terms of the Purchase Agreement, at the closing an aggregate
of 5% of the Company’s outstanding shares of common stock for a total of 665,072 shares were issued to the holders of Resonate
in exchange for their membership interests of Resonate. These shares have anti-dilution protection. We have also agreed as part of the
purchase price to issue: (ii) such number of shares of Series E Preferred Stock that will convert into 5% of the outstanding shares of
common stock in the Company on a fully-diluted basis upon an annualized revenue run rate of Ten Million Dollars ($10,000,000.00) for
any three (3) consecutive month trailing period; and (iii) such number of shares of Series E Preferred Stock that will convert into 5%
of the outstanding shares of common stock in the Company on a fully-diluted basis upon the occurrence of the Company’s public market
value reaching One Hundred Million US Dollars ($100,000,000). The shares in (ii) and (iii) shall have anti-dilution protections, except
that this provision only applies for 2.5% of the outstanding shares acquired under each subsection.
Also, on October 25,
2019, the Company entered into a Membership Interest Purchase Agreement (the “Entourage Labs Purchase Agreement”) with Entourage
Labs, LLC, a California limited liability company (“Entourage Labs”), and the members of Entourage Labs. As a result of the
transaction, Entourage Labs became a wholly owned subsidiary of the Company. In accordance with the terms of the Purchase Agreement,
at the closing an aggregate of 5% of the Company’s outstanding shares of common stock for a total of 665,072 shares were issued
to the holders of Entourage Labs in exchange for their membership interests of Entourage Labs. These shares have anti-dilution protection.
We have also agreed as part of the purchase price to issue: (ii) such number of shares of Series E Preferred Stock that will convert
into 5% of the outstanding shares of common stock in the Company on a fully-diluted basis upon an annualized revenue run rate of Ten
Million Dollars ($10,000,000.00) for any three (3) consecutive month trailing period; and (iii) such number of shares of Series E Preferred
Stock that will convert into 5% of the outstanding shares of common stock in the Company on a fully-diluted basis upon the occurrence
of the Company’s public market value reaching One Hundred Million US Dollars ($100,000,000). The shares in (ii) and (iii) shall
have anti-dilution protections, except that this provision only applies for 2.5% of the outstanding shares acquired under each subsection.
In addition, the Company
entered into an Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of Obligations (the “Conveyance Agreement”)
with Mark S. Johnson and the Company’s 49% owned subsidiary, Aspire Consulting Group, LLC, a Virginia limited liability company.
Pursuant to the Conveyance Agreement, the Company transferred all assets and business operations associated with its IT consulting solutions,
including all of the capital stock of Aspire Consulting, to Mr. Johnson. In exchange, Mr. Johnson agreed to cancel 20,000 shares of common
stock in the Company and to assume and cancel all liabilities relating to the Company’s former business.
Finally, the Company
entered into Employment Agreements with the following persons: (i) Geoffrey Selzer as Chief Executive Officer (CEO) of the Company with
an annual salary of $180,000; and (ii) Pamela Kerwin as Chief Operating Officer (COO) of the Company with an annual salary of $120,000.
Both are eligible for salary increases upon milestone achievements and other benefits. The Employment Agreement for the CEO has a term
of 2 years and can’t be terminated without cause. Severance of six (6) weeks is available for termination of the COO without cause
before one-year of service and eight (8) weeks after one-year of service.
On December 16, 2019
the Company filed Articles of Merger with the Secretary of State of Nevada in order to effectuate a merger with its wholly owned subsidiary;
Resonate Blends, Inc. Shareholder approval was not required under Section 92A.180 of the Nevada Revised Statutes. As part of the merger,
the Company’s board of directors authorized a change in our name to “Resonate Blends, Inc.” and the Company’s
Articles of Incorporation have been amended to reflect this name change.
In connection with
the name change, the Company’s symbol was changed to “KOAN” that more resembles the Company’s new business focus.
On January 20, 2020,
Wais Asefi resigned as Chairman and as a member of our Board of Directors. Mr. Asefi’s resignation is in support of Resonate Blends
strategic direction of becoming a pure play cannabis company. The Company does not believe that Mr. Asefi has any disagreements on matters
relating to our operations, policies or practices. Also, on January 20, 2020, our Board of Directors appointed Geoffrey Selzer as our
Chairman.
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 May 22, 2020, Resonate
Blends, Inc. (the “Company”) entered into a Stock Purchase Agreement (the “SPA”) with Wais Asefi, Nick Miniello,
Juleon Asefi, and Curt Byers (collectively, the “Asefi Group”) to sell to the Asefi Group its subsidiary, Textmunication,
Inc., a California corporation (“Textmunication”). Textmunication operates the Company’s SMS business activities. The
Company will retain its cannabis operations based in Calabasas, California.
The consideration for
the sale of Textmunication consists of the cancellation by the Asefi Group of 4,822,029 shares of common stock (the “Shares”)
of the Company. The Shares have a market value of $337,542, based on our last sales price of $0.07 per share as of May 26, 2020. Upon
the cancellation of the Shares, the Company agreed to execute a general release in favor of Mr. Asefi.
Also on May 22, 2020,
the Company entered into a Separation and Release Agreement (the “Separation Agreement”) with Wais Asefi. Pursuant to the
Separation Agreement, Mr. Asefi agreed to separate from all officer positions and as a director of the Company and to further accept
the payment of $200,000 from the Company’s future fundraising as consideration of all debts outstanding under Mr. Asefi’s
employment agreement with the Company. Mr. Asefi further agreed to cancel his 4,000,000 shares of Series A Preferred Stock and to transfer
his 2,000,000 shares of Series C Preferred Stock to Geoffrey Selzer, the Company’s current CEO and Director. Mr. Asefi further
released the Company of all claims.
Also on May 22, 2020,
Mr. Selzer signed a Voting Agreement and agreed to vote his newly acquired 2,000,000 shares of Series C Preferred Stock in favor of the
sale of Textmunication to the Asefi Group.
On May 22, 2020, Resonate
Blends, Inc. (the “Company”) entered into a Stock Purchase Agreement (the “SPA”) with Wais Asefi, Nick Miniello,
Juleon Asefi, and Curt Byers (collectively, the “Asefi Group”) to sell to the Asefi Group its subsidiary, Textmunication,
Inc., a California corporation (“Textmunication”). Textmunication operates the Company’s SMS business activities.
On July 20, 2020, the
parties closed on the transactions contained in the SPA. The Asefi Group cancelled 4,755,209 shares of common stock (the “Shares”)
of the Company. The Shares have a market value of $332,842, based on our last sales price of $0.07 per share as of May 26, 2020. The
Company also executed a general release in favor of Mr. Asefi.
Basis of Presentation
Our financial statements
are presented in conformity with accounting principles generally accepted in the United States of America, as reported on our fiscal
years ending on December 31, 2021 and 2020. We have summarized our most significant accounting policies.
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 December
31, 2021, the Company has an accumulated deficit of $26,864,064.
The company’s ability to continue as a going concern is contingent upon the successful completion of additional financing arrangements
and its ability to achieve and maintain profitable operations. While the Company is expanding its best efforts to achieve the above plans,
there is no assurance that any such activity will generate funds that will be available for operations. These conditions raise substantial
doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial
statements. These consolidated financial statements do not include any adjustments that might arise from this uncertainty.
NOTE 2 – SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Cash
The Company considers
all highly liquid instruments purchased with an original 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. On December 31, 2021 and 2020 no cash balances exceeded the federally insured limit.
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 December 31, 2021, and 2020 there’s no allowance for doubtful accounts and
bad debts.
Revenue Recognition
The
Company’s policy is that revenues will be recognized when control of the product is transferred
to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.
Results for reporting
periods beginning after January 1, 2020 are presented under Topic 606, while prior period amounts are not adjusted and continue to be
reported in accordance with our historic accounting under Topic 605. We did not have any cumulative impact as a result of applying Topic
606.
Fair Value of Financial
Instruments
The carrying amounts
reflected in the balance sheets for cash, accounts payable and accrued expenses approximate the respective fair values due to the short
maturities of these items.
As required by the
Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets;
(Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable
inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The three levels of
the fair value hierarchy are described below:
Level 1: Unadjusted
quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities,
Level 2: Quoted prices
in markets that are not active, or inputs that is observable, either directly or indirectly, for substantially the full term of the asset
or liability,
Level 3: Prices or
valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little
or no market activity).
The fair value of the
accounts receivable, accounts payable, notes payable are considered short term in nature and therefore their value is considered fair
value.
Financial assets and
liabilities measured at fair value on a recurring basis are summarized below for the year ended December 31, 2021 and 2020:
SUMMARY OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON RECURRING BASIS
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Financial Instruments |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,286,014 |
|
|
$ |
2,286,014 |
|
Net income (loss)
per Common Share
Basic net income (loss)
per share is computed by dividing the net loss attributable to the common stockholders by the weighted average number of shares of common
stock outstanding during the period. Fully diluted loss per share is computed similar to basic loss per share except that the denominator
is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been
issued and if the additional common shares were dilutive.
Property and equipment
Property and equipment
are stated at cost, less accumulated depreciation provided on the straight-line method over the estimated useful lives of the assets,
which range from three to seven years. Expenditures for renewals or betterments are capitalized, and repairs and maintenance are charged
to expense as incurred the cost and accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts, and
any gain or loss thereon is reflected in operations. Company policy capitalizes property and equipment for cost over $1,000, asset acquired
under $1,000 are charge to operations.
Income Taxes
Income taxes are computed
using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently
enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence,
are not expected to be realized. Because the Company has no net income, the tax benefit of the accumulated net loss has been fully offset
by an equal valuation allowance.
Use of Estimates
The preparation of
financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial
statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Stock-Based Compensation
The Company accounts
for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation – Stock Compensation
which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements
based on their fair values. The fair value of the equity instrument is charged directly to compensation expense and credited to additional
paid-in capital over the period during which services are rendered.
The Company follows
ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring,
or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants and other non-employees.
In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services provided to the Company are
accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever
can be more clearly determined. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in
capital over the period during which services are rendered.
Advertising Expenses
Advertising
expenses are included in General and administrative expenses in the Statements of Operations and are expensed as incurred. The Company
incurred $611,914 and
$7,350 in
advertising expenses for the years ended December 31, 2021 and 2020, respectively.
Recent Accounting
Pronouncements
In January 2016, the
FASB issued ASU 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities.
ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments including
requirements to measure most equity investments at fair value with changes in fair value recognized in net income, to perform a qualitative
assessment of equity investments without readily determinable fair values, and to separately present financial assets and liabilities
by measurement category and by type of financial asset on the balance sheet or the accompanying notes to the financial statements. ASU
2016-01 will be effective for the Company beginning on January 1, 2018 and will be applied by means of a cumulative effect adjustment
to the balance sheet, except for effects related to equity securities without readily determinable values, which will be applied prospectively.
Management has reviewed this pronouncement and has determined that it would not have a material impact to the consolidated financial
statements.
In February 2016, the
FASB issued ASU 2016-02, Leases, which requires an entity to recognize long-term lease arrangements as assets and liabilities
on the balance sheet of the lessee. Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all long-term leases,
whether operating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest
expense for financing leases. The amendments also require certain new quantitative and qualitative disclosures regarding leasing arrangements.
ASU 2016-02 will be effective for the Company beginning on January 1, 2019. Lessees must apply a modified retrospective transition approach
for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.
Early adoption is permitted. Management does not believe the adoption of ASU 2016-02 will have a material impact on the Company’s
consolidated financial statements.
In March 2016, the
FASB issued ASU 2016-05, Derivatives and Hedging: Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships,
which clarifies that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument would not,
in and of itself, be considered a termination of the derivative instrument, provided that all other hedge accounting criteria continue
to be met. ASU 2016-05 is effective for the Company beginning on January 1, 2017. Early adoption is permitted, including in an interim
period. Management evaluated ASU 2016-05 and determined that the adoption of this new accounting standard did not have a material impact
on the Company’s consolidated financial statements.
In March 2016, the
FASB issued ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments, which aims to reduce
the diversity of practice in identifying embedded derivatives in debt instruments. ASU 2016-06 clarifies that the nature of an exercise
contingency is not subject to the “clearly and closely” criteria for purposes of assessing whether the call or put option
must be separated from the debt instrument and accounted for separately as a derivative. ASU 2016-06 is effective for the Company beginning
on January 1, 2017. Management evaluated ASU 2016-06 and determined that the adoption of this new accounting standard did not have a
material impact on the Company’s consolidated financial statements.
In March 2016, the
FASB issued ASU 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting. ASU 2016-09
simplifies several aspects of the accounting and presentation of share-based payment transactions, including the accounting for related
income taxes consequences and certain classifications within the statement of cash flows. ASU 2016-09 is effective for the Company beginning
on January 1, 2017. Management evaluated the impact of adopting ASU 2016-09 and determined that the new accounting standard did not have
a material impact on the Company’s consolidated financial statements.
In August 2016, the
FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”
(“ASU 2016-15”). ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified
in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. The new standard will require
adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively
as of the earliest date practicable.
In November 2016, the
FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230)”, requiring that the statement of cash flows explain the change
in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This guidance
is effective for fiscal years, and interim reporting periods therein, beginning after December 15, 2017 with early adoption permitted.
The provisions of this guidance are to be applied using a retrospective approach which requires application of the guidance for all periods
presented. Management has reviewed this pronouncement and has determined that it would not have a material impact to the consolidated
financial statements.
In May 2017, the FASB
issued ASU 2017-09, Compensation-Stock Compensation (Topic 718), Scope of Modification Accounting. The amendments in this Update provide
guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting
in Topic 718. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual
periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business
entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods
for which financial statements have not yet been made available for issuance. Management has reviewed this pronouncement and has determined
that it would not have a material impact to the consolidated financial statements.
In July 2017, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-11, Earnings Per Share
(Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this
Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features.
When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature
no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments
also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial
instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the
existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present
earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect
is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded
conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features
(in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments
in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending
content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the
amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15,
2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including
adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as
of the beginning of the fiscal year that includes that interim period.
NOTE 3 – RELATED
PARTY TRANSACTIONS
As of December 31,
2021, the Company completed the notes payable to a related party. On May 22, 2020, the Company entered into a Separation and Release
Agreement (the “Separation Agreement”) with Wais Asefi. Pursuant to the Separation Agreement, Mr. Asefi agreed to separate
from all officer positions and as a director of the Company and to further accept the payment of $200,000 from the Company’s future
fundraising as consideration of all debts outstanding under Mr. Asefi’s employment agreement with the Company. Mr. Asefi further
agreed to cancel his 4,000,000 shares of Series A Preferred Stock and to transfer his 2,000,000 shares of Series C Preferred Stock to
Geoffrey Selzer, the Company’s current CEO and Director. Mr. Asefi further released the Company of all claims.
On May 22, 2020, the
4,000,000 shares of Series A Preferred Stock were returned to the Company’s transfer agent and cancelled and on May 22, 2020 the
2,000,000 shares of Series C Preferred Stock were transferred to Mr. Selzer. The parties to the Separation Agreement agreed to a payment
schedule of $200,000 based on future monies raised by the Company - and not on a specific date – as follows:
|
● |
$12,500 when the initial $250,000 is raised by the Company; |
|
● |
$12,500 when a total of $500,000 is raised by the Company; |
|
● |
$10,000 when a total of $750,000 is raised by the Company; |
|
● |
$35,000 when a total of $1,750,000 is raised by the Company; |
|
● |
$35,000 when a total of $2,750,000 is raised by the Company; |
|
● |
$35,000 when a total of $3,750,000 is raised by the Company; |
|
● |
$35,000 when a total of $4,750,000 is raised by the Company; and |
|
● |
$25,000 when a total of $5,750,000 is raised by the Company. |
On May 13, 2021, we
amended the Separation Agreement to state the parties desire to reduce the total amount payable to Wais Asefi from $200,000
USD to $142,500
USD. In addition to the earlier payments made to Mr. Asefi, a payment of $40,000
was made on May 14, 2021 and another payment on June 27, 2021 for $40,000.
The final payment due on August 11, 2021 was for $25,000.
The final payment was made on August 11, 2021 and settled this agreement in full. Further under the amendment, Mr.
Asefi nominated Textmunication, Inc., our prior subsidiary, as the recipient of the funds due under the Separation Agreement.
The
outstanding balances as of December 31, 2021 and December 31, 2020 are $45,000
and $187,500
respectively.
NOTE 4 - CONVERTIBLE
NOTE PAYABLE
Convertible notes payable
consists of the following as of December 31, 2021 and December 31, 2020:
SCHEDULE OF CONVERTIBLE NOTES PAYABLE
| |
December 31, 2021 | | |
December 31, 2020 | |
Convertible notes face value | |
$ | 1,865,000 | | |
$ | 517,544 | |
Less: Discounts | |
| - | | |
| (12,751 | ) |
Less: Debt issuance cost | |
| - | | |
| - | |
Net convertible notes | |
$ | 1,865,000 | | |
$ | 504,793 | |
The convertible notes
as of December 31, 2021 are 8% Unsecured Convertible Promissory Notes from various accredited investors issued from January 1, 2021 to
March 31, 2021 from the Company’s Reg D 506(c) private placement. All notes have a mandatory conversion into equity on the maturity
date, which is January 2, 2022, or at a Qualified Financing (QF) of $5,000,000, whichever occurs first. The maturity date conversion
pricing is the lesser of $.10 or 75% of the VWAP with a 20-day lookback. A QF converts into equity at the lesser of $1.00 or 75% of the
average selling price of the aggregate QF offering.
On December 28, 2021,
some of the accredited investors (“Investors”) offered to extend the maturity date on the Notes to July 3, 2022 (the “Extension
Period”). The interest shall accrue during the Extension Period at the rate of the Note pre default, and all other provisions in
the Note shall remain in full force and effect, except for the amended terms listed below.
Under the Note amendment,
all principal together with accrued and unpaid interest, will be automatically converted into shares of Common Stock at $.10, but Investors
will no longer have the option of the lesser of $0.10 and 75% of the volume weighted average closing price of the Common Stock for the
prior 20 trading day period. In exchange for the Extension Period, the Company shall add $2,500 for every $25,000 in principal on the
Note and the entire amount of principal and accrued interest shall be due at the end of the Extension Period.
As of December
31, 2021 and 2020 accrued interest payable on notes payable were $134,759 and $54,659
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 – 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 $3,239 and $740 for the
years ended December 31, 2021 and 2020, 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.
NOTE 6 – INCOME
TAXES
For the year ended
December 31, 2021, the cumulative net operating loss carry-forward from continuing operations is approximately $26,837,896 and will expire
beginning in the year 2030.
The cumulative tax
effect at the expected rate of 21% of significant items comprising our net deferred tax amount is as follows as of December 31, 2021
and 2020:
SCHEDULE OF DEFERRED TAX ASSETS
Deferred tax attributable to: | |
2021 | | |
2020 | |
Net Operating loss carry over | |
| 3,413,282 | | |
| 3,017,656 | |
Valuation allowance | |
| 3,413,282 | | |
| 3,017,656 | |
Net deferred tax assets | |
| - | | |
| - | |
Due to the enactment
of the Tax Reform Act of 2017, the corporate tax rate for those tax years beginning with 2018 has been reduced to 21%.
Note 7 – STOCKHOLDERS’
EQUITY
The Company is authorized
to issue an aggregate of 200,000,000 shares of common stock with a par value of $0.0001. The Company is also authorized to issue 10,000,000
shares of “blank check” preferred stock with a par value of $0.0001.
Preferred Stock
The board of directors
of the Company has designated, out of the 10,000,000 shares of preferred stock authorized, the following series of preferred stock: 4,000,000
shares of Series A Preferred Stock, 66,667 shares of Series B Preferred Stock, 2,000,000 shares of Series C Preferred Stock, 40,000 shares
of Series D Preferred Stock and 10,000 shares of Series E Preferred Stock.
On October 25, 2019,
66,667 outstanding shares of Series B Preferred Stock was returned to the Company’s transfer agent and cancelled.
On December 9, 2019,
the Company exercised its right to redeem the 40,000 outstanding shares of Series D Preferred Stock by paying the holders $260,000 or
130% of the amount paid for the shares, as called for under the Securities Purchase Agreement.
On May 22, 2020, 4,000,000
outstanding shares of Series A Preferred Stock were returned to the Company’s transfer agent and cancelled,
There were 2,000,000
shares of Series C Preferred Stock issued and outstanding as of December 31, 2021. There are no other series of preferred stock outstanding
as of December 31, 2021.
Common Stock
During the year ended
December 31, 2018,
|
● |
the Company’s Board of Directors approved a one to
one thousand (1:1000) reverse stock split, which became effective July 9, 2018. The Company consolidated financial statements have
been retroactively restated to the reflect the effect of the stock split |
|
● |
the Company entered into a subscription agreement for 9.98% of the
company common shares outstanding for $100,000. |
During the year ended
December 31, 2018, the Company issued 1,380,933 shares of common stock with a fair value of $354,010 for the conversion of convertible
notes payable. The converted portion of the notes also had associated derivative liabilities with fair values on the date of conversion
of 866,361. The conversion of the derivative liabilities has been recorded through additional paid-in capital
During the first quarter
of 2019 the company issued a total of 6,685,000 shares to employees and vendors for compensation and services rendered. The fair market
value of the share issues accounted as expenses as follows:
SCHEDULE OF COMPENSATION AND SERVICES RENDERED
| |
| | |
Management Fees | |
$ | 2,074,600 | |
Payment to subcontractor | |
| 446,982 | |
Total | |
$ | 2,521,582 | |
During the second quarter
of 2019 the company issued 40,000 shares of preferred stock warrants for $200,000 cash.
During the third quarter
of 2019 the company issued 1,280,000 common stocks in settlement of liabilities. The fair market value of the liabilities accounted as
additional paid in capital of $164,033.
During the year ended
December 31, 2019, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with the purchasers
identified therein (collectively, the “Purchasers”) providing for the issuance and sale to the Purchasers of an aggregate
of up to 40,000 shares of our Series D Convertible Preferred Stock (the “Preferred Shares”) and related warrants for gross
proceeds to the Company of $200,000. On December 9, 2019, we exercised our right to redeem the Preferred Shares by paying the Purchasers
$260,000 or 130% of the amount paid for the Preferred Shares, as called for under the Securities Purchase Agreement.
During the last quarter
year end December 31, 2019, the company issued 4,274,936 shares of common stocks to acquire Resonate Blends, LLC, and Entourage LLC,
both California limited liability companies. As a result of the transaction, both companies became wholly owned subsidiaries of the Company.
The Company recognized a loss of $834,022 on the acquisitions.
During the year ended
December 31, 2021 the company issued a total of 3,427,990 shares of common stock to management and vendors for compensation and services
rendered. The fair market value of the share issues accounted as expenses as follows:
NOTE 8 – DISCONTINUED
OPERATONS
On July 20, 2020, the
Company finalized a Stock Purchase Agreement (the “SPA”) with Wais Asefi, Nick Miniello, Juleon Asefi, and Curt Byers (collectively,
the “Asefi Group”) to sell to the Asefi Group its subsidiary, Textmunication, Inc., a California corporation (“Textmunication”).
Textmunication operates the Company’s SMS business activities. The Company retained its cannabis operations based in Calabasas,
California. The Company has accounted for this spinout as a discontinued operation and retroactively reclassified all previously presented
financial information. The following summarizes the results of operations for Textmunication, Inc.
SCHEDULE OF DISCONTINUED OPERATIONS
| |
2020 | | |
2019 | |
Revenues | |
$ | 477,734 | | |
$ | 758,101 | |
| |
| | | |
| | |
Cost of revenues | |
| 101,347 | | |
| 285,085 | |
Operating expenses | |
| 468,815 | | |
| 581,764 | |
| |
| 570,162 | | |
| 866,849 | |
| |
| | | |
| | |
Loss from operations of discontinued operation | |
| (92,428 | ) | |
| (108,748 | ) |
Gain on disposal of discontinued operations | |
| 108,206 | | |
| - | |
Gain (loss) from discontinued operations | |
$ | 15,778 | | |
$ | (108,748 | ) |
NOTE 9 – SUBSEQUENT
EVENTS
On January 28, 2022,
we entered into Securities Purchase Agreements (the “Purchase Agreements”) with two accredited investors, pursuant to which
we issued and sold to the investors two convertible promissory notes, dated January 28, 20022, each in the principal amount of $275,000
for an aggregate principal amount of $550,000. We received $500,000 from the Notes after applying the original issue discount to the
Notes.
The Purchase Agreements
allow for additional notes to be issued to investors up to $750,000. On February 4, 2022, we issued and sold to two accredited investors
(the “Investors”) convertible promissory notes in the principal amount of $55,000 (the “Note”) under a Securities
Purchase Agreement of the same date. We received $150,000 from the Notes after applying the original issue discount to the Notes.
On March 3, 2022, we
issued and sold to an accredited investor a convertible promissory note the principal amount of $55,000 (the “Note”) under
a Securities Purchase Agreement of the same date. We received $50,000 from the Note after applying the original issue discount to the
Note.
The maturity date for
repayment of the Notes is nine months from issuance and the Notes bear interest at 10% per annum. We may prepay the Notes provided that
we shall make payment to the investors of an amount in cash equal to the sum of: the then outstanding principal amount of this Notes,
plus interest on the unpaid principal amount of the Notes, plus any Default Interest on the amounts, plus any amounts owed to the Investor
pursuant to the Purchase Agreement.
All principal and accrued
interest on the Notes are convertible into shares of our common stock. The conversion price shall equal a fixed price of $0.15 per share
or, at the option of the Investor in the event that we fail to complete a Qualified Offering before the five (5) month anniversary of
the issue date, the Registration Conversion Price. The “Registration Conversion Price” shall mean 75% multiplied by 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 Investors shall be entitled to add to the principal amount of the Note $750.00 for each conversion to cover investor’s
deposit fees associated with each Notice of Conversion. “Qualified Offering” means any offer and sale by us of an original
issuance of equity securities, comprised of either Common Stock or preferred stock of the Company, in a single transaction to investors
pursuant to which at least an aggregate of $2,000,000.00 gross proceeds are received by the Company.
In the event that by
the five (5) month anniversary of the issue date a Qualified Offering (as defined above) has not occurred, then we shall file with the
SEC a registration statement on Form S-1 covering the resale of the maximum number of Registrable Securities, defined as the Commitment
Shares, Conversion Shares and Warrant Shares.
In connection with
the investment, we issued Commitment Shares to the investor in the amount of 60,000 shares and we also issued a warrant (the “Warrant”)
to the Investor to purchase 62,500 shares of our common stock at an exercise price of $0.40 per share. In the event that there is no
effective registration statement five months from the issue date registering the shares underlying the Warrant, then the Investors may
exercise the Warrant using a cashless feature.
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.