NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE QUARTER ENDED MARCH 31, 2018
NOTE
1 – ORGANIZATION AND BUSINESS OPERATIONS
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
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 March 31, 2018, the Company has an accumulated deficit of $15,106,271. 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 March 31, 2018, 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 March 31, 2018 and 2016 the allowance for
doubtful accounts was $0 and $0 and bad debt expense of $0 and $0, respectively.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE QUARTER ENDED MARCH 31, 2018
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
bas
ed 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, 2018 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, 2018 due to the adoption of Topic 606 and there was not an impact to our consolidated
statement of operations for the three months ended March 31, 2018 as a result of applying Topic 606.
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.
As
of March 31, 2018 and December 31, 2017, the Company capitalized software development costs in the amount of $72,288 and $45,229
respectively.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE QUARTER ENDED MARCH 31, 2018
Fair
Value of Financial Instruments
The
carrying amounts reflected in the balance sheets for cash, accounts payable and accrued expenses approximate the respective fair
values due to the short maturities of these items.
As
required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair
value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted
prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly
or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity
to develop its own assumptions.
The
three levels of the fair value hierarchy are described below:
Level
1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or
liabilities;
Level
2: Quoted prices in markets that are not active, or inputs that is observable, either directly or indirectly, for substantially
the full term of the asset or liability;
Level
3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable
(supported by little or no market activity).
The
fair value of the accounts receivable, accounts payable, notes payable are considered short term in nature and therefore their
value is considered fair value.
Financial
assets and liabilities measured at fair value on a recurring basis are summarized below for the three months ended March 31, 2018:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Financial Instruments
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
72,415
|
|
|
$
|
72,415
|
|
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
|
|
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.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE QUARTER ENDED MARCH 31, 2018
Stock-Based
Compensation
The
Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation –
Stock Compensation which requires all share-based payments to employees, including grants of employee stock options, to be recognized
in the financial statements based on their fair values. The fair value of the equity instrument is charged directly to compensation
expense and credited to additional paid-in capital over the period during which services are rendered.
The
Company follows ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than
Employees for Acquiring, or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants
and other non-employees. In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services
provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value
of the option or warrant, whichever can be more clearly determined. The fair value of the equity instrument is charged directly
to compensation expense and additional paid-in capital over the period during which services are rendered.
Investments
in Securities
Investments
in securities are accounted for using the equity method if the investment provides the Company the ability to exercise significant
influence, but not control, over an investee. Significant influence is generally deemed to exist if the Company has an ownership
interest in the voting stock of the investee between 20% and 50%, although other factors, such as representation on the investee’s
Board of Directors, are considered in determining whether the equity method is appropriate.
Recent
Accounting Pronouncements
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 March 31, 2018, the Company had advances due to a related party. The loans are due on demand and have no interest. Amounts
outstanding as of March 31, 2018 and December 31, 2017 were approximately $11,750 and $11,750, respectively
NOTE
4 - CONVERTIBLE NOTE PAYABLE
Convertible
notes payable consist of the following as of March 31, 2018 and December 31, 2016:
|
|
2018
|
|
|
2017
|
|
Total convertible notes payable
|
|
|
67,393
|
|
|
|
214,764
|
|
Less discounts
|
|
|
(14,178
|
)
|
|
|
(42,534
|
)
|
Convertible notes net of discount
|
|
$
|
53,215
|
|
|
$
|
172,230
|
|
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE QUARTER ENDED MARCH 31, 2018
The
Company accounts for the fair value of the conversion features of its convertible debt in accordance with ASC Topic No. 815-15
“Derivatives and Hedging; Embedded Derivatives” (“Topic No. 815-15”). Topic No. 815-15 requires the Company
to bifurcate and separately account for the conversion features as an embedded derivative contained in the Company’s convertible
debt. The Company is required to carry the embedded derivative on its balance sheet at fair value and account for’ any unrealized
change in fair value as a component of results of operations. The Company values the embedded derivatives using the Black-Scholes
pricing model.
The
following table presents details of the Company’s derivative liabilities associated with its convertible notes as of March
31, 2018 and December 31, 2017:
|
|
Amount
|
|
Balance December 31, 2017
|
|
$
|
319,041
|
|
Adjustment to derivative liability due to debt conversion
|
|
|
(142,973
|
)
|
Change in fair market value of derivative liabilities
|
|
|
(103,653
|
)
|
Balance March 31, 2018
|
|
$
|
72,415
|
|
During
the three months ended March 31, 2018, the Company issued 647,458 shares of common stock with a fair value of $54,631 for the
partial conversion of convertible notes payable. The converted portion of the notes also had associated derivative liabilities
with fair values on the date of conversion of 866,361. The conversion of the derivative liabilities has been recorded through
additional paid-in capital.
The
Black-Scholes model utilized the following inputs to value the derivative liability at the date of issuance of the convertible
note and at March 31, 2018:
Fair
value assumptions – derivative notes:
|
|
March
31, 2018
|
|
Risk
free interest rate
|
|
|
1.27-1.63
|
%
|
Expected
term (years)
|
|
|
0.01-0.01
|
|
Expected
volatility
|
|
|
397
|
%
|
Expected
dividends
|
|
|
0
|
%
|
Settlement
Agreements
During
the three months ended March 31, 2018, the Company entered into certain cancellation agreements with the holder of a certain notes
payable in the amounting to $96,721, including accrued interest issued from December 10, 2015 through August 27, 2017. The face
value of the canceled debt of $96,721 has been recorded as a gain on settlement of notes payable as of March 31, 2018.
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.
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.
TEXTMUNICATION
HOLDINGS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE QUARTER ENDED MARCH 31, 2018
The
following table presents details of the Company’s investment is Aspire as of March 31, 2018 and December 31, 2017:
|
|
Amount
|
|
Balance December 31, 2017
|
|
$
|
452,064
|
|
Income (loss) from equity method investee
|
|
|
(269
|
)
|
Distributions received from Aspire
|
|
|
-
|
|
Balance March 31, 2018
|
|
$
|
452,064
|
|
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 $5,268 for the three months ended March 31, 2018
and 2017, 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 three months ended March 31, 2018, the Company issued 892,882 shares of common stock (post-split) valued at $299,469 for the
settlement of debt related to a 3a10 settlement.
During
the three months ended March 31, 2018, the Company issued 647,459 shares of common stock (post-split) for the settlement of $54,541
in notes payable.
NOTE
8 – SUBSEQUENT EVENTS
Subsequent
to March 31, 2018, 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