10-Q: Resonate Blends Reports Q1 2025 Results Amidst Significant Business Transformation and Going Concern Doubts

Resonate Blends, Inc. (KOAN) reported a reduced net loss for Q1 2025, driven by increased sales from its new biowellness assets, but continues to face substantial doubt about its ability to continue as a going concern due to a large accumulated deficit and reliance on dilutive financing.

Summary

• Resonate Blends, Inc. (KOAN) filed its Form 10-Q for the quarter ended March 31, 2025.
• The company reported sales of $430,768 for Q1 2025, a significant increase from $95,050 in Q1 2024.
• Gross profit rose to $290,043 in Q1 2025, up from $63,846 in Q1 2024.
• Net loss for Q1 2025 was significantly reduced to $411,818, compared to a net loss of $3,688,470 in Q1 2024, primarily due to the absence of a large one-time loss on the acquisition of Emergent Health Corp.
• The company's business operations have shifted to focus on assets acquired from Emergent Health Corp (Evolutionary Biologics, Apollo Biowellness, Nanosthetic, and Nanogistics) following a reformation of the acquisition agreement in August 2024.
• As of March 31, 2025, the company had an accumulated deficit of $29,533,429.
• Total current liabilities increased to $5,418,185 as of March 31, 2025, from $5,306,040 at December 31, 2024.
• The company's working capital deficit worsened to $3,798,051 as of December 31, 2024, from $2,150,975 at December 31, 2023.
• Cash and cash equivalents increased to $18,117 at March 31, 2025, from $8,048 at December 31, 2024.
• Weighted average shares outstanding increased significantly to 150,022,612 in Q1 2025 from 89,986,758 in Q1 2024, largely due to conversions of convertible debt.
• The company continues to rely on additional investment capital, historically raised through convertible debt on unfavorable terms.
• Management identified material weaknesses in internal controls over financial reporting, including lack of written documentation, insufficient segregation of duties, and ineffective control environment.

Sentiment

Score: 2

Explanation: The company faces severe financial distress, including a substantial accumulated deficit and significant going concern doubt. While sales increased, this is offset by worsening working capital, high reliance on dilutive financing, and critical internal control weaknesses. The overall outlook is highly negative despite some top-line growth.

Positives

• Sales increased significantly to $430,768 in Q1 2025 from $95,050 in Q1 2024, indicating growth in the new business segments.
• Gross profit saw a substantial increase to $290,043 in Q1 2025 from $63,846 in Q1 2024.
• Net loss was significantly reduced to $411,818 in Q1 2025, a considerable improvement from the $3,688,470 net loss in Q1 2024, primarily due to the absence of a large one-time loss related to the EMGE acquisition.
• Loss from operations improved to $(330,242) in Q1 2025 from $(416,828) in Q1 2024.
• Interest expense decreased to $81,791 in Q1 2025 from $165,514 in Q1 2024.

Negatives

• The company has an accumulated deficit of $29,533,429 as of March 31, 2025, indicating a history of losses.
• Total current liabilities increased to $5,418,185 at March 31, 2025.
• Working capital deficit worsened to $3,798,051 as of December 31, 2024, from $2,150,975 at December 31, 2023.
• Net cash used in operating activities increased to $236,055 in Q1 2025 from $199,244 in Q1 2024, indicating higher cash burn from operations.
• The company's ability to continue as a going concern is in substantial doubt, contingent on securing additional financing and achieving profitability.
• Historically, the company has raised capital through convertible debt on unfavorable terms, leading to significant dilution as evidenced by the increase in weighted average shares outstanding.
• The company identified material weaknesses in its internal controls over financial reporting, including a lack of written documentation, insufficient segregation of duties, and an ineffective control environment.

Risks

• Substantial doubt about the company's ability to continue as a going concern due to an accumulated deficit of $29,533,429 and reliance on future financing.
• Dependence on additional investment capital, with no guarantee that funds will be available or on acceptable terms, particularly given historical reliance on unfavorable convertible debt.
• Material weaknesses in internal control over financial reporting, including lack of written documentation of policies and procedures, insufficient segregation of duties, and an ineffective control environment (e.g., no formal code of conduct, no independent board members, no audit committee financial expert).
• Risk of further dilution for existing shareholders due to the conversion of convertible debt into common stock, as seen by the significant increase in shares outstanding.
• The company's business plan and operations are now entirely dependent on the acquired EMGE assets, representing a significant shift and potential integration risks.
• Uncertainty regarding the generation of funds from future activities to support operations.

Future Outlook

The company remains dependent on additional investment capital to continue its survival, with no guarantee that such capital will be available or on acceptable terms. Management is expanding efforts to secure financing and achieve profitable operations. The discussion of results for the six months ended June 30, 2024, and June 30, 2023, should not be considered an indication of operating results for the year ending December 31, 2024, and beyond.

Management Comments

• "In the opinion of management, all adjustments considered necessary for a fair presentation have been included."
• "Our 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 Companys ability to continue as a going concern for a period of one year from the issuance of these financial statements."
• "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."
• Management concluded that as of March 31, 2025, disclosure controls and procedures were not effective at the reasonable assurance level due to identified material weaknesses.
• Management plans to engage a third-party firm to assist in remedying material weaknesses in internal controls once resources become available.
• Management intends to remedy insufficient segregation of duties by hiring additional employees once resources become available.

Industry Context

Resonate Blends has undergone a significant strategic pivot, divesting its original 'Resonate Blends' and 'Entourage Labs' (ingestible/topical products) subsidiaries and acquiring assets from Emergent Health Corp, shifting its core business focus to biowellness and nanotechnology through entities like Evolutionary Biologics, Apollo Biowellness, Nanosthetic, and Nanogistics. This move positions the company in the growing health and wellness and biotech sectors, which are characterized by high R&D costs, regulatory hurdles, and intense competition. The company's financial struggles and reliance on dilutive financing are common challenges for small, early-stage companies in these capital-intensive industries.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Related Party Transactions

• Management has periodically advanced funds to the Company for operating expenses; amounts due related parties were $523,868 at March 31, 2025 (down from $837,810 at March 31, 2024). These advances are non-interest bearing and payable upon demand.
• On March 14, 2024, the company entered into a Conveyance Agreement with former Chief Executive Officer and Director, Geoffrey Selzer, assigning ownership of its then-wholly-owned subsidiaries, Resonate Blends, LLC and Entourage Labs, LLC, to him. Mr. Selzer assumed all liabilities of the subsidiaries and agreed to pay the company a percentage of future sale proceeds (20% if sold within one year, 10% if sold between one and two years).

Stakeholder Impact

• **Shareholders**: Face significant dilution risk due to ongoing reliance on convertible debt financing. The substantial accumulated deficit and going concern doubt pose a high risk to investment value. Material weaknesses in internal controls may erode investor confidence.
• **Employees**: The company's going concern issues and financial instability could impact job security and future compensation.
• **Creditors**: The company's financial distress and reliance on new financing to repay existing debt, along with assets being secured by certain notes, indicate elevated credit risk.
• **Customers**: The shift in business focus to biowellness and nanotechnology may affect product availability or service continuity related to the former ingestible/topical products. However, the new business areas may offer new products.

Next Steps

• Secure additional financing arrangements to address liquidity and going concern issues.
• Achieve and maintain profitable operations.
• Engage a third-party firm to assist in remedying material weaknesses in internal controls over financial reporting.
• Hire additional employees to establish sufficient segregation of duties within accounting functions.
• Develop and effectively communicate accounting policies and procedures.
• Formally adopt a written code of business conduct and ethics.
• Appoint independent board members and an audit committee financial expert.

Key Dates

Recommendation

Keywords

Biowellness, Biologics, Nanotechnology, Health and Wellness, SEC Filing, 10-Q, Quarterly Report, Financial Results, Going Concern, Convertible Debt, Internal Controls, Corporate Governance, Emergent Health Corp, KOAN