UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-Q
____________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2015
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to____________
Commission File No. 000-55357
THAT MARKETING SOLUTION, INC.
(Exact name of registrant as specified in its charter)
| | |
| Nevada | 99-0379615 |
| (State or other jurisdiction of | (I.R.S. Employer Identification No.) |
| incorporation or organization) | |
4535 South 2300 East, Suite B
Salt Lake City, Utah 84117
(Address of principal executive offices)
(866) 731-8882
(Registrant’s telephone number, including area code)
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.
Yes [ X ] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Not applicable.
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date:
January 15, 2016 - Common – 516,442,769
January 15, 2016 - Preferred – 1,000,000 shares Series A Preferred Stock
PART I
Item 1. Financial Statements
The financial statements of the registrant required to be filed with this Quarterly Report on Form 10-Q were prepared by management and commence below, together with related notes. In the opinion of management, the financial statements fairly present the financial condition of the registrant.
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THAT MARKETING SOLUTION, INC.
Balance Sheets
| | | | | | |
| | November 30, | | August 31, |
| | 2015 | | 2015 |
| | (Unaudited) | | |
| ASSETS | | | |
| | | | |
| CURRENT ASSETS | | | |
| Cash | $ | 2,774 | | $ | 894 |
| Prepaid expenses | | - | | | 15,739 |
| Debt issuance costs | | - | | | 3,641 |
| Inventory | | 95,116 | | | 98,911 |
| Total Current Assets | | 97,890 | | | 119,185 |
| | | | | | |
| OTHER ASSETS | | | | | |
| Equipment, net of accumulated depreciation of $1,435 | | 42,201 | | | - |
| Deposits | | 1,997 | | | 1,997 |
| Total Other Assets | | 44,198 | | | 1,997 |
| | | | | | |
| TOTAL ASSETS | $ | 142,088 | | $ | 121,182 |
| | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | | | | | |
| | | | | | |
| CURRENT LIABILITIES | | | | | |
| Accounts payable | $ | 21,960 | | $ | 17,782 |
| Accounts and wages payable – related party | | 157,391 | | | 174,137 |
| Accrued interest payable - related party | | 390 | | | 265 |
| Convertible notes payable, net of $0 and $29,891 debt discount, respectively | | 296,271 | | | 245,109 |
| Accrued interest | | 16,412 | | | 9,885 |
| Deferred revenue | | 7,750 | | | 7,750 |
| Deferred revenue, related party | | 49,000 | | | 45,000 |
| Capital lease obligation, current portion | | 11,339 | | | - |
| Derivative liability | | 2,102,428 | | | 278,393 |
| Total Current Liabilities | | 2,662,941 | | | 778,321 |
| | | | | | |
| LONG-TERM LIABILITIES | | | | | |
| Capital lease obligation | | 19,349 | | | - |
| Convertible note payable, net of $56,224 debt discount | | 3,776 | | | - |
| Total Long-Term Liabilities | | 23,125 | | | - |
| | | | | | |
| Total Liabilities | | 2,686,066 | | | 778,321 |
| | | | | | |
| STOCKHOLDERS' EQUITY (DEFICIT) | | | | | |
| Preferred stock; $0.0001 par value, 50,000,000 shares authorized, no shares issued and outstanding, respectively | | - | | | - |
| Common stock; $0.0001 par value, 1,500,000,000 shares authorized, 461,526,102 and 283,950,000 shares issued and outstanding, respectively | | 46,153 | | | 28,395 |
| Additional paid-in capital | | 1,101,167 | | | 171,854 |
| Accumulated deficit | | (3,691,298) | | | (857,388) |
| Total Stockholders' Equity (Deficit) | | (2,543,978) | | | (657,139) |
| | | | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $ | 142,088 | | $ | 121,182 |
The accompanying notes are an integral part of these unaudited financial statements.
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THAT MARKETING SOLUTION, INC.
Statements of Operations
(Unaudited)
| | | | | | |
| | |
| | For the Three Months Ended |
| | November 30, |
| | 2015 | | 2014 |
| | | | |
| REVENUES | $ | 19,986 | | $ | - |
| | | | | | |
| COST OF SALES | | | | | |
| Cost of product sold | | 17,807 | | | - |
| | | | | | |
| GROSS MARGIN | | 2,179 | | | - |
| | | | | | |
| OPERATING EXPENSES | | | | | |
| Depreciation | | 1,435 | | | - |
| General and administrative | | 68,414 | | | 47,583 |
| | | | | | |
| Total Operating Expenses | | 69,849 | | | 47,583 |
| | | | | | |
| OPERATING LOSS | | (67,670) | | | (47,583) |
| | | | | | |
| OTHER INCOME (EXPENSE) | | | | | |
| Penalty on convertible note default | | (282,575) | | | - |
| Loss on derivative | | (2,200,508) | | | - |
| Gain on extinguishment of convertible debt | | 58,283 | | | - |
| Interest expense | | (341,440) | | | (460) |
| | | | | | |
| Total Other Income (Expense) | | (2,766,240) | | | (460) |
| | | | | | |
| NET LOSS | $ | (2,833,910) | | $ | (48,043) |
| | | | | | |
| BASIC NET LOSS PER COMMON SHARE | $ | (0.01) | | $ | (0.00) |
| | | | | | |
| BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | | 424,043,535 | | | 282,821,978 |
The accompanying notes are an integral part of these unaudited financial statements.
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THAT MARKETING SOLUTION, INC.
Statements of Cash Flows
(Unaudited)
| | | | | | |
| | For the Three Months Ended |
| | November 30, |
| | 2015 | | 2014 |
| | | | |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | |
| Net loss | $ | (2,833,910) | | $ | (48,043) |
| Items to reconcile net loss to net cash used in operating activities: | | | | | |
| Debt discount amortization | | 316,244 | | | - |
| Debt offering cost amortization | | 3,641 | | | - |
| Loss on derivative | | 2,200,508 | | | - |
| Gain on extinguishment of convertible debt | | (58,283) | | | |
| Penalty on convertible note default | | 282,575 | | | - |
| Depreciation | | 1,435 | | | - |
| Changes in operating assets and liabilities | | | | | |
| Decrease in inventory | | 3,795 | | | - |
| Decrease in prepaid expenses | | 15,739 | | | - |
| Increase in deferred revenue, related party | | 4,000 | | | - |
| Increase in accounts payable | | 10,705 | | | 16,788 |
| Increase in related party accounts payable and accrued interest | | 8,692 | | | 6,460 |
| Net Cash Used in Operating Activities | | (44,859) | | | (24,795) |
| | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
| Cash payments on purchase of capital lease equipment | | (11,168) | | | - |
| Net Cash Used in Investing Activities | | (11,168) | | | - |
| | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| Proceeds from advances, related party | | 21,900 | | | 23,575 |
| Payments on related party advances | | (47,213) | | | - |
| Proceeds from convertible notes payables | | 85,000 | | | - |
| Payments on capital lease obligation | | (1,780) | | | - |
| Net Cash Provided by Financing Activities | | 57,907 | | | 23,575 |
| | | | | | |
| (DECREASE) INCREASE IN CASH | | 1,880 | | | (1,220) |
| | | | | | |
| CASH AT BEGINNING OF PERIOD | | 894 | | | 2,262 |
| | | | | | |
| CASH AT END OF PERIOD | $ | 2,774 | | $ | 1,042 |
| | | | | | |
| CASH PAID FOR: | | | | | |
| Interest | $ | 2,354 | | $ | - |
| Income taxes | $ | - | | $ | - |
| | | | | | |
NON-CASH INVESTING AND FINANCING ACTIVITES
| | | | | | |
| Common stock issued for convertible notes and accrued interest | $ | 286,305 | | $ | - |
| Discount on convertible notes payable from derivative instrument | $ | 342,575 | | $ | - |
| Assets acquired under capital lease | $ | 32,468 | | $ | - |
| Note payable issued for asset purchase | $ | - | | $ | 100,000 |
| Common stock issued for asset purchase | $ | - | | $ | 118,000 |
The accompanying notes are an integral part of these unaudited financial statements.
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THAT MARKETING SOLUTION, INC.
Notes to Financial Statements
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The unaudited interim financial statements included herein have been prepared by That Marketing Solution, Inc. (Formerly Vista Holding Group, Corp.) (the Company) in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (the SEC). These interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Form 10-K for the year ended August 31, 2015, as filed with the SEC. We believe that all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein and that the disclosures made are adequate to make the information not misleading. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year as reported in Form 10-K have been omitted.
NOTE 2 - RELATED PARTY TRANSACTIONS
During the three months ended November 30, 2015 and the year ended August 31, 2015, an officer and director of the Company loaned $21,900 and $247,269 to the Company for operating expenses, respectively. As of November 30, 2015 and August 31, 2015, the officer and director is owed $141,824 and $167,137 for amounts advanced, respectively, and $390 and $265 in accrued interest, respectively.
At November 30, 2015 and August 31, 2015, the Company owed officers and directors of the Company $10,000 and $7,000 for accrued wages, respectively.
Between June and November 2015, the Company received a total of $49,000 in deposits for product sales to a related party entity. At November 30, 2015 and August 31, 2015, the Company has deferred $49,000 and $45,000 in related party revenue, respectively.
NOTE 3 – CONVERTIBLE NOTES PAYABLE
Senior Convertible Promissory Notes
During September 2015, holders of two Senior Convertible Promissory Notes in the amount of $137,500 each, agreed to extend the maturity dates in exchange for extension fees. One Senior Convertible Promissory Note was extended one month, to October 20, 2015 in exchange for a 15%, or $25,753, extension fee due and payable on October 20, 2015. The other Senior Convertible Promissory Note was extended to September 28, 2015 in exchange for $6,000 extension fee due and payable on September 20, 2015. With the exception of these matters, all other terms of the Senior Convertible Promissory Note and related loan documents remain in full force and effect.
Effective October 20, 2015, the Company defaulted on the two Senior Convertible Promissory Notes and the face amount of each note of $262,500, plus extension penalties and interest, became due and payable. As a result, the Company recognized debt penalty principal additions of $282,575.
During the three months ended November 30, 2015, the holders of two Senior Convertible Promissory Notes converted a total of $286,305 in principal into 177,576,102 shares of the Company’s common stock.
At November 30, 2015 and August 31, 2015, the Company owes the holders of the Senior Convertible Promissory Notes principal amounts of $271,270 and $275,000, respectively.
Convertible Promissory Note
On October 15, 2015, the Company issued a Convertible Promissory Note (“Convertible Note”) in the amount of $60,000. The Convertible Note carries a 10% original issue discount, is due October 15, 2017, accrues interest at 12% per annum and is convertible into shares of the Company’s common stock at the lower of $0.10 per share, or a 60% discount from the lowest trade price within 25 trading days prior to the notice of conversion.
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Original Discount Convertible Promissory Note
On November 10, 2015, the Company issued an Original Discount Convertible Promissory Note (“Discount Note”) in the amount of $25,000. The Discount Note carries a maturity amount of $32,500, is due May 10, 2016, accrues interest at 10% per annum and is convertible into shares of the Company’s common stock after the maturity date at a 42.5% discount from the lowest intra-day traded price within 15 trading days prior to the notice of conversion.
NOTE 4 – DERIVATIVE LIABILITIES
The Company analyzed the conversion options embedded in the Senior Convertible Promissory Notes and Common Stock Purchase Warrants for derivative accounting consideration under Accounting Standards Codification 815, Derivatives and Hedging, and determined that the instruments embedded in the above referenced Senior Convertible Promissory Notes and Common Stock Purchase Warrants should be classified as liabilities and recorded at fair value due to their being no explicit limit to the number of shares to be delivered upon settlement of the conversion options. Additionally, the above referenced Senior Convertible Promissory Notes and Common Stock Purchase Warrants contain dilutive issuance clauses. Under these clauses, based on future issuances of the Company’s common stock or other convertible instruments, the conversion price of the above referenced Senior Convertible Promissory Notes and Common Stock Purchase Warrants can be adjusted downward. Because the number of shares to be issued upon settlement of the above referenced Senior Convertible Promissory Notes and Common Stock Purchase Warrants cannot be determined under this instrument, the Company cannot determine whether it will have sufficient authorized shares at a given date to settle any other future share instruments.
On October 15, 2015, the Company issued a Convertible Promissory Note in the amount of $60,000. Upon the date of issuance of the Convertible Promissory Note, $60,000 was recorded as debt discount and $88,033 was recorded as day one loss on derivative liability.
Effective October 20, 2015, the Company defaulted on the two Senior Convertible Promissory Notes and the face amount of each note of $262,500, plus extension penalties and interest, became due and payable. As a result, the Company recognized debt penalty principal additions of $282,575. Upon the default, $282,575 was recorded as debt discount and $139,790 was recorded as day one loss on derivative liability.
During the three months ended November 30, 2015, the holders of two Senior Convertible Promissory Notes converted a total of $286,305 in principal into 177,576,102 shares of the Company’s common stock, resulting in a loss on conversion of $661,657 and a gain on extinguishment of convertible debt of $719,048, or a net gain of $58,283.
The fair value of the conversion options at November 30, 2015 was determined to be $2,102,428 using a Black-Scholes option-pricing model.
The following table summarizes the derivative liabilities included in the balance sheet at November 30, 2015:
| | | |
| Balance, August 31, 2015 | $ | 278,393 |
| Debt discount | | 342,575 |
| Gain on extinguishment of convertible debt | | (719,048) |
| Losses on change in fair value | | 2,200,508 |
| Balance, November 30, 2015 | $ | 2,102,428 |
The Company valued its derivatives liabilities using the Black-Scholes option-pricing model. Assumptions used during the period ended November 30, 2015 include (1) risk-free interest rates between 0.01% to 1.65%, (2) lives of between 0.08 and 4.31 years, (3) expected volatility of between 107% to 590%, (4) zero expected dividends, (5) conversion prices as set forth in the related instruments, and (6) the common stock price of the underlying share on the valuation dates.
NOTE 5 – FINANCIAL INSTRUMENTS
ASC 820, Fair Value Measurements (ASC 820) and ASC 825, Financial Instruments (ASC 825), requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. It
7
establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:
Level 1 - Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 - Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3 - Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist principally of cash, accounts payable, and accrued liabilities. Pursuant to ASC 820 and 825, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
The following table sets forth by level with the fair value hierarchy the Company’s financial assets and liabilities measured at fair value on November 30, 2015:
| | | | | | | | | |
| | Level 1 | Level 2 | Level 3 | Total |
| Assets | | | | | | | | |
| None | $ | - | $ | - | $ | - | $ | - |
| Liabilities | | | | | | | | |
| Derivative financial instruments | $ | - | $ | - | $ | 2,102,248 | $ | 2,102,248 |
The following table sets forth by level with the fair value hierarchy the Company’s financial assets and liabilities measured at fair value on August 31, 2015:
| | | | | | | | | |
| | Level 1 | Level 2 | Level 3 | Total |
| Assets | | | | | | | | |
| None | $ | - | $ | - | $ | - | $ | - |
| Liabilities | | | | | | | | |
| Derivative financial instruments | $ | - | $ | - | $ | 278,393 | $ | 278,393 |
NOTE 6 - COMMON STOCK
During November 2015, the Company’s principal stockholder voted to amend the Company’s Articles of Incorporation to increase its authorized common stock from 500,000,000 to 1,500,000,000 shares.
During the three months ended November 30, 2015, the holders of two Senior Convertible Promissory Notes converted a total of $286,305 in principal into 177,576,102 shares of the Company’s common stock.
NOTE 7 – COMMON STOCK WARRANTS
As part of Securities Purchase Agreements, the Company agreed to issue Common Stock Purchase Warrants to purchase a total of two million (2,000,000) shares of the Company’s common stock at any time from the date of issuance for a period of five years at an exercise price of $0.50 per share, subject to adjustment in the event of stock dividends, stock splits and the like. At November 30, 2015, the exercise price is $0.00044 per share, or the lowest conversion price on debt conversions during the period ended November 30, 2015.
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The following table summarizes the outstanding warrants and associated activity for the three months ended November 30, 2015:
| | | | | | | | |
| | |
Number of Warrants Outstanding | | |
Weighted Average Price | | Weighted Average Remaining Contractual Life |
| Balance, August 31, 2015 | | 2,000,000 | | | 0.50 | | 4.56 |
| Granted | | - | | | - | | - |
| Exercised | | - | | | - | | - |
| Expired | | - | | | - | | - |
| Balance, November 30, 2015 | | 2,000,000 | | $ | 0.00044 | | 4.31 |
NOTE 8 - CAPITAL LEASE
During October 2015, the Company entered into a capital lease for equipment for use in its operating facilities valued at $43,636. The lease calls for a down payment of $10,483 and 24 monthly payments of $1,165. For financial statement purposes, the present values of the net minimum capital lease payments have been capitalized and are being amortized over the useful life of the asset. The lease has been imputed with interest at an annual rate of 10.31 percent. In most circumstances, management expects that in the normal course of business, leases will be renewed or replaced by other leases.
Amortization expense on property and equipment under capital leases is included in depreciation expense. Depreciation expense was $1,435 for the three months ended November 30, 2015.
Interest expense associated with capital leases is included in the consolidated statements of operations. Interest expense on the capital leases was $550 for the three months ended November 30, 2015.
NOTE 9 - GOING CONCERN
The Company's financial statements are prepared using Generally Accepted Accounting Principles applicable to a going concern that contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has recently accumulated losses of $2,833,910 as of November 30, 2015 and has negative working capital. All of these items raise substantial doubt about its ability to continue as a going concern. Management's plans with respect to alleviating the adverse financial conditions that caused management to express substantial doubt about the Company's ability to continue as a going concern are as follows:
The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand and loans from directors and/or private placement of common stock.
There can be no assurance that the Company will be able to achieve its business plans, raise any more required capital or secure the financing necessary to achieve its current operating plan. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 10 – SUBSEQUENT EVENTS
During January 2016, holders of two Senior Convertible Promissory Notes converted a total of $26,050 in principal into 54,916,667 shares of the Company’s common stock at an average conversion price of $0.005 per share.
On January 7, 2016, the Company executed an Original Issue Discount Convertible Promissory Note payable to Beaufort Capital Partners LLC. The Original Issue Discount Convertible Promissory Note was sold for a purchase price of $25,000, which amount shall become due and payable on June 7, 2016. Absent any Event of Default, the Company may prepay the Original Issue Discount Convertible Promissory Note prior to the maturity date by paying a sum of $31,000. All overdue unpaid principal shall entail a late fee at the rate of 10% per annum. At any time after the maturity date and ending on the date that the Original Issue Discount Convertible Promissory Note is no
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longer outstanding, the Original Issue Discount Convertible Promissory Note can be converted into shares of the Company’s common stock at a 42.5% discount from the lowest intra-day traded price of such common stock within the 15 days prior to the date of conversion.
On January 7, 2016, the Company filed with the Nevada Secretary of State a Certificate of Designation designating a series of preferred stock as “Series A Preferred Stock.” The Series A Preferred Stock consists of one million (1,000,000) shares and the holders of such shares shall be entitled to notice of any stockholders’ meeting and to vote as a single class upon any matter submitted to the stockholders for a vote as follows: each Series A Holder shall have such number of votes as is determined by multiplying (a) the number of shares of Series A Preferred Stock held by such Holder, and (b) 1,000. The Series A Preferred Stock shall not have any dividend, conversion or redemption rights or any liquidation preference. The designation of the Series A Preferred Stock and its rights and preferences was done by the Company’s Board of Directors pursuant to the authority granted to the Board under Article IV of the Company’s Amended and Restated Articles of Incorporation, as amended.
On January 7, 2016, the Company issued one million (1,000,000) shares of its Series A Preferred Stock to its CEO, Darren Lopez, in consideration of the retirement of Company debt owed to Mr. Lopez in the amount of $10,000.
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Item 2. Management’s Discussions and Analysis of Financial Condition and Results of Operations.
Forward-looking Statements
Statements made in this Quarterly Report which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and our business, including, without limitation, (i) our ability to raise capital, and (ii) statements preceded by, followed by or that include the words “may,” “would,” “could,” “should,” “expects,” “projects,” “anticipates,” “believes,” “estimates,” “plans,” “intends,” “targets” or similar expressions.
Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following, general economic or industry conditions, nationally and/or in the communities in which we may conduct business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting our current or potential business and related matters.
Accordingly, results actually achieved may differ materially from expected results in these statements. Forward-looking statements speak only as of the date they are made. We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.
Results of Operation
For The Three Months Ended November 30, 2015 Compared to The Three Months Ended November 30, 2014.
We had $19,986 and $0 in revenue in the quarterly periods ended November 30, 2015 and 2014, respectively. Our cost of sales and operating expenses increased to $17,807 and $69,849 during the quarterly period ended November 30, 2015, respectively, from $0 and $47,583 in the year-ago period, respectively.
In the quarter ended November 30, 2015 we incurred interest expense of $341,440 compared to $460 in the quarter ended November 30, 2014. The increase in interest expense in the period ended November 30, 2015 is mainly related to $316,244 in interest from the amortization of debt discounts on convertible notes payable.
In the quarter ended November 30, 2015 we incurred default penalties totaling $282,575 on two Senior Convertible Promissory Notes, losses on related convertible debt derivatives of $2,200,508 and gains on extinguishment of convertible debt of $58,283, we had no such losses during the period ended November 30, 2014.
For the three months ended November 30, 2015, our net loss was $2,833,910, or $0.01 per share, as compared to a net loss of $48,043, or $0.00 per share, during the year-ago period.
Liquidity
The Company had cash on hand of $2,774 as of November 30, 2015. We believe that this cash on hand will not be sufficient to meet our expenses through the end of our 2016 fiscal year. We will have to seek additional financing through either a private placement of our stock or through debt financing. While management expects to be able to raise the required funds, there is no guarantee that we can obtain adequate financing. Our ability to achieve a level of profitable operations and/or additional financing may affect our ability to continue as a going concern.
We are currently beginning to implement and scale our operations, including the launch of our Low T, That Vitamin and Lion’s Fuel Leg and lung products, and have received an order using our micellization manufacturing process. There can be no assurance that these operations will be successful and if they do not provide positive cash flow, the Company may need to raise additional capital through further debt and/or equity offerings. In this regard, on January 7, 2016, which is subsequent to the end of the period covered by this Report, the Company issued to Beaufort Capital Partners LLC (the “Holder”) an Original Issue Discount Promissory Note for a purchase price of $25,000 (the “Note”), which Note will become due and payable on June 7, 2016, or such later date as the Holder may agree in writing. For a discussion of the principal terms of the Note, see the Company’s Current Report on Form 8-K dated January 7, 2016, filed with the Securities and Exchange Commission on January 13, 2016.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on that evaluation, our chief executive officer and chief financial officer concluded that, as of November 30, 2015, our disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules, regulations and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. This material deficiency is due to a lack of adequate internal controls and the absence of an audit committee.
Changes in internal control over financial reporting
There were no significant changes in our internal controls over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None; not applicable.
Item 1A. Risk Factors.
Not required.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Except as indicated below, the Company has not sold any equity securities during the period covered by this Report that were not registered under the Securities Act and that have not already been disclosed in an Annual Report on Form 10-K or a Current Report on Form 8-K.
We have convertible promissory notes outstanding, the holders of which may convert the amount owed to it to shares of common stock. During the three month period ended November 30, 2015, holders converted debt to shares of common stock (equity) as follows:
12
| | | |
| Date | Conversion Amount | Shares of Common Stock |
| 10-09-2015 | $7,500.00 | 57,692 |
| 10-21-2015 | $19,000.00 | 537,482 |
| 10-23-2015 | $99,470.00 | 9,800,000 |
| 10-28-2015 | $30,000.00 | 12,500,000 |
| 11-02-2015 | $17,400.00 | 12,000,000 |
| 11-04-2015 | $20,000.00 | 13,793,103 |
| 11-05-2015 | $31,755.00 | 21,900,000 |
| 11-10-2015 | $11,500.00 | 16,911,765 |
| 11-11-2015 | $12,750.00 | 15,000,000 |
| 11-16-2015 | $14,905.00 | 30,625,886 |
| 11-20-2015 | $8,300.00 | 18,863,636 |
| 11-24-2015 | $7,700.00 | 14,000,000 |
| 11-27-2015 | $6,025.00 | 11,586,538 |
Item 3. Defaults Upon Senior Securities.
Effective October 20, 2015, the Company defaulted on the two Senior Convertible Promissory Notes and the face amount of each note of $262,500, plus extension penalties and interest, became due and payable. As a result, the Company recognized debt penalty principal additions of $282,575.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
During the quarterly period ended November 30, 2015, there were no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors.
Item 6. Exhibits.
Exhibit No. Identification of Exhibit
| | |
| 31.1 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act provided by Darren Lopez, CEO. |
| 31.2 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act provided by Darren Lopez, Acting CFO. |
| 32 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 provided by Darren Lopez, CEO and Acting CFO. |
| 101.INS | XBRL Instance Document |
| 101.PRE. | XBRL Taxonomy Extension Presentation Linkbase |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbas |
| 101.SCH | XBRL Taxonomy Extension Schema |
13
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
THAT MARKETING SOLUTION, INC.
| | | | | |
| Date: | January 22, 2016 | | By: | /s/ Darren Lopez |
| | | | | CEO, Treasurer, Secretary, Acting CFO and Chairman of the Board |
14
Exhibit 31-1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Darren Lopez, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of That Marketing Solution, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions);
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| | | | | |
| Date: | January 22, 2016 | | By: | /s/ Darren Lopez |
| | | | | Darren Lopez, CEO |
Exhibit 31-2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Darren Lopez, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of That Marketing Solution, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions);
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| | | | | |
| Date: | January 22, 2016 | | By: | /s/Darren Lopez |
| | | | | Darren Lopez, Treasurer, and Acting CFO |