NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE QUARTER ENDED SEPTEMBER 30, 2017
(UNAUDITED)
NOTE
1 – BASIS OF PRESENTATION AND GOING CONCERN
The
Company
Textmunication Holdings, Inc. (the “Company”)
was incorporated on May 13, 2010 under the laws of the State of California. The Company 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.
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,
2017, the Company has an accumulated deficit of $14,823,257. 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 September 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 September 30, 2017 and 2016 the allowance
for doubtful accounts was $0 and $0, respectively.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE QUARTER ENDED SEPTEMBER 30, 2017
(UNAUDITED)
Convertible
Debt
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 Companycarries 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.
Software
Costs
We
capitalize certain computer software and software development costs incurred in connection with developing or obtaining computer
software for internal use when both the preliminary project stage is completed and it is probable that the software will be used
as intended. Capitalized software costs include only (i) external direct costs of materials and services utilized in developing
or obtaining computer software, (ii) compensation and related benefits for employees who are directly associated with the software
project and (iii) interest costs incurred while developing internal-use computer software. Capitalized software costs are included
in property, plant and equipment on our balance sheet.
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.
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.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE QUARTER ENDED SEPTEMBER 30, 2017
(UNAUDITED)
Financial
assets and liabilities measured at fair value on a recurring basis are summarized below as of September 30, 2017:
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Financial Instruments
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
370,529
|
|
|
$
|
370,529
|
|
Financial
assets and liabilities measured at fair value on a recurring basis are summarized below as of 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.
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, including grants of employee stock options, 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.
Stock
options and warrants issued as compensation to consultants and other non-employees 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.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE QUARTER ENDED SEPTEMBER 30, 2017
(UNAUDITED)
Recent
Accounting Pronouncements
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2014-09, “Revenue from Contracts with Customers (Topic 606).” The new guidance provides new criteria for recognizing
revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company
expects to be entitled in exchange for those goods or services. The new guidance requires expanded disclosures to provide greater
insight into both revenue that has been recognized and revenue that is expected to be recognized in the future from existing contracts.
Quantitative and qualitative information will be provided about the significant judgments and changes in those judgments that
management made to determine the revenue that is recorded. This accounting standard update, as amended, will be effective for
annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting periods.
The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative
effect recognized as of the date of adoption. Early adoption is permitted, but no earlier than fiscal 2017. The Company is currently
assessing the provisions of the guidance and has not determined the impact of the adoption of this guidance on its consolidated
financial statements.
NOTE
3 – RELATED PARTY TRANSACTIONS
As
of September 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 September 30, 2017 and December 31, 2016 were approximately $11,750 and $11,750, respectively
NOTE
4 – LOANS PAYABLE
As
of September 30, 2017 and December 31, 2016, the Company has short term loans payable of $11,500 and $3,712, respectively. During
the nine months ended September 30, 2017 and 2016, the Company received proceeds of $11,500 and $0 and made payments of $9,463
and $100,483, respectively, from certain short-term loans payable with interest rates ranging from 23%-28%.
NOTE
5 - CONVERTIBLE NOTE PAYABLE
Convertible
notes payable consist of the following:
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
Total convertible notes payable
|
|
|
692,010
|
|
|
|
657,059
|
|
Less discounts
|
|
|
(71,875
|
)
|
|
|
(101,595
|
)
|
Convertible notes, net of discount
|
|
$
|
620,135
|
|
|
$
|
555,464
|
|
On
February 28, 2017, we entered into a convertible promissory note pursuant to which we borrowed $14,489. Interest under the convertible
promissory note is 10% per annum, and the principal and all accrued but unpaid interest is due on August 27, 2017. The note is
convertible at any date after the issuance date at noteholders option into shares of our common stock at a variable conversion
price of 50% of the two lowest day market price of our common stock during the previous 20 days immediately preceding the conversion
date . As of September 30, 2017, the maturity was extended to December 31, 2017.
On May 15, 2017, we entered into a convertible
promissory note pursuant to which we borrowed $115,000. Interest under the convertible promissory note is 10% per annum, and the
principal and all accrued but unpaid interest is due on May 15, 2018. The note is convertible at any date after the issuance date
at noteholders option into shares of our common stock at a variable conversion price of 64% of the lowest VWAP of our common stock
during the previous 18 days immediately preceding the conversion date. The Company recorded a debt discount in the amount of $115,000
in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest
method of accretion over the term of the note. Further, the Company recognized a derivative liability of $166,621 and an initial
loss of $51,621 based on the Black Scholes Merton pricing model.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE QUARTER ENDED SEPTEMBER 30, 2017
(UNAUDITED)
Interest expense (excluding amortization of
debt discount) related to the convertible notes payable as of the nine months ended September 30, 2017 and 2016 was $136,737 and
$133,595, respectively.
During the three months ended September 30,
2017, the Company issued 399,151,088 shares of common stock for the partial conversion of $222,178 in convertible notes payable.
The converted portion of the notes also had associated derivative liabilities with fair values on the date of conversion of $1,085,344.
The conversion of the derivative liabilities has been recorded through additional paid-in capital.
The following table presents details of the
changes in the Company’s derivative liabilities associated with its convertible notes for the nine months ended September
30, 2017:
|
|
Amount
|
|
Balance December 31, 2016
|
|
$
|
870,921
|
|
Debt discount originated from derivative liabilities
|
|
|
129,489
|
|
Derivative in excess of face value of the debt recorded to paid-in capital
|
|
|
51,621
|
|
Reclassification of derivative liability to paid-in capital due to debt conversion
|
|
|
(1,085,344
|
)
|
Change in fair market value of derivative liabilities
|
|
|
651,147
|
|
Adjustment to derivative liability due to debt settlement
|
|
|
(247,305
|
)
|
Balance September 30, 2017
|
|
$
|
370,529
|
|
The
Black-Scholes model utilized the following inputs to value the derivative liability at the date of issuance of the convertible
note and at September 30, 2017:
Fair
value assumptions – derivative notes:
|
|
September
30, 2017
|
|
Risk
free interest rate
|
|
|
0.40-0.80
|
%
|
Expected
term (years)
|
|
|
0.01-0.159
|
|
Expected
volatility
|
|
|
289-337
|
%
|
Expected
dividends
|
|
|
0
|
%
|
Settlement Agreements
On February 28, 2017, the Company entered into
a certain settlement agreement with the holder of a certain note payable in the amount of $128,000 issued on September 8, 2015
for total proceeds of $121,755. The Company paid $21,755 cash and $100,000 of the note was purchased and assigned to a new noteholder.
The difference between the original note and settlement amount of $6,245 has been recorded as a gain on settlement of notes payable
as of September 30, 2017. Additionally, the new note holder agreed to forgive $50,000 of the assigned debt. The forgiven debt was
recorded a gain on settlement of notes payable.
On June 23, 2017, the Company entered into
a certain settlement agreement with the holder of a certain note payable in the amount of $237,750 issued on July 22, 2016 and
a carrying amount as of the date of settlement of $249,421 including accrued interest and an associated derivative liability of
$247,305 for 550,000,000 shares of common stock with a fair value on the date of settlement of $495,000. The difference between
the note and settlement amount of $1,726 has been recorded as a gain on settlement of notes payable.
During the nine months ended September 30,
2017, certain notes payable issued on February 13, 2014 and October 21, 2014 was forgiven by the noteholder. The carrying
value of the notes payable and accrued interest of $32,375 was recorded a gain on settlement of notes payable.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE QUARTER ENDED SEPTEMBER 30, 2017
(UNAUDITED)
During the nine months ended September 30,
2017, a note payable issued on April 17, 2014 was forgiven. The carrying value of the note payable of $5,000 was recorded a gain
on settlement of notes payable as of September 30, 2017.
NOTE 6 – 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 (“Aspire”) 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 for the nine months ended September 30, 2017:
|
|
Amount
|
|
Balance
at December 31, 2016
|
|
$
|
454,062
|
|
Income
(loss) from equity method investee
|
|
|
(2,218
|
)
|
Distributions
received from Aspire
|
|
|
-
|
|
Balance
at September 30, 2017
|
|
$
|
451,844
|
|
NOTE
7 – 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 $5,268 and $15,803 for the nine months ended September 30, 2017 and 2016, 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 $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. 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.
There was 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. 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.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE QUARTER ENDED SEPTEMBER 30, 2017
(UNAUDITED)
NOTE
8 – 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.
On
May 9, 2017, the Board of Directors voted to designate a class of preferred stock entitled Series C Convertible Preferred Stock,
consisting of up to 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.
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 nine months ended June 30, 2017, the officer exchanged 1,750,000,000 of the
common shares for 2,000,000 shares of newly designated Series C Preferred stock.
During
the nine months ended September 30, 2017, the Company issued 1,178,623,690 shares of common stock for the partial conversion of
$348,258 convertible notes payable and $46,888 accrued interest. The converted portion of the notes also had associated derivative
liabilities with fair values on the date of conversion of $1,085,344. The conversion of the derivative liabilities has been recorded
through additional paid-in capital.
During
the nine months ended September 30, 2017, the Company issued 77,500,000 shares of common stock for services valued at $115,100.
NOTE
9 – SUBSEQUENT’ EVENTS
Subsequent
to year end, the Company issued 309,191,000 shares of common stock for settlement of debt with a principal balance of $__________.