8-K: Resonate Blends Completes Share Exchange, Appoints New Leadership and Divests Subsidiary

Resonate Blends, Inc. finalized a share exchange agreement with Emergent Health Corp., resulting in a major shift in ownership and management, while also divesting a subsidiary.

Summary

• Resonate Blends, Inc. completed a Share Exchange Agreement with Emergent Health Corp. (EMGE) on March 14, 2024.
• As part of the agreement, EMGE preferred shareholders exchanged their equity for Resonate Blends Series F Convertible Preferred Stock, which will convert into 93% of the company's common stock on a fully diluted basis.
• Resonate Blends also divested its wholly-owned subsidiaries, Resonate Blends, LLC and Entourage Labs, LLC, to former director Geoffrey Selzer.
• Selzer assumed all liabilities of the divested subsidiaries and agreed to pay Resonate Blends 20% of any sale proceeds within one year and 10% within two years of the agreement.
• All previous directors and officers of Resonate Blends resigned, and four new directors were appointed, including Jim Morrison as President, Secretary, and Director.
• The Series F Preferred Stock has a liquidation preference of $1,800 per share, payable after all company debt.
• The Series F Preferred Stock can be voluntarily converted into common stock after six months, or automatically upon the company uplisting to a national exchange, both at a rate of 93% of the outstanding common stock on a fully diluted basis.
• James Morrison acquired 2,000,000 shares of Series C Preferred Stock from Geoffrey Selzer for $10, giving him voting control of the company.

Sentiment

Score: 4

Explanation: While the new leadership has a strong track record, the significant dilution, complete management change, and divestiture of subsidiaries introduce considerable uncertainty and risk, leading to a negative sentiment.

Positives

• The share exchange with EMGE brings in new leadership with extensive experience in the personal care and wellness industries.
• The divestiture of the subsidiaries simplifies the company's structure and potentially reduces liabilities.
• The new Series F Preferred Stock structure provides a clear path for conversion to common stock, either voluntarily or upon uplisting.
• The new leadership team has a strong track record of success in the personal care and wellness sectors.

Negatives

• The previous management team has been completely replaced, which could lead to a period of transition and uncertainty.
• The Series F Preferred Stock is subordinate to all company debt, which could impact its value in a liquidation scenario.
• The conversion of the Series F Preferred Stock to common stock will significantly dilute existing shareholders.
• The company is now controlled by a single shareholder, James Morrison, which could raise concerns about corporate governance.

Risks

• The company faces risks associated with integrating the new leadership team and implementing their strategic vision.
• The conversion of the Series F Preferred Stock could lead to significant dilution for existing shareholders.
• The company's financial performance could be impacted by the transition and the divestiture of the subsidiaries.
• The company's future success is heavily reliant on the performance of the new management team.

Future Outlook

The company will file financial statements related to the acquisition within 71 days. The Series F Preferred Stock can be converted to common stock after six months or automatically upon uplisting to a national exchange. The company will need to take action to ensure sufficient common stock is available for conversion.

Management Comments

• Jim Morrison is considered by many to be one of the leading personal care strategists in the world.
• Business Week Magazine wrote, 'Over the last two decades Mr. Morrison has had a profound impact on the American Beauty Industry. In the industrys history no other executive has had the level of financial responsibility or breadth of organizational experience as Jim.'

Industry Context

The changes at Resonate Blends reflect a broader trend of consolidation and strategic shifts in the health and wellness industry. The appointment of Jim Morrison, a well-known figure in the personal care sector, suggests a focus on growth and market expansion.

Comparison to Industry Standards

• The share exchange and management overhaul are similar to other companies undergoing significant restructuring or mergers in the health and wellness sector.
• The appointment of Jim Morrison, with his extensive experience at L'Oreal and other major personal care companies, is a move that could be compared to other companies bringing in experienced executives to drive growth.
• The divestiture of subsidiaries is a common strategy for companies looking to streamline operations and focus on core competencies, similar to moves made by other companies in the industry.
• The conversion terms of the Series F Preferred Stock, while dilutive, are not uncommon in transactions involving private equity or strategic investors.

Management Changes

Related Party Transactions

• Geoffrey Selzer, a former director, received the company's subsidiaries in exchange for assuming their liabilities and a share of future sale proceeds.

Stakeholder Impact

• Existing shareholders will experience significant dilution due to the issuance of Series F Preferred Stock.
• Employees may experience changes due to the new management team and strategic direction.
• Customers may see changes in products or services as the company implements its new strategy.
• Creditors may be impacted by the change in ownership and the divestiture of subsidiaries.

Next Steps

• The company will file financial statements related to the acquisition within 71 days.
• The company will file a Certificate of Designation with the State of Nevada to establish the Series F Preferred Stock.
• The company will need to ensure sufficient common stock is available for the conversion of the Series F Preferred Stock.

Key Dates

Keywords

Share Exchange, Preferred Stock, Divestiture, Management Change, Corporate Governance, Merger, Acquisition, Convertible Stock, Uplisting