Resonate Blends, Inc. 10-K/A

Item 1. Business Overview On October 25, 2019, Resonate Blends, Inc. (formerly Textmunication Holdings Inc.) announced its entry into the cannabis industry by acquiring Resonate Blends LLC (“Resonate” or the “Company”), a California-based cannabis wellness lifestyle product company built on a proprietary system of experiential targets. Resonate is building a value-added, brand-focused cannabis organization offering premium brands of consistent quality. The Company also acquired Entourage Labs LLC (“Entourage Labs”), a sister company of Resonate. Entourage Labs is the Intellectual Property (IP) subsidiary of Resonate. Based in Calabasas, California, Resonate Blends is a cannabis holding company centered on value-added holistic Wellness and Lifestyle brands. The Company’s strategy is to ignite future growth by building a purpose-driven portfolio of innovative, trusted national brands, emerging brands, research organizations, and a variety of retail channels. The Company’s focus is finding mutual value between product and consumer by optimizing quality, supply chain resources and financial performance. The Company offers a family of premium cannabis-based products of consistent quality based on unique formations calibrated to Resonate Blends effects system in what the Company believes is the industry gold standard in user experience. Resonate believes the greatest long-term value creation in the cannabis industry will be in the establishment of high quality and consistent consumer brands. Resonate hopes to become a national leader through its vision in creating a family of brands designed specifically to deliver reliable, effective and beneficial experiences. Resonate is committed to helping people live the life they love, but they do not make the medicinal vs. recreational distinction. This is a temporary legal separation in some states that should soon cease to exist. The Company believes in wellness for the whole person, especially people with pain, insomnia or anxiety who also want to enjoy friends, concerts and have satisfying intimate experiences. Resonate is designing experiences which should improve all areas of ones’ life. To accomplish this, Resonate is Mastering the Art of Experience. This is the Company’s mission. By integrating science, technology, education, branding, marketing, sales and delivery - with every customer interaction they aim to provide exceptional experiences. Cannabis has a broad range of unique characteristics, and they are dedicated to harnessing and amplifying those characteristics to support healthy empowered and engaged lifestyles. From product development through customer communication, they prefect and demystify cannabis bringing innovative products to an increasingly sophisticated market. Resonate Blends has a strong social mission and the Resonate team is building a successful business by focusing its knowledge, skill and energy on creating wellness-lifestyle products which will improve community by helping individuals live more satisfying, meaningful and connected lives. The need for these products currently is crucial. 3 To communicate the breadth of wellness products that Resonate is developing, the Company created The Resonate System. The Resonate System graphically represents a spectrum of wellness products based on cannabis scaffolding. This system helps users easily select which product they want. Products based on The Resonate System deliver relaxation, freedom from pain and anxiety, boosts in focus and creativity, sensuality, human connection and joy. Koan products are formulated around a system of interconnected experience targets that will allow you to know exactly what to expect when using them. While respecting and honoring the natural power of plant medicine, Resonate also employs advanced science, leading technology and a deep understanding of how various cannabis compounds, when working in the body, simultaneously can create unique effects and benefits (referred to as the “Entourage Effect”). Product developers blend cannabinoids and terpenes to formulate products with specific, controllable and repeatable, beneficial effects. Through innovation, experimentation, testing and an iterative product development strategy, the Koan team has unlocked new plant constituent combinations resulting in unique, enjoyable and extremely effective wellness products unlike anything else in the marketplace. Resonate has filed a provisional patent for protection of these formulations and products in the future. Koan, the Resonate Blends product family, is based around a comprehensive system of interconnected experience targets that allow people to select the products that best fit their lifestyle and health objectives. Koan products are dedicated to the efficacy and precision of functional experience targets across a broad range of product categories. Resonate’s initial products are a completely unique class of products called Cordials. These blends offer a wide range of experiences not currently available in the cannabis market. Cordials are water-soluble and use nano-emulsification technology to allow for quick onset and a sustained and nuanced experience. Single dose, healthful, subtle in taste, cordials are an ideal way for people to intentionally improve their well-being. They can be shipped directly or substituted for alcohol as a cocktail mixer. A significant competitive advantage is that the Cordials allow users to select both the experience they want and the beverage they choose to enjoy them in. Resonate’s Cordials have been developed in partnership with an award-winning advanced infusion technology partner and were launched to the retail channel in late Q2 of 2021. The company is offering six unique formulations and expects to have additional blends by Q1 2022. The Cordials were awarded the Golden Leaf Award as “Best New Brand of 2021” at the “Luxury Meets Cannabis Conference” held in New York City in December. Resonate also won a Cannabis Clio Award for “Brand Design” also in December. Resonate has formalized contracts with logistical, sales and marketing partners to build a digital native strategy supporting Direct-to-Consumer sales. The Direct-to-Consumer (D2C) sales platform launched in October and now allows California consumers the ability to order on-line and have the Cordials home delivered in most metro areas within four hours. Based on customer demand, the Company is creating a “singles” option for the Cordials which will be available in early 2022 and a multi-dose option shipping in early Q2 2022. The principal executive office is located at 26565 Agoura Road, Suite 200, Calabasas, CA 91302. The executive telephone number is (571) 888-0009. Partnerships Product Development: The Company signed a custom development contract with Vertosa in March of 2020, the leading provider of safe, reliable emulsion bases for infused product developers. This contract was a major milestone for the Company as it selected its strategic partners to develop innovative products and solutions. Vertosa is an award-winning strategic partner who will assist the Company in the launch of its first unique category of six water soluble products. These multi-use products deliver specific, predictable, reliable, effects in a format that is completely unique in the industry. The first product developed collaboratively is the Cordial product line, but both companies expect several other products to be developed over time utilizing Vertosa’s emulsification technology. In addition to the new Cordial blends, the Company also expects to launch a unique edible product line to the market in mid-2022. 4 The Vertosa and Resonate teams share a mission of maximizing the benefits of cannabinoids and plant medicine. Resonate selected Vertosa as a development partner because the Vertosa systems’ industry leading emulsification technology makes them highly stable, bioavailable, and water compatible. All of Vertosa’s inactive base materials are FDA approved and are lab tested for quality. Vertosa’s Hemp-derived CBD Emulsion System is now certified organic by CCOF, a United States Department of Agriculture-accredited certifier and non-profit advocacy group, and the company has also received its Good Manufacturing Practice (GMP) certification, confirming that its offerings follow regulations promulgated by the US Food and Drug Administration and are safe, pure, and effective. In addition, Vertosa is expanding into other legal states, and this paves the way for Resonate to follow behind moving beyond California while still assuring strict standards and high production quality for Koan products. Manufacturing: The Company partnered with The Galley, a California licensed Type N – Infused Products Manufacturer based in Santa Rosa, California. The Galley produces and packages premium award-winning products and has worked with some of the most popular brands in the industry. The Galley is built to FDA and CDPH standards and is focused on high demand areas of production – Edibles, Topicals, Tinctures, Chocolate, Hard Candies, Gummies, Pre-Rolls, Flower, Vapes and Beverages. Resonate Blends was granted a Type S: Shared Facility - Adult and Medicinal Cannabis Manufacturing License on July 23, 2021. The license allows Resonate Blends to manufacture cannabis products at the licensed facility of The Galley. Resonate and The Galley entered into a Master Services Agreement in which The Galley will manufacture and package Resonate’s first family of products to precise specifications. The Galley and Resonate have been in frequent contact throughout Resonate’s development period and are now supporting the production of the Company’s unique family of wellness lifestyle products. Resonate’s first of its kind offerings are emulsified through the advanced infusion technology provided by award-winning Vertosa and collaboratively developed to push the state of the art in its cannabis products. Distribution: Because of the unique nature of Resonate’s Koan products and the recent expansion of home delivery services in the cannabis industry, Resonate has prioritized a direct-to-consumer method as a key sales strategy. Resonate has identified a technology partner who will add an e-commerce feature to the Koan web site that will allow the Company to sell products directly to consumers using a licensed California state-wide delivery network for fulfilment. In addition to direct sales, the company plans to offer products to select premium dispensaries throughout California. These products will be delivered to retail establishments by a leading cannabis full-service distributor. The Company contracted with The Vault 3PL to provide logistics and state-wide distribution for Resonate’s Koan Cordials, its product line of unique experience blends currently available in California. Resonate is also developing relationships with a variety of complementary distribution channels such as subscription box companies and other non-storefront reseller organizations. The Company partnered with leading e-commerce technology provider Grassdoor in October to allow online sales of Koan Cordials throughout California. The Grassdoor partnership powers same-day delivery service of Resonate’s six precision-calibrated formulas throughout Northern and Southern California. 5 To summarize, Resonate has signed and announced definitive agreements with various partners to execute on its overall business strategy. Vertosa is expected to develop unique formulations through its advanced nano-emulsification process, The Galley is expected to assemble and package, Grassdoor’s e-commerce solution is expected to offer online sales and home delivery in California of Cordials and Vault 3PL Distribution to distribute the products. Resonate engaged with The Flower Agency to actively market social media channels to the California market. Marketing and Sales Plan The cannabis industry is changing daily in response to updated regulations, customer product education, new interest from various demographics and now the COVID-19 pandemic. As a result, we are constantly attentive to these changes as they affect the marketing of Koan products. The initial marketing strategy was to launch in select dispensaries in Los Angeles and to support the launch with dispensary promotional material and location-based marketing. However, in the current market the Company has decided to modify this strategy. Paradoxically, retail restrictions and safety regulations were beneficial, as these allowed Resonate to reprioritize their sales approach and to build a marketing plan around on-line dispensaries with wide delivery networks. Although retail restrictions will eventually be relaxed, the Company doesn’t expect that storefront dispensaries will return to the dominant role they played in the cannabis industry before COVID-19 for several reasons. Dispensaries are generally small, making social distancing difficult. Limitations on a customers’ ability to touch and smell products reduces the value of in-person shopping. Restrictions on the number of people allowed in these small spaces will create waiting lines outside stores, which will be inconvenient and even embarrassing for some. Finally, a significant number of customers, particularly in targeted demographics, prefer the privacy and convenience of having products delivered to their homes. For all these reasons, Resonate has decided to focus sales efforts on select high-end retail dispensaries and on-line, delivery and e-commerce outlets. In response to the sudden change in customer buying preferences, Resonate has implemented a plan to sell directly to consumers, by partnering with an on-line platform which will allows them to communicate the value of their products directly to consumers. This platform will connect consumers to a licensed retail and California-wide home delivery network. This direct-to-consumer approach has significant benefits for us. First, it allows Resonate to control brand messaging and to assure that we can provide the information and education customers need to make confident and informed product choices. Through this method, they have access to customer information, which is not available from dispensaries, which allows them to employ successful marketing techniques used by leading on-line retailers such as customer loyalty programs, memberships, ambassadors, etc., to build brand awareness and increase sales. It is also better for them financially as it increases profit margin. Therefore, the marketing budget and energy is now being channeled into appropriate programmatic advertising, developing informational materials for customers on the website, and developing professional and effective social media, search engine optimization and direct to consumer marketing campaigns. We also offer market support to select premium California dispensaries both in person and thorough the Leaf.VIP budtender training program. The Company expects that building its brand online will complement retail sales by increasing customer awareness and creating “pull-through” at brick-and-mortar facilities. Resonate is currently recruiting two internal sales managers to oversee all sales efforts in Northern and Southern California. The Company is planning an in-house sales strategy for early Q1 2022 to maximize both the dispensary outreach and budtender education – and to increase Direct-to-Consumer (D2C) sales platform activity. While wellness dispensaries will be a focus for the Company, the customer acquisition focus will be heavily tilted towards the D2C portal starting in 2022. Multi-state expansion through licensing arrangements with the Cordials is also being planned. Several retailers in multiple states have reached out to Resonate requesting the Cordials to be stocked in their dispensaries. The Company is currently evaluating where and when to open potential new states outside of California. 6 Acquisition of Assets On September 9, 2021, we entered into a binding letter of intent with L & G USA Inc., a Delaware corporation and L & G Canada Inc., an Ontario corporation (together “Seller”), and the stockholders of Seller, pursuant to which the Company planned to acquire substantially all of the assets from Seller associated with the Lemon & Grass business and the Koan business (the “Acquisition”). On October 27, 2021, the Company terminated the agreement and the Acquisition. The Company is still in discussions with Seller, and the Company may or may not go through with a transaction with Seller, but if the Company does, the terms will change from the previous agreement. Current Products Resonate’s first commercial release was a family of six precisely targeted effect blends. These products are category-breaking offerings as they are neither tinctures nor beverages but have the benefits of both. They are emulsified, water soluble, single-serving blends that can be enjoyed privately or shared socially. Resonate offers these across California in stylish mini bottles, each containing a single serving. They can be sipped directly from the bottle or poured into beverages. Koan products offer the very high bioavailability of tinctures not possible to deliver with edibles, take effect generally within minutes and provide benefits for approximately 3 hours. Significantly, these formulas all provide a pleasant predictable experience, a gentle onset and exit and have no unpleasant sensations or aftereffects sometimes associated with cannabis products. The current products are as follows: Calm CBD rich with a hint of THC, Calm is formulated to quiet your mind and ease you into a gentle sense of wellbeing. Wonder Our highest THC offering, Wonder is carefully crafted to bring back that youthful sense of wonder and awe we feel when we are fully engaged with our senses and environment. Balance Balance is a subtle combination of cannabinoids and terpenes formulated to bring your mind, body and spirit back to an even state of harmony and homeostasis. Create Create is formulated to stimulate your senses, spark your imagination and channel your inner muse. Led by a stimulative blend of terpenes and just the right amount of THC to inspire and facilitate the artist in you. Play We formulated Play to help you become fully immersed in the moment and the people around you. From the park to the beach to the dance floor, Play helps you find your groove and keep it going. Delight Put on your rose-colored glasses and give everything some extra sparkle with Delight. Designed to open up your senses, raise your spirits and brighten your day. 7 Future Products - Resonate Growth Plans For the first 12-18 months, Resonate concentrated on releasing product and brand building in California, and possibly new state expansion if the proper opportunities exist. Resonate is following the launch of its first six Koan products with others based on The Resonate System at regular intervals, and they plan to release their “Love” in Q1 2022 and “Sleep” Cordials in Q2. The formulas, combined with the proprietary Vertosa technology, will allow the Company to quickly deliver controlled, predictable, enjoyable effects in beverages, teas, and gummies. Vertosa is the leading provider of emulsification technology for cannabis manufacturers. Emulsification allows cannabinoids to become water-soluble so that they can be added to Cordials, beverages, gummies, etc. Vertosa and Resonate are engaged in joint research focusing on effects of various emulsification methods on cannabinoids. Resonate is working on methods that improve user experience by refining effects and managing bioavailability. Vertosa will also be providing the emulsification required for formulas in Resonate’s product line. The cannabis industry is in its infancy. Resonate’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. In addition to creating “house” brands, the Company is also looking for other quality brands which could be incubated or targeted as either strategic partners or as acquisitions. Integrating these companies should provide consistent product quality that yields expected results and that also allows scalability to make a successful company overall. The Company is actively seeking potential acquisition roll-ups into the holding company that could offer product synergies, new product development and shared resources in critical areas of the Company. Intellectual Property Intellectual Property (“IP”) development and protection continues as a core area of value creation for Resonate. The Company has developed the world’s first Cannabis Cordial. The Koan Cordials combine THC (psychoactive), CBD (non-psychoactive) with botanical terpenes to deliver an all-natural, plant-derived, single-dosed experience that can be enjoyed straight out of the bottle or poured into any beverage. These multi-use products deliver specific, predictable, reliable, effects in a format that is completely unique in the industry. The Company believes the greatest long-term value creation in the Cannabis industry will be in the establishment of high-quality valued-added consumer brands that deliver the expected experience. As cultivation, supplies and services become quickly commoditized, value-added brands represent the best opportunity for Resonate and its shareholders to support and benefit from the growth expected in the Cannabis industry. It is therefore critical for Resonate to protect its methods, formulations and packaging. On June 14, 2021, the Company successfully filed a Provisional Patent Application with the US Patent & Trademark Office (USPTO) entitled “Cannabis Nano-Emulsions for Achieving a Reliable, Targeted, Specific and Repeatable User Experience.” The invention relates to methods and formulations including a combination of cannabinoids and terpenes calculated and specifically formulated to achieve a targeted, specific and repeatable user experience. The Company is also filing for patent protection on its unique product packaging and anticipates filing for other protections on new product development. Competitive Landscape The cannabis market still primarily consists of products of varying quality and poor branding. Much of the branding is heavy “stoner” or hospital medicinal, and differentiation between products is difficult. As a result, finding a product with controllable, consistent effects is difficult. Even products of high and reliable quality all look alike and have no shelf appeal. In addition, there is a mismatch between the fastest growing demographic and many current product offerings, which are designed to be inhaled. This is exactly why Resonate has developed Koan Cordials, tasty, single dose, healthy cannabis products with timeless, exceptional branding. As the market matures, some companies are recognizing the importance of branding. Branded category leaders represent the 10 spots among best-selling products and sales data supports the desire among consumers for branded products. This is further supported by Headset, data (the leading industry provider of retail buying patterns), which shows that brands are leading every category in cannabis. Further, branded products command higher prices. Some branded products generate pricing as high as 150%, over industry average. The Resonate team excels in product branding. There is no product in the marketplace exactly like Koan products at this time. Other companies offer tinctures (which are concentrated herbal extracts made by soaking the bark, berries, leaves (dried or fresh), or roots from one or more plants in alcohol or vinegar), tea, salves, patches and cosmetics and vapes, and some of them provide effects which may be similar to those the Koan products will provide, but none are equal to Koan with respect to quality, efficacy, consistency and scope. Koan products are water soluble and can be enjoyed privately or poured in beverages and shared socially. Resonate believes the total experience offered by Koan products cannot be found elsewhere in the industry. 8 While there are a number of very fine products in the premium cannabis space, there is not yet a dominant brand in any category. Some are leading but no brand dominates. Data indicates that Resonate’s targeted demographic seeks out trusted brands when making product selections. Resonate is bringing to market custom, reliable, experience-targeted products which can be sipped or shared; and offered under a well-crafted brand supported by an accessible information system. The Company provides The Resonate System so customers can understand what to expect and can make informed confident selections. Employees Currently, there are six employees, comprised of 3 C-level executives and managers of brand, marketing and sales.