NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2017
(AUDITED)
NOTE
1 – BASIS OF PRESENTATION AND GOING CONCERN
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 in to 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 (post split) new shares of common stock of Holdings in
exchange for 100% of the Company’s issued and outstanding shares.
Basis
of Presentation
Our
financial statements are presented in conformity with accounting principles generally accepted in the United States of America,
as reported on our fiscal years ending on December 31, 2017 and 2016. The accompanying consolidated financial statements include
the accounts of Textmunication Holdings, Inc. and its wholly owned subsidiary, Textmunication, Inc. All significant intercompany
balances and transactions have been eliminated in consolidation.
We
have summarized our most significant accounting policies.
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 December 31, 2017, the Company has incurred continuing operating losses and had an accumulated deficit
of $15,150,240. 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 an original 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 December 31, 2017 and 2016 no cash balances exceeded
the federally insured limit.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2017
(AUDITED)
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 December 31, 2017, and 2016 the allowance
for doubtful accounts was $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.
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 YEAR ENDED DECEMBER 31, 2017
(AUDITED)
Financial
assets and liabilities measured at fair value on a recurring basis are summarized below for the year ended December 31, 2017:
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Financial Instruments
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
319,041
|
|
|
$
|
319,041
|
|
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
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
857,795
|
|
|
$
|
857,795
|
|
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.
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. The Company recognizes uncertain tax positions
when it is more likely than not the position will be sustained upon examination by the tax authorities. Interest and penalties
related to uncertain income tax positions are included in Other expense. There were no uncertain tax positions at December 31,
2016 and 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.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2017
(AUDITED)
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.
Software
Development Costs
The
Company applies the principles of FASB ASC 985-20, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed (“ASC 985-20”). ASC 985-20 requires that software development costs incurred in conjunction with product
development be charged to research and development expense until technological feasibility is established. Thereafter, until the
product is released for sale, software development costs must be capitalized and reported at the lower of unamortized cost or
net realizable value of the related product.
The
Company also applies the principles of FASB ASC 350-40, Accounting for the Cost of Computer Software Developed or Obtained for
Internal Use (“ASC 350-40”). ASC 350-40 requires that software development costs incurred before the preliminary project
stage be expensed as incurred. We capitalize development costs related to these software applications once the preliminary project
stage is complete and it is probable that the project will be completed, and the software will be used to perform the function
intended.
For
the year ended December 31, 2017 and 2016, the Company capitalized software development costs in the amount of $45,229 and $0
respectively.
Advertising
Expenses
Advertising
expenses are included in General and administrative expenses in the Statements of Operations and are expensed as incurred. The
Company incurred $26,389 and $4,598 in advertising expenses for the year ended December 31, 2017 and 2016, respectivly.
Recent
Accounting Pronouncements
In
March 2016, the FASB issued ASU 2016-08,
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations
(Reporting Revenue Gross versus Net)
. ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations
and includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred
to the customers. ASU 2016-08 is effective January 1, 2018 to be in alignment with the effective date of ASU 2014-09.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2017
(AUDITED)
In
April 2016, the FASB issued ASU 2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations
and Licensing.
The amendments in ASU 2016-10 clarify the following two aspects of Topic 606: identifying performance obligations
and the licensing implementation guidance, while retaining the related principles for those areas. ASU 2016-10 is effective January
1, 2018 to be in alignment with the effective date of ASU 2014-09.
In
May 2016, the FASB issued ASU 2016-12,
Revenue from Contracts from Customers (Topic 606): Narrow-Scope Improvements and Practical
Expedients.
The amendments in this update affect the guidance in ASU 2014-09, which is not yet effective. The core principle
of the guidance in Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services. The amendments in ASU 2016-12 do not change the core principle of the guidance in Topic 606, but instead affect only
the narrow aspects noted in Topic 606. ASU 2016-12 is effective January 1, 2018 to be in alignment with the effective date of
ASU 2014-09. The Company will adopt the provisions of Topic 606 effective in January 1, 2018 and does not believe the adoption
of the new revenue recognition standard will have a material impact on the Company’s consolidated financial statements.
In
January 2016, the FASB issued ASU 2016-01,
Financial Instruments-Overall: Recognition and Measurement of Financial Assets and
Financial Liabilities.
ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of
financial instruments including requirements to measure most equity investments at fair value with changes in fair value recognized
in net income, to perform a qualitative assessment of equity investments without readily determinable fair values, and to separately
present financial assets and liabilities by measurement category and by type of financial asset on the balance sheet or the accompanying
notes to the financial statements. ASU 2016-01 will be effective for the Company beginning on January 1, 2018 and will be applied
by means of a cumulative effect adjustment to the balance sheet, except for effects related to equity securities without readily
determinable values, which will be applied prospectively. Management has reviewed this pronouncement and has determined that it
would not have a material impact to the consolidated financial statements.
In
February 2016, the FASB issued ASU 2016-02,
Leases
, which requires an entity to recognize long-term lease arrangements
as assets and liabilities on the balance sheet of the lessee. Under ASU 2016-02, a right-of-use asset and lease obligation will
be recorded for all long-term leases, whether operating or financing, while the income statement will reflect lease expense for
operating leases and amortization/interest expense for financing leases. The amendments also require certain new quantitative
and qualitative disclosures regarding leasing arrangements. ASU 2016-02 will be effective for the Company beginning on January
1, 2019. Lessees must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning
of the earliest comparative period presented in the financial statements. Early adoption is permitted. Management does not believe
the adoption of ASU 2016-02 will have a material impact on the Company’s consolidated financial statements.
In
March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging: Effect of Derivative Contract Novations on Existing Hedge Accounting
Relationships, which clarifies that a change in the counterparty to a derivative instrument that has been designated as a hedging
instrument would not, in and of itself, be considered a termination of the derivative instrument, provided that all other hedge
accounting criteria continue to be met. ASU 2016-05 is effective for the Company beginning on January 1, 2017. Early adoption
is permitted, including in an interim period. Management evaluated ASU 2016-05 and determined that the adoption of this new accounting
standard did not have a material impact on the Company’s consolidated financial statements.
In
March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments,
which aims to reduce the diversity of practice in identifying embedded derivatives in debt instruments. ASU 2016-06 clarifies
that the nature of an exercise contingency is not subject to the “clearly and closely” criteria for purposes of assessing
whether the call or put option must be separated from the debt instrument and accounted for separately as a derivative. ASU 2016-06
is effective for the Company beginning on January 1, 2017. Management evaluated ASU 2016-06 and determined that the adoption of
this new accounting standard did not have a material impact on the Company’s consolidated financial statements.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2017
(AUDITED)
In
March 2016, the FASB issued ASU 2016-09,
Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting.
ASU 2016-09 simplifies several aspects of the accounting and presentation of share-based payment transactions, including the
accounting for related income taxes consequences and certain classifications within the statement of cash flows. ASU 2016-09 is
effective for the Company beginning on January 1, 2017. Management evaluated the impact of adopting ASU 2016-09 and determined
that the new accounting standard did not have a material impact on the Company’s consolidated financial statements.
In
August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments” (“ASU 2016-15”). ASU 2016-15 will make eight targeted changes to how cash receipts and cash
payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after
December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which
case it would be required to apply the amendments prospectively as of the earliest date practicable.
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. The provisions of this guidance are to be applied using a retrospective approach which
requires application of the guidance for all periods presented. Management has reviewed this pronouncement and has determined
that it would not have a material impact to the consolidated financial statements.
In
May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718), Scope of Modification Accounting. The amendments
in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity
to apply modification accounting in Topic 718. The amendments in this Update are effective for all entities for annual periods,
and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption
in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been
issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance.
Management has reviewed this pronouncement and has determined that it would not have a material impact to the consolidated financial
statements.
In
July 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic
815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments
(or embedded features) with down round features. When determining whether certain financial instruments should be classified as
liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument
is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified
instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be
accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity
classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic
260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction
of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down
round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20,
Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of
this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content
in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the
amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after
December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for
all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments
should be reflected as of the beginning of the fiscal year that includes that interim period.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2017
(AUDITED)
NOTE
3 – RELATED PARTY TRANSACTIONS
Loans
due to related parties are due on demand and have no interest. Amounts outstanding as of December 31, 2017 and 2016 was approximately
$11,750 and $11,750, respectively
Note
4 – LOANS PAYABLE
As
of December 31, 2017, and 201, the Company has short term loans payable of $0 and $3,712, respectively. During the years ended
December 31, 2017 and 2016, the Company received proceeds of $11,500 and $31,200 and made payments of $15,212 and $125,923 respectively
from certain short-term loans payable with interest rates ranging from 20%-94%. Interest recorded on the notes for the years ended
December 31, 2017 and 2016 was $1,042 and $25,515, respectively.
NOTE
5 - CONVERTIBLE NOTE PAYABLE
Convertible
notes payable consists of the following:
|
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
Total
convertible notes payable
|
|
|
214,764
|
|
|
|
637,059
|
|
|
Less
discounts
|
|
|
(42,534
|
)
|
|
|
(101,595
|
)
|
|
Convertible
notes, net of discount
|
|
$
|
172,230
|
|
|
$
|
535,464
|
|
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.
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.
Interest
expense (excluding amortization of debt discount) related to the convertible notes payable as of the year ended December 31, 2017
and 2016 was $96,993 and $143,093, respectively.
During
the year ended December 31, 2017, the Company issued 711,291 shares of common stock (post-split) for the partial conversion of
$215,076 in convertible notes payable. The converted portion of the notes also had associated derivative liabilities with fair
values on the date of conversion of $1,271,691. The conversion of the derivative liabilities has been recorded through additional
paid-in capital.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2017
(AUDITED)
The
following table presents details of the changes in the Company’s derivative liabilities associated with its convertible
notes for the year ended December 31, 2017:
|
|
|
Amount
|
|
|
Balance
December 31, 2015
|
|
$
|
551,646
|
|
|
Debt
discount originated from derivative liabilities
|
|
|
501,750
|
|
|
Initial
loss recorded
|
|
|
1,563,080
|
|
|
Adjustment
to derivative liability due to debt conversion
|
|
|
(1,573,237
|
)
|
|
Change
in fair market value of derivative liabilities
|
|
|
(185,444
|
)
|
|
Balance
December 31, 2016
|
|
$
|
857,795
|
|
|
Debt
discount originated from derivative liabilities
|
|
|
129,489
|
|
|
Reclassification
of derivative liability to paid-in capital due to debt conversion
|
|
|
(1,271,691
|
)
|
|
Change
in fair market value of derivative liabilities
|
|
|
850,753
|
|
|
Adjustment
to derivative liability due to debt settlement
|
|
|
(247,305
|
)
|
|
Balance
December 31, 2017
|
|
$
|
319,041
|
|
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
Black-Scholes model utilized the following inputs to value the derivative liability at the date of issuance of the convertible
note and at December 31, 2017:
|
Fair
value assumptions – derivative notes:
|
|
December
31, 2017
|
|
|
Risk
free interest rate
|
|
|
0.40-1.28
|
%
|
|
Expected
term (years)
|
|
|
0.01-0.159
|
|
|
Expected
volatility
|
|
|
289-377
|
%
|
|
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 December 31, 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 shares of common stock(post-split) 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.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2017
(AUDITED)
During
the year ended December 31, 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.
During
the year ended December 31, 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 December 31, 2017.
During
the year ended December 31, 2017, the Company issued 70,000 shares of common stock (post-split) valued at $49,000 in settlement
of a note payable issued on August 15, 2016. The carrying value of the note payable was $4,813 and difference between the fair
value of the shares and note of $44,187 was recorded a loss on settlement of notes payable as of December 31, 2017.
During
the year ended December 31, 2017, the Company issued 100,335 shares of common stock (post-split) valued at $82,500 in partial
settlement of a note payable issued on May 15, 2017. The carrying value of the settled balance of note payable was $16,503 and
difference between the fair value of the shares and note of $13,598 was recorded a loss on settlement of notes payable as of December
31, 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 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 December 31, 2017 and 2016:
|
|
|
Amount
|
|
|
Balance
December 31, 2015
|
|
$
|
-
|
|
|
Fair
value of shares issued for ownership 49% interest in Aspire
|
|
|
460,002
|
|
|
Income
from equity method investee
|
|
|
18,395
|
|
|
Distributions
received from Aspire
|
|
|
(24,335
|
)
|
|
Balance
December 31, 2016
|
|
$
|
454,062
|
|
|
Income
from equity method investee
|
|
|
(1,726
|
)
|
|
Balance
December 31, 2017
|
|
$
|
452,336
|
|
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. Current month to month lease is for $2,000 a month. Rent expense was approximately
$22,908 and $23,972 for the years ended December 31, 2017 and 2016, respectively.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2017
(AUDITED)
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
September
9, 2015, the Company entered into a convertible promissory note pursuant to which we borrowed $50,000. Interest under the convertible
promissory note was 8% per annum, and the principal and all accrued but unpaid interest was due on June 7, 2016. The note was
convertible at any time following the issuance date at noteholders option into shares of our common stock at a variable conversion
price of 50% of the lowest day market price of our common stock during the 10 trading days prior the date of the notice of conversion.
On
February 27, 2017, the Company and the noteholder reached a settlement agreement. The first payment of $55,000 was to be wired
to the noteholder on March 15, 2017. The second and final tranche of $45,000 was due no later than April 1, 2017.
The
payments under the settlement agreement were timely made by a third party and the note was assigned to the third party. The Company
and the new note holder have agreed to revise the variable conversion price in favor of a fixed $0.000125 per share conversion
price.
On
March 6, 2017, we hired the law firm Ellsworth Young LLP to vigorously protect us against abusive lending practices. We have several
cases pending concerning convertible promissory notes outstanding, including the following.
JSJ
Investments, Inc. vs. Textmunication Holdings, Inc.
95th
District Court of Dallas County, Texas
Filed
on 2/7/2017
Case:
DC-17-01404
On
May 24, 2017, our company and JSJ Investments Inc. (“JSJ”) entered into a Final Settlement Agreement. Pursuant to
the Settlement Agreement, the parties agreed to execute an amendment to the 12% convertible promissory note, which allowed JSJ
to convert the note’s outstanding balance and accrued interest of $53,280.57 into a fixed 262,500 (post split) shares of
our common stock.
Auctus
Fund vs. Textmunication Holdings, Inc.
United
States District Court – District of Massachusetts
Filed
on 3/24/2017
Case
1:17-cv-10504
On
July 3, 2017, our company and Auctus Fund entered into a Settlement Agreement and Mutual General Release (the “Settlement
Agreement”). Pursuant to the Settlement Agreement, we agreed to issue 550,000 (post split) shares of our common stock with
a 5-month Leak-Out Agreement to Auctus Fund.
Textmunication
Holdings, Inc. vs. Carebourn Capital.
United
States District Court – District of Nevada
Filed
on 4/5/2017
Case
2:17-cv-00968-JAD-VCF
On
October 3, 2017, our company and Carebourn Capital agreed to settle all the outstanding principal, interest, and penalties owed
under the Note for an issuance of an aggregate total of 70,000 (post split) shares of its common stock.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2017
(AUDITED)
Textmunication
vs. Lester Einhaus
Eighth
Judicial District Court of Clark County, NV
Filed
on 4/10/2017
Case:
A-17-753743-C
This
case was dismissed in October 2017.
As
of December 31, 2017, all litigation has been resolved except for the following case:
Lester
Einhaus vs. Textmunication
United
States District Court – Northern District
Filed
on 6/14/2017
Case:
1:17-cv-04478
NOTE
8 – INCOME TAXES
For
the year ended December 31, 2017, the cumulative net operating loss carry-forward from continuing operations is approximately
$12,302,086 and will expire beginning in the year 2030.
The
cumulative tax effect at the expected rate of 21% and 34% of significant items comprising our net deferred tax amount is as follows
as of December 31, 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
|
Deferred
tax asset attributable to:
|
|
|
|
|
|
|
|
|
|
Net
operating loss carryover
|
|
$
|
2,583,438
|
|
|
$
|
1,623,745
|
|
|
Valuation
allowance
|
|
|
(2,583,438
|
)
|
|
|
(1,623,745
|
)
|
|
Net
deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
Due
to the enactment of the Tax Reform Act of 2017, the corporate tax rate for those tax years beginning with 2018 has been reduced
to 21%.
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 Series A preferred stock (“Series A”), 66,667 shares of Series B preferred stock (“Series
B”), and 2,000,000 shares of Series C preferred stock (“Series C”) ...
Under
the Certificate of Designation, holders of Series A Preferred Stock will participate on an equal basis per-share with holders
of our common stock in any distribution upon winding up, dissolution, or liquidation. Holders of Series A Preferred Stock are
entitled to vote together with the holders of our common stock on all matters submitted to shareholders at a rate of three hundred
(300) votes for each share held.
On
January 5, 2016, pursuant to Article III of our Articles of Incorporation, the Company’s Board of Directors voted to designate
a class of preferred stock entitled Series B Convertible Preferred Stock, consisting of up 66,667 shares, par value $0.0001. Under
the Certificate of Designation, holders of Series B Convertible Preferred Stock participate on an equal basis per-share with holders
of the Company’s common stock and Series A Preferred Stock in any distribution upon winding up, dissolution, or liquidation.
Holders of Series B Convertible Preferred Stock are not entitled to voting rights.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2017
(AUDITED)
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 shares of our common stock (post-split) to our officer and director,
Wais Asefi, as compensation for services rendered. During the year ended December 31, 2017, the officer exchanged the common shares
for 2,000,000 shares of newly designated Series C Preferred stock.
During
the year ended December 31, 2017, the Company issued 1,608,877 shares of common stock (post-split) for the partial conversion
and settlements of $765,217. The converted portion of the notes also had associated derivative liabilities with fair values on
the date of conversion of $1,271,691. The conversion of the derivative liabilities has been recorded through additional paid-in
capital.
During
the year ended December 31, 2017, the Company issued 299,397 shares of common stock (post-split) valued at $109,571 for the settlement
of debt related to a 3a10 settlement.
During
the year ended December 31, 2017, the Company issued 77,500 shares of common stock (post-split) for services valued at $115,100.
During
the year ended December 31, 2016, the Company issued 141,260 (post split) shares of common stock with a fair value of $635,299
for the 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 $1,573,238. The conversion of the derivative liabilities has been recorded through
additional paid-in capital.
During
the year ended December 31, 2016, the Company issued 8,000 (post split) shares of common stock valued at $478,700 for services.
During
the year ended December 31, 2016, the Company’s CEO returned and the Company retired 59,400 (post split) shares of common
stock.
NOTE
10 – SUBSEQUENT EVENTS
Subsequent
to year the Company’s Board of Directors approved a one to one thousand (1:1000) reverse stock split. The Company financial
statements have been retroactively restated to the reflect the effect of the stock split.
Subsequent
to year end the Company, the Company entered into agreement to cancel a certain 10% note payable issued on September 22, 2015
in the amount of $15,000.
Subsequent
to year end the Company, the Company entered into agreement to cancel a certain 8% note payable issued on September 8, 2015 in
the amount of $31,126.
Subsequent
to year end, the Company issued 892,882 shares of common stock (post-split) for the settlement of debt related to a 3a10 settlement.
Subsequent
to year end, the Company issued 518,600 shares of common stock (post-split) for the settlement of notes payable.