NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2017
NOTE
1 – BASIS OF PRESENTATION AND GOING CONCERN
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 June 30, 2017, the Company has an accumulated deficit of $14,206,142. 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. 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.
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 June 30, 2017, 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 June 30, 2017 and 2016 the allowance for
doubtful accounts was $0 and $0 and bad debt expense of $0 and $0, respectively.
Revenue
Recognition
We
recognize revenue in accordance with Accounting Standards Codification, or (“ASC”), 605, Revenue Recognition. We recognize
revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service
has been provided to the customer; (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection
of our fees is reasonably assured.
Thus,
we recognize subscription revenue on a monthly basis, as services are provided. Customers are billed for the subscription on a
monthly, quarterly, semi-annual or annual basis, at the customer’s option.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2017
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.
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.
Financial
assets and liabilities measured at fair value on a recurring basis are summarized below for the six months ended June 30, 2017:
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Financial
Instruments
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
444,943
|
|
|
$
|
444,943
|
|
Financial
assets and liabilities measured at fair value on a recurring basis are summarized below for the year ended December 31, 2016:
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Financial
Instruments
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
870,921
|
|
|
$
|
870,921
|
|
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.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2017
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.
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
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.
NOTE
4 – RELATED PARTY TRANSACTIONS
As
of June 30, 2017, the Company had advances due to a related party. The loans are due on demand and have no interest. Amounts outstanding
as of June 30, 2017 and December 31, 2016 were approximately $11,750 and $11,750, respectively
NOTE
5 – LOANS PAYABLE
As
of June 30, 2017 and December 31, 2016, the Company has short term loans payable of $11,500 and $3,712, respectively. During the
six months ended June 30, 2017 and 2016, the Company received proceeds of $11,500 and $0 and made payments of $3,712 and $34,594,
respectively, from certain short-term loans payable with interest rates ranging from 23%-28%.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2017
NOTE
6 - CONVERTIBLE NOTE PAYABLE
Convertible
notes payable consist of the following as of June 30, 2017 and December 31, 2016:
|
|
2017
|
|
|
2016
|
|
Total convertible notes
payable
|
|
|
469,977
|
|
|
|
657,059
|
|
Less discounts
|
|
|
(4,669
|
)
|
|
|
(101,595
|
)
|
Convertible notes
net of discount
|
|
$
|
465,308
|
|
|
$
|
555,464
|
|
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.
The
following table presents details of the Company’s derivative liabilities associated with its convertible notes as of June
30, 2017 and December 31, 2016:
|
|
Amount
|
|
Balance December 31, 2016
|
|
$
|
870,921
|
|
Debt discount originated from derivative
liabilities
|
|
|
14,489
|
|
Initial loss recorded
|
|
|
11,658
|
|
Adjustment to derivative liability due
to debt conversion
|
|
|
(1,053,930
|
)
|
Change in fair
market value of derivative liabilities
|
|
|
601,805
|
|
Balance March 31, 2017
|
|
$
|
444,943
|
|
During
the three months ended June 30, 2017, the Company issued 547,756,269 shares of common stock with a fair value of $270,928 for
the partial conversion of convertible notes payable. The converted portion of the notes also had associated derivative liabilities
with fair values on the date of conversion of $1,053,930. The conversion of the derivative liabilities has been recorded through
additional paid-in capital.
The
Black-Scholes model utilized the following inputs to value the derivative liability at the date of issuance of the convertible
note and at June 30, 2017:
Fair
value assumptions – derivative notes:
|
|
June
30, 2017
|
|
Risk free interest rate
|
|
|
0.40-0.80
|
%
|
Expected term (years)
|
|
|
0.01-0.159
|
|
Expected volatility
|
|
|
289-337
|
%
|
Expected dividends
|
|
|
0
|
%
|
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2017
NOTE
7 – INVESTMENT IN ASPIRE CONSULTING GROUP, LLC
On
January 5, 2016, the Company entered into a Share Exchange Agreement with Aspire Consulting Group, LLC, a Virginia 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.
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 June 30, 2017 and December 31, 2016:
|
|
Amount
|
|
Balance December 31,
2016
|
|
$
|
454,062
|
|
Fair value of shares issued for ownership
49% interest in Aspire
|
|
|
-
|
|
Income (loss) from equity method
investee
|
|
|
(1,726
|
)
|
Distributions
received from Aspire
|
|
|
-
|
|
Balance June
30, 2017
|
|
$
|
452,336
|
|
NOTE
8 – 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 $5,268 and $10,535 for the six months ended June
30, 2016 and 2015, 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 $100,000 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.
Litigations,
Claims and Assessments
The
Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business.
Included
in this litigation is a dispute over a $36,363 note secured by 59,400,000 shares of the Company’s common stock. In the view
of management, there are significant issues of fact regarding the proper issuance and assumption of this note by the Company.
Additionally, there are issues over the validity of the prior debt. Regardless, the Company is in discussions to settle this note,
and while no guarantee can be given as to the successful resolution of this matter, the Company believes it will be resolved without
litigation.
However,
litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise that may harm its business.
The Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the
aggregate, a material adverse effect on its business, financial condition or operating results.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2017
On
July 7, 2016, the Company entered into an agreement to settle the note and accrued interest for 2,000,000 shares of common stock
valued at $146,000. (See Note 6).
NOTE
9 – STOCKHOLDERS’ EQUITY
The
Company is authorized to issue an aggregate of 4,000,000,000 shares of common stock with a par value of $0.0001. The Company is
also authorized to issue 10,000,000 shares of “blank check” preferred stock with a par value of $0.0001, which includes
4,000,000 shares of preferred stock.
On
May 9, 2017, pursuant to Article III of the Company’s Articles of Incorporation, the Board of Directors voted to designate
a class of preferred stock entitled Series C Convertible Preferred Stock, consisting of up 2,000,000 shares, par value $0.0001.
Under the Certificate of Designation, holders of Series C Convertible Preferred Stock will participate on an equal basis per-share
with holders of common stock, Series A Preferred Stock and Series B Preferred Stock in any distribution upon winding up, dissolution,
or liquidation. Holders of Series C Convertible Preferred Stock are entitled to vote together with the holders of our common stock
on all matters submitted to shareholders at a rate of 875 votes for each share held. Holders of Series C Convertible Preferred
Stock are entitled to convert each share held for 875 shares of common stock.
As
of June 30, 2017, and December 31, 2015, 1,227,993,542 and 199,404,940 shares of common stock, 0 and 0 shares of Series A preferred
stock and 66,667 and 0 Series B preferred stock and 66,667 and 2,000,000 and 0 Series C preferred stock, were issued and outstanding,
respectively.
During
the six months ended June 30, 2017, the Company issued 547,756,269 shares of common stock with a fair value of $270,928 for the
partial conversion of convertible notes payable. The converted portion of the notes also had associated derivative liabilities
with fair values on the date of conversion of $1,053,930. The conversion of the derivative liabilities has been recorded through
additional paid-in capital.
On
February 16, 2017, the Company issued a total of 2,000,000,000 shares of our common stock to our officer and director, Wais Asefi,
as compensation for services rendered. During the six months ended June 30, 2017, the officer exchanged the common shares for
2,000,000 shares of newly designated Series C Preferred stock.
During
the six months ended June 30, 2017, the Company issued 77,500,000 shares of common stock for services valued at $115,100.
NOTE
10 – SUBSEQUENT EVENTS
Effective
July 3, 2017, the Company and Auctus Fund, LLC (“Auctus”) entered into a Settlement Agreement and Mutual General Release
(the “Settlement Agreement”). Pursuant to the Settlement Agreement, the parties agreed as follows:
|
●
|
The
Company agreed to issue 550,000,000 shares of our common stock to Auctus in settlement of a Securities Purchase Agreement
with Auctus dated July 22, 2016;
|
|
|
|
|
●
|
The
shares are subject to a Leak-Out Agreement, which provides that Auctus may publicly sell daily the greater of 4,910,714 shares
or 20% of the average daily trading volume over the prior 10-day trading period; and
|
|
|
|
|
●
|
Upon
receipt of the Shares and an irrevocable letter of instruction to our transfer agent, which was executed on July 3, 2017,
the parties agreed to release each other from all claims.
|
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2017
Effective
August 4, 2017, our company and Carebourn Capital, L.P. (“Carebourn”) entered into a Debt Settlement Agreement. Pursuant
to the Settlement Agreement, the parties agreed as follows:
|
●
|
We
agreed to issue 70,000,000 shares of our common stock to Carebourn in settlement of the balance remaining on a convertible
promissory note dated November 5, 2015, which was amended on July 12, 2016;
|
|
●
|
$30,500
of the note was sold to a third party, and we owed $15,250 to Carebourn, which amount is settled by the issuance of shares;
and
|
|
●
|
Upon
receipt of the shares, the parties agreed to release each other from all claims.
|