Resonate Blends, Inc. - Quarter Report: 2019 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2019

For the transition period from __________ to__________

Commission File Number: 000-21202

Textmunication Holdings, Inc.

(Exact name of registrant as specified in its charter)

1940 Contra Costa Blvd. Pleasant Hill, CA 94523

(Address of principal executive offices)

925-777-2111

(Registrant’s telephone number)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

[X] Yes [  ] No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [  ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

Securities registered pursuant to Section 12(b) of the Act: None

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 12,879,452 common shares as of November 1, 2019

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Our consolidated financial statements included in this Form 10-Q are as follows:

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended September 30, 2019 are not necessarily indicative of the results that can be expected for the full year.

TEXTMUNICATION HOLDINGS, INC.

Consolidated Balance Sheet

As of September 30, 2019 and December 31, 2018

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements

TEXTMUNICATION HOLDINGS, INC.

Consolidated Statement of Operations

For the three months period ended March 31, 2019 and 2018

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements

TEXTMUNICATION, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE PERIOD ENDED SEPTEMBER 30, 2019

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements

TEXTMUNICATION, INC.

Consolidated Statements of Cash flow

For the six months ended

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTER ENDED SEPTEMBER 30, 2019 (UNAUDITED)

NOTE 1 – ORGANIZATION AND BUSINESS OPERATIONS

The Company

Textmunication Holdings, Inc. (Company) was incorporated on May 13, 2010 under the laws of the State of California. Textmunication is an online mobile marketing platform service that will connect merchants with their customers and allow them to drive loyalty and repeat business in a non-intrusive, value added medium. For merchants we provide a mobile marketing platform where they can always send the most up-to-date offers/discounts/alerts/events schedule, such as happy hours, trivia night, and other campaigns. The consumer can also access specials and promotions that merchants choose to distribute through Textmunication by opting into keywords designated to the merchant’s keywords.

On November 16, 2013, the Company entered into a Share Exchange Agreement (SEA) with Textmunication Holdings (Holdings). a Nevada corporation, whereby the sole shareholder of the Company received 65,640,207 new shares of common stock of Holdings in exchange for 100% of the Company’s issued and outstanding shares.

On July 9, 2018 the 1 – 1,000 Reverse Split of “Textmunication Holdings, Inc.” (TXHD) common stock took effect at the open of business. All shares and per share amounts have been retroactively adjusted to reflect the reverse split.

July 9th, 2018 Textmunication Holdings, Inc. (“TXHD”) entered into Advisory Agreements with Mr. Thomas DiBenedetto and Mr. Joseph Griffin. Mr. DiBenedetto will advise Textmunication on business execution, growth initiatives and strategic investment opportunities. Mr. Joseph Griffin will join Textmunication as a financial investment advisor. In his role, he will advise the company on strategic investment opportunities and investment execution.

On May 2, 2019 the Corporation received a notice of conversion under the Certificate of Designation of the Corporation from Aspire Consulting Group LLC for the complete conversion of 66,667 shares of Series A Preferred Stock into 20,000 shares of the Corporation’s common stock. The board of directors approve conversion of the above shares of Series B Preferred Stock into 20,000 shares of common stock in the Corporation.

On May 16, 2019, the Corporation filed a Certificate of Withdrawal with the State of Nevada to withdraw its Certificate of Designation for our Series B Preferred Stock. There were no shares of preferred stock outstanding at the time of the filing and the action was approved by our Board of Directors in accordance with Nevada law.

Also, on May 16, 2019, our Board of Directors created, out of our available shares of preferred stock, par value $0.0001 per share, a series of preferred stock known as “Series D Convertible Preferred Stock” consisting of 40,000 shares. Under the terms of the Series D Certificate of Designation, the shares shall not accrue nor pay dividends except that if dividends are declared for other equity holders of our Company then the Series D Convertible Preferred Stock shall participate on the same basis. Except with respect to any future series of preferred stock of senior rank to the Series D Convertible Preferred Stock in respect of the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of our Company or the Series D Convertible Preferred Stock and any future series of preferred stock of pari passu rank to the Series D Convertible Preferred Stock in respect of the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Company, all shares of capital stock of our Company shall be junior in rank to the Series D Convertible Preferred Stock with respect to the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of our Company. Each share of Series D Convertible Preferred Stock has a stated value of $10 and is convertible into shares of Common Stock, equal to the stated value divided by the conversion price of our stock price on the day of conversion (subject to adjustment in the event of stock splits and dividends). Failure to affect a conversion within proscribed time periods will affect both liquidated damages and buy-in charges. We are prohibited from effecting the conversion of any share of the Series D Convertible Preferred Stock to the extent that, as a result of such conversion, the holder or any affiliates would beneficially own more than 9.99%, in the aggregate, of the issued and outstanding shares of our Company’s common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series D Convertible Preferred Stock. Except as required by law and as set forth in the Series D Certificate of Designation, the Series D Convertible Preferred Stock shall have no voting rights.

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTER ENDED SEPTEMBER 30, 2019 (UNAUDITED)

The rights of the holders of Series D Convertible Preferred Stock are defined in the relevant Certificate of Designation filed with the Nevada Secretary of State on May 16, 2019, attached hereto as Exhibit 3.2, and is incorporated by reference herein.

Also on May 16, 2019, our Board of Directors and the majority of the holders of our Series C Convertible Preferred Stock approved an amendment to the certificate of designation for our Series C Convertible Preferred Stock (the Amended Certificate of Designation”), consisting of up 2,000,000 shares, par value $0.0001. Under the Amended Certificate of Designation, holders of our Series C Convertible Preferred Stock are entitled to vote on all shareholder matters with a vote equal to 51% of the total vote of all classes of voting stock of our company. The rights of the holders of Series C Convertible Preferred Stock are defined in the relevant Amended Certificate of Designation filed with the Nevada Secretary of State on May 16, 2019.

On June 11, 2019, the Corporation entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with the purchasers identified therein (collectively, the “Purchasers”) providing for the issuance and sale to the Purchasers of an aggregate of up to 40,000 shares of our Series D Convertible Preferred Stock (the “Preferred Shares”) and related warrants for gross proceeds to the Company of $200,000. The Warrants have an exercise price of $0.50 per share (cashless) and are exercisable sixty months from the issuance date.

On June 25, 2019, Textmunication Holdings, Inc. (the “Company”) issued a press release announcing it plans to change its business direction from its current SMS technology business to focus on the emerging national cannabis market. The Company plans on using its mobile texting platform to enhance communication efforts with the potential acquisitions.

Basis of Presentation

The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s most recent Annual Financial Statements filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period presented have been reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted.

Going concern

These consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As of September 30, 2019, the Company has an accumulated deficit of $18,416,995. The company’s 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 Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. These consolidated financial statements do not include any adjustments that might arise from this uncertainty.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash

The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents.

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTER ENDED SEPTEMBER 30, 2019 (UNAUDITED)

The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits. At September 30, 2019, no cash balances exceeded the federally insured limit.

Accounts receivable and allowance for doubtful accounts

Accounts receivable are stated at the amount management expects to collect. The Company generally does not require collateral to support customer receivables. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic conditions. As of September 30, 2019, and December 31, 2018 no allowance for doubtful accounts was set up.

Revenue Recognition

Revenues are recognized when control of the promised is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.

The Company currently derives a substantial majority of its revenue from fees associated with our subscription services, which generally include mobile marketing platform services. Customers are billed for the subscription on a monthly basis. For all of the Company’s customers, regardless of the method, the Company uses to bill them, subscription revenue is recorded as deferred revenue in the accompanying consolidated balance sheets. As services are performed, the Company recognizes subscription revenue on a monthly basis over the applicable service period. When the Company provides a free trial period, the Company does not begin to recognize subscription revenue until the trial period has ended and the customer has been billed for the services.

Professional services revenues are generated from SMS and RCS packages where client logs into a cloud-based application to send targeted SMS messages to their subscribers’ base. Our custom web application SMS/RCS platform is typically billed on a fixed price based on the number of SMS/RCS allocated for each package our client purchases. Generally, revenue for SMS/RCS services is recognized immediately as our clients have instant access to their web-based application to send out messages, the number of SMS/RCS messages allocated to a client expires at the end of each month and renews beginning of each month. The Company offers whereby control of the product passes to the customer when delivered and revenue is recognized at the time of delivery.

Results for reporting periods beginning after January 1, 2019 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605

We did not have a cumulative impact as of January 1, 2019 due to the adoption of Topic 606 and there was not an impact to our consolidated statement of operations for the year ended December 31, 2018 as a result of applying Topic 606.

Fair Value of Financial Instruments

The carrying amounts reflected in the balance sheets for cash, accounts payable and accrued expenses approximate the respective fair values due to the short maturities of these items.

As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTER ENDED SEPTEMBER 30, 2019 (UNAUDITED)

The three levels of the fair value hierarchy are described below:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs that is observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

The fair value of the accounts receivable, accounts payable, notes payable are considered short term in nature and therefore their value is considered fair value.

Net income (loss) per Common Share

Basic net income (loss) per share is computed by dividing the net loss attributable to the common stockholders by the weighted average number of shares of common stock outstanding during the period. Fully diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.

Property and equipment

Property and equipment are stated at cost, less accumulated depreciation provided on the straight-line method over the estimated useful lives of the assets, which range from three to seven years. Expenditures for renewals or betterments are capitalized, and repairs and maintenance are charged to expense as incurred the cost and accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts, and any gain or loss thereon is reflected in operations. Company policy capitalize property and equipment for cost over $1,000, asset acquired under $1,000 are charge to operations.

Income Taxes

Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized. Because the Company has no net income, the tax benefit of the accumulated net loss has been fully offset by an equal valuation allowance.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Stock-Based Compensation

The Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation – Stock Compensation which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The fair value of the equity instrument is charged directly to compensation expense and credited to additional paid-in capital over the period during which services are rendered.

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTER ENDED SEPTEMBER 30, 2019 (UNAUDITED)

The Company follows ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants and other non-employees. In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital over the period during which services are rendered.

Investments in Securities

Investments in securities are accounted for using the equity method if the investment provides the Company the ability to exercise significant influence, but not control, over an investee. Significant influence is generally deemed to exist if the Company has an ownership interest in the voting stock of the investee between 20% and 50%, although other factors, such as representation on the investee’s Board of Directors, are considered in determining whether the equity method is appropriate.

Recent Accounting Pronouncements

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230)”, requiring that the statement of cash flows explain the change in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This guidance is effective for fiscal years, and interim reporting periods therein, beginning after December 15, 2017 with early adoption permitted. Management evaluated ASU 2016-18 and determined that the adoption of this new accounting standard did not have a material impact on the Company’s consolidated financial statements.

NOTE 3 – RELATED PARTY TRANSACTIONS

As of September 30, 2019, the Company had advances due to a related party. The loans are due on demand and have no interest. Amounts outstanding as of September 30, 2019 and December 31, 2018 were approximately $11,750 and $11,750, respectively

NOTE 4 - CONVERTIBLE NOTE PAYABLE

Convertible notes payable consists of the following as of September 30, 2019 and December 31, 2018:

The Company accounts for the fair value of the conversion features of its convertible debt in accordance with ASC Topic No. 815-15 “Derivatives and Hedging; Embedded Derivatives” (“Topic No. 815-15”). Topic No. 815-15 requires the Company to bifurcate and separately account for the conversion features as an embedded derivative contained in the Company’s convertible debt. The Company is required to carry the embedded derivative on its balance sheet at fair value and account for’ any unrealized change in fair value as a component of results of operations. The Company values the embedded derivatives using the Black-Scholes pricing model.

During the three months ended September 30, 2019, the Company issued 1,280,000 shares of common stock with a fair value of $164,033 for the settlement of liabilities payable. The conversion of the derivative liabilities has been recorded through additional paid-in capital.

NOTE 5 – INVESTMENT IN ASPIRE CONSULTING GROUP, LLC

On January 5, 2016, the Company entered into a Share Exchange Agreement with Aspire Consulting Group, LLC, a Maryland limited liability company and certain members of Aspire. Pursuant to the terms of the Exchange Agreement, the Company agreed to acquire 49% of all of the issued and outstanding membership units of Aspire in exchange for the issuance of 66,667 shares of the Company’s newly created Series B Convertible Preferred Stock to the Members valued at $460,002. Preferred shares were later converted to 20,000 common stocks.

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTER ENDED SEPTEMBER 30, 2019 (UNAUDITED)

The Company has concluded that it has the ability to exercise significant influence, but not control, over an Aspire through its acquired 49% equity interest and therefore has accounted for the acquisition of the interest under the equity method.

The following table presents details of the Company’s investment is Aspire as of September 30, 2019 and December 31, 2018:

NOTE 6 – COMMITMENTS AND CONTINGENCIES

Office Lease

On January 6, 2015 the Company signed an amendment to its lease originally signed on May 9, 2008. The amended lease commenced January 1, 2015 and expires on thirty days’ notice. Rent expense was approximately $16,537 and $14,782 for the nine months ended September 30, 2019 and 2018, respectively.

Executive Employment Agreement

The Company has an employment agreement with the CEO/Chairman to perform duties and responsibilities as may be assigned by the Board of Directors. The base salary is in the amount of $120,000 per annum plus an annual discretionary bonus plus benefits commencing on December 17, 2013 and ending May 1, 2017 with an automatic renewal on each anniversary date (May 1) thereafter.

NOTE 7 – STOCKHOLDERS’ EQUITY

During the first quarter of 2019 the company issued a total of 6,685,000 shares to employees and vendors for compensation and services rendered. The fair market value of the shares issues accounted as expenses as follows:

During the 2^nd quarter of 2019 the company issued 40,000 shares of preferred stock warrants for $200,000 cash.

During the 3^rd quarter of 2019 the company issued 1,280,000 common stocks in settlement of liabilities. The fair market value of the liabilities accounted as additional paid in capital of $164,033.

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTER ENDED SEPTEMBER 30, 2019 (UNAUDITED)

NOTE 8 – SUBSEQUENT EVENTS

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 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.

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.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

Company Overview

We are a developing player in the mobile marketing and loyalty industry, providing cutting-edge mobile marketing solutions, rewards and loyalty to our clients. With a powerful yet intuitive suite of services, clients are able to reach more customers faster and reward them for repeat business. We help clients reach their marketing and revenue goals by educating clients with the most effective tools in mobile marketing, rewards, paperless redemption and loyalty.

In the past 4 years, we have grown to over 765 clients and more than 950 different locations in the United States and Canada. We have achieved this with an expanded focus on a variety of industries, including restaurants, retailers, entertainment venues and other partnership opportunities. We have decided to focus our energy on the gym, health and fitness club market. However, we are also working with Quick Service Restaurants (QSR), Beauty/Tanning salons, hospitality, entertainment, digital marketing and sporting events.

Our software platform provides a powerful nonintrusive and valued-added engagement tool capable of delivering more than one billion SMS per month. CIO Review Magazine recognized Textmunication as one of the “Top 20 Most Promising Digital Marketing Solution Providers” in its annual 2018 edition. We offer cutting-edge technology with solutions such as Rich Communication Services (RCS).

We have built an advanced “Communication Platform as a Service” (CPaaS) backbone enabling developers to add real-time communication features in their own applications without needing to build backend infrastructure and interfaces. We are working to develop “Messaging as a Platform” (MaaP). A MaaP platform combines advanced messaging with standardized interfaces to plugins creating a richer experience for consumers, such as RCS. Textmunication expanded its White Label program allowing companies of all sizes to implement an “out-of-the-box” solution “Powered by Textmunication”. In addition to White Label, the company offers standalone Application Programming Interfaces or APIs, integrated API solutions and non-integrated services.

We can produce a new API in 2-4 weeks for each new client. We now have 7 of the top 8 Health Club Management Software (CMS) companies using our integrated SMS fitness solution. There is no other automated health and fitness solution offering a completed end-to-end solution similar to ours. We now have access to more than 25,000 health clubs in North America and will focus on converting new clubs to our solution in the next 12 months.

On June 25, 2019, we issued a press release announcing our plans to change our business direction from the SMS technology business to focus on the emerging national cannabis market. We feel there are synergies between our mobile texting platform and the $4.2 trillion-dollar wellness lifestyle sector. Our goal is to acquire assets and companies and utilize our mobile platform for member and client communication. Our focus on the cannabis wellness lifestyle segment will be centered on products, branding, retail distribution and mobile technology.

We are in the IT consulting business through our acquisition of a minority interest in Aspire Consulting, LLC. We plan to assist our controlling partner in the development of this consulting business in addition to improving the market position of our mobile marketing business.

Our principal executive office is located at 1940 Contra Costa Blvd. Pleasant Hill, CA 94523 and our telephone number is (925-777-2111).

Results of Operation for Nine Months Ended September 30, 2019 and 2018

Revenues

For the three months ended September 30, 2019, we earned revenues in the amount of $261,047 as compared with revenues of $218,251 for the three months ended September 30, 2018. For the nine months ended September 30, 2019, we earned revenues in the amount of $758,100, as compared with revenues of $709,375 for the nine months ended September 30, 2018.

The slight increase in revenues for the three and nine months ended September 30, 2019 over the prior year period is due to launching a new platform and services and we are hopeful will continue to increase revenues in future quarters.

Cost of Revenues

Cost of revenues was $114,101 for the three months ended September 30, 2019, as compared with $117,241 for the same period ended September 30, 2018. Cost of revenues was $298,654 for the nine months ended September 30, 2019, as compared with $232,145 for the same period ended June 30, 2018.

Our gross profit was $146,946 for the three months ended September 30, 2019 or approximately 56% of revenues, as compared with $101,010 for the same period ended September 30, 2018, or approximately 46% of revenues. For the nine months ended September 30, 2019 our gross profit was $459,446 or approximately 61% of revenues, as compared with $477,230 or approximately 76% of revenues for the same period ended September 30, 2018.

Our cost of revenues increased for 2019 compared with the 2018 and our margins were less as a result of increased software development costs. We expect a similar or increased cost of revenues for the rest of 2019.

Operating Expenses

Our operating expenses were $290,038 for the three months ended September 30, 2019, as compared with $302,329 for the three months ended September 30, 2018. Our operating expenses were $3,367,345 for the nine months ended September 30, 2019, as compared with $815,528 for the nine months ended September 30, 2018.

The main reason for our increased operating expenses in 2019 was a result of 6,685,000 shares issued to employees and vendors for compensation and services rendered at a value of $2,521,582 and officer compensation of $310,404. We expect that our operating expenses for the rest of 2019 will decrease, provided that we do not have to issue stock for services. Given our lack of operating capital, we have been forced to issue shares for services rendered to the company. We hope that increase revenues will lessen that trend for 2019 and beyond.

Other Income

We had other expenses of $101,038 for the three months ended September 30, 2019 compared with other income of $27,947 for the same period ended September 30, 2018. We had net other expenses of $104,437 for the nine months ended September 30, 2019 compared with other income of $324,952 for the same period ended September 30, 2018.

Net other expenses for the three months period ended September 30, 2019 consisted of interest expenses $38,686 and a loss on legal settlement of $106,961, offset by a gain on the change in derivative liabilities of $44,428 compared to previous period net other income consisted of change in the fair value of derivative liabilities $19,261 and gain on settlement of notes payables of $9,893. Other expenses for the nine months ended September 30, 2019 consisted mainly interest expenses $43,528 and a loss on legal settlement of $106,961, offset by a gain on the change in derivative liabilities of $44,428. Net other income for the nine months ended September 30, 2018 consisted mainly of a $119,369 change in the fair value of derivative liabilities based on Black Scholes, along with a $255,339 gain on the settlement of notes payable, offset mainly by the amortization of debt discount and interest expenses of $42,534 and $7,222 respectively.

Net Income/Loss

We had net loss of $243,154 for the three months ended September 30, 2019, as compared with net loss of $174,488 for the three months ended September 30, 2018.We had a net loss of $3,023,461 for the nine months ended September 30, 2019, as compared with net loss of $15,583 for the nine months ended September 30, 2018.

Liquidity and Capital Resources

As of September 30, 2019, we had total current assets of $100,993, consisting of cash and receivables. Our total current liabilities as of September 30, 2019 were $565,846. We had a working capital deficit of $3464,853 as of September 30, 2019, compared with a working capital deficit of $534,907 as of December 31, 2018.

Cash Flows from Operating Activities

Operating activities used $386,001 in cash for the nine months ended September 30, 2019, compared with cash used of $21,751 for the nine months ended September 30,2018. Our negative operating cash flow for the nine months ended September 30, 2019 was largely the result of our net loss of $3,023,461, offset mainly by share based compensation of $2,521,635. Our negative operating cash flow for the nine months ended September 30, 2018 was largely the result of changes in loss on change in derivative liabilities $196,168, offset mainly by the the gain on the settlement of debt of $261,256

Cash Flows from Investing Activities

Investing activities used $0 in cash for the three months ended September 30, 2019, compared with cash used of $39,863 for the nine months ended September 30, 2018. Cash flows used in investing activities for the nine months ended September 30, 2018 resulted from the capitalized cost for internal use software.

Cash Flows from Financing Activities

Cash flows provided by financing activities during the nine months ended September 30, 2019 amounted to $405,567 compared with cash flows provided by financing activities of $62,500 for the nine months ended September 30, 2018. Our positive cash flows for the nine months ended September 30, 2019 consisted of proceeds from the issuance of preferred stock and warrants of $200,000, proceeds from convertible notes $167,750 and short term loan of $38,067.

The features of the debt instruments and payables concerning our financing activities are detailed in the footnotes to our financial statements.

Our optimum level of growth for success will be achieved if we are able to raise $250,000 in the next twelve months. However, funds are difficult to raise in today’s economic environment. If we are unable to raise $250,000 our ability to implement our business plan and achieve our goals will be significantly diminished.

We have experienced a history of losses. With our revenues increasing, however, we are less reliant on outside capital as we have been in the past. We will need at a minimum $120,000 in capital to operate in the next 12 months.

We are dependent on investment capital to continue our survival. We have raised money through convertible debt, almost always on unfavorable terms. There is no guarantee that these small convertible loans will be available to us in the future or on terms acceptable to us.

We do not have any formal commitments or arrangements for the sales of stock or the advancement or loan of funds at this time. There can be no assurance that such additional financing will be available to us on acceptable terms, or at all .

Going Concern

As of September 30, 2019, we have an accumulated deficit of $ 18,486,268. Our ability to continue as a going concern is contingent upon the successful completion of additional financing arrangements and our ability to achieve and maintain profitable operations. While we are expanding our 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 our ability to continue as a going concern. These financial statements do not include any adjustments that might arise from this uncertainty.

Off Balance Sheet Arrangements

As of September 30, 2019, there were no off-balance sheet arrangements.

Critical Accounting Policies

In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies are disclosed in Note 2 of our audited financial statements included in the Form 10-K filed with the Securities and Exchange Commission.

Recent Accounting Pronouncements

No new accounting pronouncements issued or effective during the fiscal year has had or is expected to have a material impact on the financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

A smaller reporting company is not required to provide the information required by this Item.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of March 31, 2019, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2019, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described below.

Our principal executive officers do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive officers have determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Management identified the following three material weaknesses that have caused management to conclude that, as of September 30, 2019, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level:

To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

To remediate the material weakness in our documentation, evaluation and testing of internal controls we plan to engage a third-party firm to assist us in remedying this material weakness once resources become available.

We intend to remedy our material weakness with regard to insufficient segregation of duties by hiring additional employees in order to segregate duties in a manner that establishes effective internal controls once resources become available.

Changes in Internal Control over Financial Reporting

No change in our system of internal control over financial reporting occurred during the period covered by this report, the period ended September 30, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

Item 1A: Risk Factors

For our mobile marketing business, see risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2014 filed on April 15, 2015 .

For our interest in Aspire Consulting Group, LLC, see risk factors included in our Current Report on Form 8-K filed on January 1, 2016.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The information set forth below relates to our issuances of securities without registration under the Securities Act of 1933.

During the first quarter of 2019 the company issued a total of 6,685,000 shares to employees and vendors for compensation and services rendered.

On May 2, 2019, we received a notice of conversion under our Certificate of Designation from Aspire Consulting Group LLC for the complete conversion of 66,667 shares of Series A Preferred Stock into 20,000 shares of our common stock. The board of directors approve conversion of the above shares of Series B Preferred Stock into 20,000 shares of our common stock.

These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.

On June 11, 2019, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with the purchasers identified therein (collectively, the “Purchasers”) providing for the issuance and sale to the Purchasers of an aggregate of up to 40,000 shares of our Series D Convertible Preferred Stock (the “Preferred Shares”) and related warrants for gross proceeds to the Company of $200,000.

On October 29, 2019, the Company entered into a membership interest purchase agreement with Resonate Blends LLC. A California limited liability 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. 

Item 3. Defaults upon Senior Securities

None

Item 4. Mine Safety Disclosures

None

Item 5. Other Information

None

Item 6. Exhibits

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.