10-Q: Resonate Blends Reports Increased Revenue Following Emergent Health Corp. Asset Acquisition in Q2 2024

Resonate Blends, Inc. reports a significant increase in revenue for the six months ended June 30, 2024, primarily due to the acquisition of assets from Emergent Health Corp., but also identifies material weaknesses in internal controls.

Summary

• Resonate Blends, Inc. filed its Form 10-Q for the quarter ended June 30, 2024.
• The company's revenue increased significantly to $751,278 for the six months ended June 30, 2024, compared to $16,468 for the same period in 2023, primarily due to the acquisition of assets from Emergent Health Corp. (EMGE).
• The company reported a net loss of $1,250,272 for the six months ended June 30, 2024, compared to a net loss of $783,262 for the same period in 2023.
• Operating expenses increased to $1,530,560 for the first half of 2024, compared to $148,652 in the first half of 2023.
• The company's accumulated deficit as of June 30, 2024, is $27,986,675.
• The company is dependent on additional investment capital to continue operations.
• The company identified material weaknesses in its internal controls over financial reporting.
• The company entered into a Reformation of Share Exchange Agreement with EMGE, reforming the initial share-for-share structure to a share-for-asset structure.
• Jim Morrison now possesses voting control of the Company after purchasing shares of Series C Preferred Stock from Geoffrey Selzer.
• The company issued 9,555,462 shares of common stock to convert a convertible note and accrued interest of $306,985.

Sentiment

Score: 3

Explanation: The document highlights increased revenue due to an acquisition, but is overshadowed by a significant net loss, accumulated deficit, material weaknesses in internal controls, and dependence on additional financing, resulting in a negative sentiment.

Positives

• The acquisition of EMGE assets led to a substantial increase in revenue for the six months ended June 30, 2024.
• The company is actively working to address the entire Senior Promissory Note payoff.
• The company is expanding its best efforts to complete additional financing arrangements and achieve profitable operations.

Negatives

• The company reported a net loss of $1,250,272 for the six months ended June 30, 2024.
• The company's accumulated deficit as of June 30, 2024, is $27,986,675.
• The company identified material weaknesses in its internal controls over financial reporting.
• The company is dependent on additional investment capital to continue operations.
• The company has historically raised money through convertible debt, often on unfavorable terms.

Risks

• The company's ability to continue as a going concern is contingent upon securing additional financing and achieving profitable operations.
• There is no guarantee that additional capital will be available in the future, or if available, on terms acceptable to the company.
• The material weaknesses in internal controls over financial reporting could lead to material misstatements in the company's financial statements.
• The company's high level of debt and reliance on convertible notes could negatively impact its financial stability.
• The company's success is dependent on the business operations of EMGE, which now represent the entirety of the company's business operations.

Future Outlook

The company expects operating expenses to increase for the remainder of 2024 due to the impact of the EMGE acquisition, but no specific prediction is made regarding the level of operating expenses for the full year.

Management Comments

• The company remains dependent on additional investment capital to continue its survival.
• 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.

Industry Context

The document does not provide specific details on how this announcement relates to broader industry trends or competitors beyond the company's shift in business operations following the EMGE asset acquisition.

Related Party Transactions

• Management has periodically advanced funds to the Company for operating expenses.
• 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.

Stakeholder Impact

• Shareholders face increased risk due to the company's financial instability and material weaknesses in internal controls.
• Employees may be impacted by potential cost-cutting measures or restructuring efforts due to the company's financial challenges.
• Creditors face increased risk of non-payment due to the company's high level of debt and dependence on additional financing.

Next Steps

• The company plans to engage a third-party firm to assist in remedying the material weakness in documentation, evaluation, and testing of internal controls once resources become available.
• The company intends to remedy the material weakness with regard to insufficient segregation of duties by hiring additional employees once resources become available.

Key Dates

Keywords

financial results, Emergent Health Corp, acquisition, convertible debt, internal controls, going concern, revenue, net loss, financing, EMGE, KOAN