The accompanying notes are an integral part of these consolidated financial statements
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE QUARTER ENDED SEPTEMBER 30, 2019 (UNAUDITED)
NOTE
1 – ORGANIZATION AND BUSINESS OPERATIONS
The
Company
Textmunication
Holdings, Inc. (Company) was incorporated on May 13, 2010 under the laws of the State of California. Textmunication is an online
mobile marketing platform service that will connect merchants with their customers and allow them to drive loyalty and repeat
business in a non-intrusive, value added medium. For merchants we provide a mobile marketing platform where they can always send
the most up-to-date offers/discounts/alerts/events schedule, such as happy hours, trivia night, and other campaigns. The consumer
can also access specials and promotions that merchants choose to distribute through Textmunication by opting into keywords designated
to the merchant’s keywords.
On
November 16, 2013, the Company entered into a Share Exchange Agreement (SEA) with Textmunication Holdings (Holdings). a Nevada
corporation, whereby the sole shareholder of the Company received 65,640,207 new shares of common stock of Holdings in exchange
for 100% of the Company’s issued and outstanding shares.
On
July 9, 2018 the 1 – 1,000 Reverse Split of “Textmunication Holdings, Inc.” (TXHD) common stock took effect
at the open of business. All shares and per share amounts have been retroactively adjusted to reflect the reverse split.
July
9th, 2018 Textmunication Holdings, Inc. (“TXHD”) entered into Advisory Agreements with Mr. Thomas DiBenedetto and
Mr. Joseph Griffin. Mr. DiBenedetto will advise Textmunication on business execution, growth initiatives and strategic investment
opportunities. Mr. Joseph Griffin will join Textmunication as a financial investment advisor. In his role, he will advise the
company on strategic investment opportunities and investment execution.
On
May 2, 2019 the Corporation received a notice of conversion under the Certificate of Designation of the Corporation from
Aspire Consulting Group LLC for the complete conversion of 66,667 shares of Series A Preferred Stock into 20,000 shares of
the Corporation’s common stock. The board of directors approve conversion of the above shares of Series B Preferred
Stock into 20,000 shares of common stock in the Corporation.
On
May 16, 2019, the Corporation filed a Certificate of Withdrawal with the State of Nevada to withdraw its Certificate of Designation
for our Series B Preferred Stock. There were no shares of preferred stock outstanding at the time of the filing and the action
was approved by our Board of Directors in accordance with Nevada law.
Also,
on May 16, 2019, our Board of Directors created, out of our available shares of preferred stock, par value $0.0001 per share,
a series of preferred stock known as “Series D Convertible Preferred Stock” consisting of 40,000 shares. Under the
terms of the Series D Certificate of Designation, the shares shall not accrue nor pay dividends except that if dividends are declared
for other equity holders of our Company then the Series D Convertible Preferred Stock shall participate on the same basis. Except
with respect to any future series of preferred stock of senior rank to the Series D Convertible Preferred Stock in respect of
the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of our Company or
the Series D Convertible Preferred Stock and any future series of preferred stock of pari passu rank to the Series D Convertible
Preferred Stock in respect of the preferences as to dividends, distributions and payments upon the liquidation, dissolution and
winding up of the Company, all shares of capital stock of our Company shall be junior in rank to the Series D Convertible Preferred
Stock with respect to the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding
up of our Company. Each share of Series D Convertible Preferred Stock has a stated value of $10 and is convertible into shares
of Common Stock, equal to the stated value divided by the conversion price of our stock price on the day of conversion (subject
to adjustment in the event of stock splits and dividends). Failure to affect a conversion within proscribed time periods will
affect both liquidated damages and buy-in charges. We are prohibited from effecting the conversion of any share of the Series
D Convertible Preferred Stock to the extent that, as a result of such conversion, the holder or any affiliates would beneficially
own more than 9.99%, in the aggregate, of the issued and outstanding shares of our Company’s common stock calculated immediately
after giving effect to the issuance of shares of common stock upon the conversion of the Series D Convertible Preferred Stock.
Except as required by law and as set forth in the Series D Certificate of Designation, the Series D Convertible Preferred Stock
shall have no voting rights.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE QUARTER ENDED SEPTEMBER 30, 2019 (UNAUDITED)
The
rights of the holders of Series D Convertible Preferred Stock are defined in the relevant Certificate of Designation filed with
the Nevada Secretary of State on May 16, 2019, attached hereto as Exhibit 3.2, and is incorporated by reference herein.
Also
on May 16, 2019, our Board of Directors and the majority of the holders of our Series C Convertible Preferred Stock approved an
amendment to the certificate of designation for our Series C Convertible Preferred Stock (the Amended Certificate of Designation”),
consisting of up 2,000,000 shares, par value $0.0001. Under the Amended Certificate of Designation, holders of our Series C Convertible
Preferred Stock are entitled to vote on all shareholder matters with a vote equal to 51% of the total vote of all classes of voting
stock of our company. The rights of the holders of Series C Convertible Preferred Stock are defined in the relevant Amended Certificate
of Designation filed with the Nevada Secretary of State on May 16, 2019.
On
June 11, 2019, the Corporation entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”)
with the purchasers identified therein (collectively, the “Purchasers”) providing for the issuance and sale to the
Purchasers of an aggregate of up to 40,000 shares of our Series D Convertible Preferred Stock (the “Preferred Shares”)
and related warrants for gross proceeds to the Company of $200,000. The Warrants have an exercise price of $0.50 per share (cashless)
and are exercisable sixty months from the issuance date.
On
June 25, 2019, Textmunication Holdings, Inc. (the “Company”) issued a press release announcing it plans to change
its business direction from its current SMS technology business to focus on the emerging national cannabis market. The Company
plans on using its mobile texting platform to enhance communication efforts with the potential acquisitions.
Basis
of Presentation
The
accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles
generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read
in conjunction with the audited financial statements and notes thereto contained in the Company’s most recent Annual Financial
Statements filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of financial position and the results of operations for the interim period presented have been
reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be expected
for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited
financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted.
Going
concern
These
consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to
a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal
course of business. As of September 30, 2019, the Company has an accumulated deficit of $18,416,995. The company’s ability
to continue as a going concern is contingent upon the successful completion of additional financing arrangements and its ability
to achieve and maintain profitable operations. While the Company is expanding its best efforts to achieve the above plans, there
is no assurance that any such activity will generate funds that will be available for operations. These conditions raise substantial
doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial
statements. These consolidated financial statements do not include any adjustments that might arise from this uncertainty.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash
The
Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE QUARTER ENDED SEPTEMBER 30, 2019 (UNAUDITED)
The
Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial
institution. The balance at times may exceed federally insured limits. At September 30, 2019, no cash balances exceeded the federally
insured limit.
Accounts
receivable and allowance for doubtful accounts
Accounts
receivable are stated at the amount management expects to collect. The Company generally does not require collateral to support
customer receivables. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts
receivable, historical collection information and existing economic conditions. As of September 30, 2019, and December 31, 2018
no allowance for doubtful accounts was set up.
Revenue
Recognition
Revenues
are recognized when control of the promised is transferred to our customers, in an amount that reflects the consideration we expect
to be entitled to in exchange for those services.
The
Company currently derives a substantial majority of its revenue from fees associated with our subscription services, which generally
include mobile marketing platform services. Customers are billed for the subscription on a monthly basis. For all of the Company’s
customers, regardless of the method, the Company uses to bill them, subscription revenue is recorded as deferred revenue in the
accompanying consolidated balance sheets. As services are performed, the Company recognizes subscription revenue on a monthly
basis over the applicable service period. When the Company provides a free trial period, the Company does not begin to recognize
subscription revenue until the trial period has ended and the customer has been billed for the services.
Professional
services revenues are generated from SMS and RCS packages where client logs into a cloud-based application to send targeted SMS
messages to their subscribers’ base. Our custom web application SMS/RCS platform is typically billed on a fixed price based
on the number of SMS/RCS allocated for each package our client purchases. Generally, revenue for SMS/RCS services is recognized
immediately as our clients have instant access to their web-based application to send out messages, the number of SMS/RCS messages
allocated to a client expires at the end of each month and renews beginning of each month. The Company offers whereby control
of the product passes to the customer when delivered and revenue is recognized at the time of delivery.
Results
for reporting periods beginning after January 1, 2019 are presented under Topic 606, while prior period amounts are not adjusted
and continue to be reported in accordance with our historic accounting under Topic 605
We
did not have a cumulative impact as of January 1, 2019 due to the adoption of Topic 606 and there was not an impact to our consolidated
statement of operations for the year ended December 31, 2018 as a result of applying Topic 606.
Fair
Value of Financial Instruments
The
carrying amounts reflected in the balance sheets for cash, accounts payable and accrued expenses approximate the respective fair
values due to the short maturities of these items.
As
required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair
value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted
prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly
or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity
to develop its own assumptions.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE QUARTER ENDED SEPTEMBER 30, 2019 (UNAUDITED)
The
three levels of the fair value hierarchy are described below:
Level
1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or
liabilities;
Level
2: Quoted prices in markets that are not active, or inputs that is observable, either directly or indirectly, for substantially
the full term of the asset or liability;
Level
3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable
(supported by little or no market activity).
The
fair value of the accounts receivable, accounts payable, notes payable are considered short term in nature and therefore their
value is considered fair value.
Net
income (loss) per Common Share
Basic
net income (loss) per share is computed by dividing the net loss attributable to the common stockholders by the weighted average
number of shares of common stock outstanding during the period. Fully diluted loss per share is computed similar to basic loss
per share except that the denominator is increased to include the number of additional common shares that would have been outstanding
if the potential common shares had been issued and if the additional common shares were dilutive.
Property
and equipment
Property
and equipment are stated at cost, less accumulated depreciation provided on the straight-line method over the estimated useful
lives of the assets, which range from three to seven years. Expenditures for renewals or betterments are capitalized, and repairs
and maintenance are charged to expense as incurred the cost and accumulated depreciation of assets sold or otherwise disposed
of are removed from the accounts, and any gain or loss thereon is reflected in operations. Company policy capitalize property
and equipment for cost over $1,000, asset acquired under $1,000 are charge to operations.
Income
Taxes
Income
taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and
liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and
are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax
assets that, based on available evidence, are not expected to be realized. Because the Company has no net income, the tax benefit
of the accumulated net loss has been fully offset by an equal valuation allowance.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Stock-Based
Compensation
The
Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation –
Stock Compensation which requires all share-based payments to employees, including grants of employee stock options, to be recognized
in the financial statements based on their fair values. The fair value of the equity instrument is charged directly to compensation
expense and credited to additional paid-in capital over the period during which services are rendered.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE QUARTER ENDED SEPTEMBER 30, 2019 (UNAUDITED)
The
Company follows ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than
Employees for Acquiring, or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants
and other non-employees. In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services
provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value
of the option or warrant, whichever can be more clearly determined. The fair value of the equity instrument is charged directly
to compensation expense and additional paid-in capital over the period during which services are rendered.
Investments
in Securities
Investments
in securities are accounted for using the equity method if the investment provides the Company the ability to exercise significant
influence, but not control, over an investee. Significant influence is generally deemed to exist if the Company has an ownership
interest in the voting stock of the investee between 20% and 50%, although other factors, such as representation on the investee’s
Board of Directors, are considered in determining whether the equity method is appropriate.
Recent
Accounting Pronouncements
In
November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230)”, requiring that the statement of
cash flows explain the change in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted
cash equivalents. This guidance is effective for fiscal years, and interim reporting periods therein, beginning after December
15, 2017 with early adoption permitted. Management evaluated ASU 2016-18 and determined that the adoption of this new accounting
standard did not have a material impact on the Company’s consolidated financial statements.
NOTE
3 – RELATED PARTY TRANSACTIONS
As
of September 30, 2019, the Company had advances due to a related party. The loans are due on demand and have no interest. Amounts
outstanding as of September 30, 2019 and December 31, 2018 were approximately $11,750 and $11,750, respectively
NOTE
4 - CONVERTIBLE NOTE PAYABLE
Convertible
notes payable consists of the following as of September 30, 2019 and December 31, 2018:
Total convertible notes payable
|
|
|
187,750
|
|
|
|
20,000
|
|
Less discounts
|
|
|
15,000
|
|
|
|
-
|
|
Convertible notes net of discount
|
|
$
|
172,750
|
|
|
$
|
20,000
|
|
The
Company accounts for the fair value of the conversion features of its convertible debt in accordance with ASC Topic No. 815-15
“Derivatives and Hedging; Embedded Derivatives” (“Topic No. 815-15”). Topic No. 815-15 requires the Company
to bifurcate and separately account for the conversion features as an embedded derivative contained in the Company’s convertible
debt. The Company is required to carry the embedded derivative on its balance sheet at fair value and account for’ any unrealized
change in fair value as a component of results of operations. The Company values the embedded derivatives using the Black-Scholes
pricing model.
During
the three months ended September 30, 2019, the Company issued 1,280,000 shares of common stock with a fair value of $164,033 for
the settlement of liabilities payable. The conversion of the derivative liabilities has been recorded through additional paid-in
capital.
NOTE
5 – INVESTMENT IN ASPIRE CONSULTING GROUP, LLC
On
January 5, 2016, the Company entered into a Share Exchange Agreement with Aspire Consulting Group, LLC, a Maryland limited liability
company and certain members of Aspire. Pursuant to the terms of the Exchange Agreement, the Company agreed to acquire 49% of all
of the issued and outstanding membership units of Aspire in exchange for the issuance of 66,667 shares of the Company’s
newly created Series B Convertible Preferred Stock to the Members valued at $460,002. Preferred shares were later converted to
20,000 common stocks.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE QUARTER ENDED SEPTEMBER 30, 2019 (UNAUDITED)
The
Company has concluded that it has the ability to exercise significant influence, but not control, over an Aspire through its acquired
49% equity interest and therefore has accounted for the acquisition of the interest under the equity method.
The
following table presents details of the Company’s investment is Aspire as of September 30, 2019 and December 31, 2018:
|
|
Amount
|
|
Balance December 31, 2018
|
|
$
|
450,683
|
|
Income (loss) from equity method investee
|
|
|
(11,124
|
)
|
Distributions received from Aspire
|
|
|
-
|
|
Balance September 30, 2019
|
|
$
|
439,559
|
|
NOTE
6 – COMMITMENTS AND CONTINGENCIES
Office
Lease
On
January 6, 2015 the Company signed an amendment to its lease originally signed on May 9, 2008. The amended lease commenced January
1, 2015 and expires on thirty days’ notice. Rent expense was approximately $16,537 and $14,782 for the nine months ended
September 30, 2019 and 2018, respectively.
Executive
Employment Agreement
The
Company has an employment agreement with the CEO/Chairman to perform duties and responsibilities as may be assigned by the Board
of Directors. The base salary is in the amount of $120,000 per annum plus an annual discretionary bonus plus benefits commencing
on December 17, 2013 and ending May 1, 2017 with an automatic renewal on each anniversary date (May 1) thereafter.
NOTE
7 – STOCKHOLDERS’ EQUITY
During
the first quarter of 2019 the company issued a total of 6,685,000 shares to employees and vendors for compensation and services
rendered. The fair market value of the shares issues accounted as expenses as follows:
Management Fees
|
|
$
|
2,074,600
|
|
Payment to subcontractors
|
|
|
446,982
|
|
Total
|
|
|
2,521,582
|
|
During
the 2nd quarter of 2019 the company issued 40,000 shares of preferred stock warrants for $200,000 cash.
During
the 3rd quarter of 2019 the company issued 1,280,000 common stocks in settlement of liabilities. The fair market value
of the liabilities accounted as additional paid in capital of $164,033.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE QUARTER ENDED SEPTEMBER 30, 2019 (UNAUDITED)
NOTE
8 – SUBSEQUENT EVENTS
On
October 25, 2019, Textmunication Holdings, Inc. (the “Company”), entered into a Membership Interest Purchase Agreement
(the “Resonate Purchase Agreement”) with Resonate Blends, LLC, a California limited liability company (“Resonate”),
and the members of Resonate. As a result of the transaction, Resonate became a wholly owned subsidiary of the Company. In accordance
with the terms of the Purchase Agreement, at the closing an aggregate of 5% of the Company’s outstanding shares of common
stock for a total of 665,072 shares were issued to the holders of Resonate in exchange for their membership interests of Resonate.
These shares have anti-dilution protection. We have also agreed as part of the purchase price to issue: (ii) such number of shares
of Series E Preferred Stock that will convert into 5% of the outstanding shares of common stock in the Company on a fully-diluted
basis upon an annualized revenue run rate of Ten Million Dollars ($10,000,000.00) for any three (3) consecutive month trailing
period; and (iii) such number of shares of Series E Preferred Stock that will convert into 5% of the outstanding shares of common
stock in the Company on a fully-diluted basis upon the occurrence of the Company’s public market value reaching One Hundred
Million US Dollars ($100,000,000). The shares in (ii) and (iii) shall have anti-dilution protections, except that this provision
only applies for 2.5% of the outstanding shares acquired under each subsection.
The
Resonate Purchase Agreement includes a funding obligation, which requires the Company to provide an aggregate amount of capital
as follows: (i) Five Hundred Thousand Dollars ($500,000) on the Closing Date of, (ii) Five Hundred Thousand ($500,000) four (4)
months after Closing, and (iii) Five Hundred Thousand Dollars ($500,000) eight (8) months after Closing.
At
the time of closing, the Company invested $200,000 and short of what was required at Closing. The Resonate Purchase Agreement
states that the Company will raise an additional $700,000 at terms no less favorable than the funds raised for the $200,000, referred
to above, and provide Resonate the additional $300,000 no later than December 1st, 2019, which will be used to pay off the holders
of Series D Preferred Stock prior to its conversion option on December 11th, 2019. If the Company fails to do either of those,
it shall be deemed an Event of Default. Based on the private placement currently in place, both sides are confident that the necessary
funds will be raised. However, closing on October 25, 2019 was necessary to address the strategic partnerships in place to move
the Company forward.
Also,
on October 25, 2019, the Company entered into a Membership Interest Purchase Agreement (the “Entourage Labs Purchase Agreement”)
with Entourage Labs, LLC, a California limited liability company (“Entourage Labs”), and the members of Entourage
Labs. As a result of the transaction, Entourage Labs became a wholly owned subsidiary of the Company. In accordance with the terms
of the Purchase Agreement, at the closing an aggregate of 5% of the Company’s outstanding shares of common stock for a total
of 665,072 shares were issued to the holders of Entourage Labs in exchange for their membership interests of Entourage Labs. These
shares have anti-dilution protection. We have also agreed as part of the purchase price to issue: (ii) such number of shares of
Series E Preferred Stock that will convert into 5% of the outstanding shares of common stock in the Company on a fully-diluted
basis upon an annualized revenue run rate of Ten Million Dollars ($10,000,000.00) for any three (3) consecutive month trailing
period; and (iii) such number of shares of Series E Preferred Stock that will convert into 5% of the outstanding shares of common
stock in the Company on a fully-diluted basis upon the occurrence of the Company’s public market value reaching One Hundred
Million US Dollars ($100,000,000). The shares in (ii) and (iii) shall have anti-dilution protections, except that this provision
only applies for 2.5% of the outstanding shares acquired under each subsection.
In
addition, the Company entered into an Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of Obligations
(the “Conveyance Agreement”) with Mark S. Johnson and the Company’s 49% owned subsidiary, Aspire Consulting
Group, LLC, a Virginia limited liability company. Pursuant to the Conveyance Agreement, the Company transferred all assets and
business operations associated with its IT consulting solutions, including all of the capital stock of Aspire Consulting, to Mr.
Johnson. In exchange, Mr. Johnson agreed to cancel 20,000 shares of common stock in the Company and to assume and cancel all liabilities
relating to the Company’s former business.
Finally,
the Company entered into Employment Agreements with the following persons: (i) Geoff Selzer as Chief Executive Officer (CEO) of
the Company with an annual salary of $180,000; and (ii) Pam Kerwin as Chief Operating Officer (COO) of the Company with an annual
salary of $120,000. Both are eligible for salary increases upon milestone achievements and other benefits. The Employment Agreement
for the CEO has a term of 2 years and can’t be terminated without cause. Severance of six (6) weeks is available for termination
of the COO without cause before one-year of service and eight (8) weeks after one-year of service.