ITEM
1.01 - ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
Membership
Interest Purchase Agreements
On
October 25, 2019, Textmunication Holdings, Inc. (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.
The
Resonate Purchase Agreement includes a funding obligation, which requires the Company to provide an aggregate amount of capital
as follows: (i) Five Hundred Thousand Dollars ($500,000) on the Closing Date of, (ii) Five Hundred Thousand ($500,000) four (4)
months after Closing, and (iii) Five Hundred Thousand Dollars ($500,000) eight (8) months after Closing.
At
the time of closing, the Company invested $200,000 and short of what was required at Closing. The Resonate Purchase Agreement
states that the Company will raise an additional $700,000 at terms no less favorable than the funds raised for the $200,000, referred
to above, and provide Resonate the additional $300,000 no later than December 1st, 2019, which will be used to pay off the holders
of Series D Preferred Stock prior to its conversion option on December 11th, 2019. If the Company fails to do either of those,
it shall be deemed an Event of Default. Based on the private placement currently in place, both sides are confident that the necessary
funds will be raised. However, closing on October 25, 2019 was necessary to address the strategic partnerships in place to move
the Company forward.
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 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.
The
Resonate Purchase Agreement and the Entourage Labs Purchase Agreements are herein referred to herein as the Purchase Agreements.
We
plan to file a certificate designation for the Series E Preferred Stock with the State of Nevada and issue the shares under the
Purchase Agreements in the coming days.
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) Geoff Selzer as Chief Executive Officer (CEO) of
the Company with an annual salary of $180,000; and (ii) Pam 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.
The
foregoing description of the Purchase Agreements, Conveyance Agreement and Employment Agreements does not purport to be complete
and is subject to, and qualified in its entirety by reference to, the full text of the Purchase Agreements and Conveyance Agreement,
which are filed as Exhibits 2.1, 2.2, 2.3, 10.1 and 10.2 hereto and incorporated herein by reference.
Resonate
and Entourage Labs
As
a result of the Purchase Agreements and Conveyance Agreement, the Company intends to carry on the business of Resonate and Entourage
Labs as its primary line of business. The Company has relocated its principal executive offices to 26565 Agoura Road, Suite 200,
Calabasas, CA 91302.
Resonate
and its Intellectual Property (IP) subsidiary, Entourage Labs, is a California-based cannabis wellness lifestyle product company
built on a proprietary system of experiential targets. Resonate is building a brand-focused and vertically integrated cannabis
organization offering trusted brands of consistent quality. At the heart of the Resonate philosophy is the “Resonate System.”
The System is designed to demystify cannabis and help consumers select effective products by connecting their lifestyle and health
needs with the experience and delivery method that best fits their criteria.
Resonate
plans to launch its first product in a series of infused products in early 2020. The initial launch is expected to be in California
with a statewide distribution system already assembled. Resonate will be executing a multi-state strategy with the goal of becoming
a leading national brand once the California market is optimized. The Company plans to strategically acquire assets and existing
businesses in the cannabis space allowing for a vertically integrated organization centered around the “wellness lifestyle,”
and offer to consumers a family of trusted products that address the fast-growing cannabis market.
The
holding company is assembling the highest quality cultivation, innovation, technology, product development, retail and supply
chain resources to manage and optimize financial performance and assure quality control. Resonate is offering a luxury cannabis-based
wellness lifestyle product family based on consistent quality, unique formulations and maximizing the user experience.
Risk
Factors Associated with the New Business
Marijuana
remains illegal under United States federal law
Marijuana
is a Schedule-I controlled substance under the Controlled Substances Act and is illegal under federal law. It remains illegal
under United States federal law to grow, cultivate, sell or possess marijuana for any purpose or to assist or conspire with those
who do so. Additionally, 21 U.S.C. 856 makes it illegal to “knowingly open, lease, rent, use, or maintain any place, whether
permanently or temporarily, for the purpose of manufacturing, distributing, or using any controlled substance.” Even in
those states in which the use of marijuana has been authorized, its use remains a violation of federal law. Since federal law
criminalizing the use of marijuana is not preempted by state laws that legalize its use, strict enforcement of federal law regarding
marijuana would likely result in the Company’s clients’ inability to proceed with their operations, which would adversely
affect demands for the Company’s products.
Further
legislative development beneficial to the operations of the Company is not guaranteed
The
success of the Company’s business depends on the continued development of the cannabis industry and the activity of commercial
business and government regulatory agencies within the industry. The continued development of the cannabis industry is dependent
upon continued legislative and regulatory authorization of cannabis at the state level and a continued laissez-faire approach
by federal enforcement agencies. Any number of factors could slow or halt progress in this area. Further regulatory progress beneficial
to the industry cannot be assured. While there may be ample public support for legislative action, numerous factors impact the
legislative and regulatory process, including election results, scientific findings or general public events. Any one of these
factors could slow or halt progressive legislation relating to cannabis and the current tolerance for the use of cannabis by consumers,
which could adversely affect demand for the Company’s product and its operations.
The
cannabis industry could face strong opposition from other industries
The
Company believes that established businesses in other industries may have a strong economic interest in opposing the development
of the cannabis industry. Cannabis may be seen by companies in other industries as an attractive alternative to their products,
including recreational marijuana as an alternative to alcohol, and medical marijuana as an alternative to various commercial pharmaceuticals.
Many industries that could view the emerging cannabis industry as an economic threat are well established, with vast economic
and federal and state lobbying resources. It is possible that companies within these industries could use their resources to attempt
to slow or reverse legislation legalizing cannabis. Any inroads these companies make in halting or impeding legislative initiatives
that would be beneficial to the cannabis industry could have a detrimental impact on the Company’s clients and, in turn
on the Company’s operations.
Changing
legislation and evolving interpretations of law
Laws
and regulations affecting the medical and adult-use marijuana industry are constantly changing, which could detrimentally affect
the Company’s clients and, in turn, the Company’s operations. Local, state and federal marijuana laws and regulations
are broad in scope and subject to evolving interpretations, which could require the Company’s clients and thus the Company
itself to incur substantial costs associated with modification of operations to ensure such clients’ compliance. In addition,
violations of these laws, or allegations of such violations, could disrupt the Company’s clients’ business and result
in a material adverse effect on the Company’s operations. In addition, it is possible that regulations may be enacted in
the future that will limit the amount of cannabis growth or related products that the Company’s commercial clients are authorized
to produce. The Company cannot predict the nature of any future laws, regulations, interpretations or applications, nor can it
determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated,
could have on its operations.
Banking
regulations could limit access to banking services
Since
the use of marijuana is illegal under federal law, there is a compelling argument that banks cannot lawfully except for deposit
funds from businesses involved with marijuana. Consequently, businesses involved in the cannabis industry often have trouble finding
a bank willing to accept their business. The inability to open bank accounts may make it difficult for the Company’s clients
to operate and their reliance on cash can result in a heightened risk of theft, which could harm their businesses and, in turn,
harm the Company’s business. Additionally, some courts have denied marijuana-related businesses bankruptcy protection, thus,
making it very difficult for lenders to recoup their investments, which may limit the willingness of banks to lend to the Company’s
clients and to the Company itself.
Insurance
risks
In
the United States, many marijuana-related businesses are subject to a lack of adequate insurance coverage. In addition, many insurance
companies may deny claims for any loss relating to marijuana or marijuana-related operations based on their illegality under federal
law, noting that a contract for an illegal transaction is unenforceable.