NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE QUARTER ENDED
MARCH 31, 2017
NOTE 1 – BASIS OF PRESENTATION AND
GOING CONCERN
Basis of Presentation
The accompanying unaudited interim financial
statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of
America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements
and notes thereto contained in the Company’s most recent Annual Financial Statements filed with the SEC on Form 10-K. In
the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial
position and the results of operations for the interim period presented have been reflected herein. The results of operations for
the interim period are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements
which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal period,
as reported in the Form 10-K, have been omitted.
Going concern
These consolidated financial statements have
been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the
realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As of March 31, 2017,
the Company has an accumulated deficit of $18,205,300. 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, 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 March 31, 2017 and 2016 the allowance for doubtful accounts was $0 and $0 and bad debt
expense of $0 and $0, respectively.
Revenue Recognition
We recognize revenue in accordance with Accounting
Standards Codification, or (“ASC”), 605, Revenue Recognition. We recognize revenue when all of the following conditions
are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer; (3) the amount
of fees to be paid by the customer is fixed or determinable; and (4) the collection of our fees is reasonably assured.
Thus, we recognize subscription revenue on
a monthly basis, as services are provided. Customers are billed for the subscription on a monthly, quarterly, semi-annual or annual
basis, at the customer’s option.
TEXTMUNICATION HOLDINGS,
INC.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE QUARTER ENDED
MARCH 31, 2017
Fair Value of Financial Instruments
The carrying amounts reflected in the balance
sheets for cash, accounts payable and accrued expenses approximate the respective fair values due to the short maturities of these
items.
As required by the Fair Value Measurements
and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the
inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2)
inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable
inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The three levels of the fair value hierarchy
are described below:
Level 1: Unadjusted quoted prices
in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets
that are not active, or inputs that is observable, either directly or indirectly, for substantially the full term of the asset
or liability;
Level 3: Prices or valuation techniques
that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market
activity).
The fair value of the accounts receivable,
accounts payable, notes payable are considered short term in nature and therefore their value is considered fair value.
Financial assets and liabilities measured at
fair value on a recurring basis are summarized below for the three months ended March 31, 2017:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Financial Instruments
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,811,248
|
|
|
$
|
4,811,248
|
|
Financial assets and liabilities measured at
fair value on a recurring basis are summarized below for the year ended December 31, 2016:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Financial Instruments
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
870,921
|
|
|
$
|
870,921
|
|
Net income (loss) per Common Share
Basic net income (loss) per share is computed
by dividing the net loss attributable to the common stockholders by the weighted average number of shares of common stock outstanding
during the period. Fully diluted loss per share is computed similar to basic loss per share except that the denominator is increased
to include the number of additional common shares that would have been outstanding if the potential common shares had been issued
and if the additional common shares were dilutive.
TEXTMUNICATION HOLDINGS,
INC.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE QUARTER ENDED
MARCH 31, 2017
Use of Estimates
The preparation of financial statements in
conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements
and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Stock-Based Compensation
The Company accounts for employee stock-based
compensation in accordance with the guidance of FASB ASC Topic 718, Compensation – Stock Compensation which requires all
share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based
on their fair values. The fair value of the equity instrument is charged directly to compensation expense and credited to additional
paid-in capital over the period during which services are rendered.
The Company follows ASC Topic 505-50, formerly
EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with
Selling Goods and Services,” for stock options and warrants issued to consultants and other non-employees. In accordance
with ASC Topic 505-50, these stock options and warrants issued as compensation for services provided to the Company are accounted
for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can
be more clearly determined. The fair value of the equity instrument is charged directly to compensation expense and additional
paid-in capital over the period during which services are rendered.
Investments in Securities
Investments in securities are accounted for
using the equity method if the investment provides the Company the ability to exercise significant influence, but not control,
over an investee. Significant influence is generally deemed to exist if the Company has an ownership interest in the voting stock
of the investee between 20% and 50%, although other factors, such as representation on the investee’s Board of Directors,
are considered in determining whether the equity method is appropriate.
Recent Accounting Pronouncements
No new accounting pronouncements issued or
effective during the fiscal year has had or is expected to have a material impact on the financial statements.
NOTE 4 – RELATED PARTY TRANSACTIONS
As of March 31, 2017, 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, 2017 and December
31, 2016 were approximately $11,750 and $11,750, respectively.
NOTE 5 – LOANS PAYABLE
As of March 31, 2017 and December 31, 2016,
the Company has short term loans payable of $0 and $3,712, respectively. During the three months ended March 31, 2017 and 2016,
the Company received proceeds of $0 and $0 and made payments of $3,712 and $34,594, respectively, from certain short term loans
payable with interest rates ranging from 23%-28%.
TEXTMUNICATION HOLDINGS,
INC.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE QUARTER ENDED
MARCH 31, 2017
NOTE 6 - CONVERTIBLE NOTE PAYABLE
Convertible notes payable consist of the following
as of March 31, 2017 and December 31, 2016:
|
|
2017
|
|
|
2016
|
|
Total convertible notes payable
|
|
|
463,696
|
|
|
|
657,059
|
|
Less discounts
|
|
|
(16,883
|
)
|
|
|
(101,595
|
)
|
Convertible notes net of discount
|
|
$
|
446,813
|
|
|
$
|
555,464
|
|
The Company accounts for the fair value of
the conversion features of its convertible debt in accordance with ASC Topic No. 815-15 “Derivatives and Hedging; Embedded
Derivatives” (“Topic No. 815-15”). Topic No. 815-15 requires the Company to bifurcate and separately account
for the conversion features as an embedded derivative contained in the Company’s convertible debt. The Company is required
to carry the embedded derivative on its balance sheet at fair value and account for’ any unrealized change in fair value
as a component of results of operations. The Company values the embedded derivatives using the Black-Scholes pricing model.
The following table presents details of the
Company’s derivative liabilities associated with its convertible notes as of March 31, 2017 and December 31, 2016:
|
|
Amount
|
|
Balance December 31, 2016
|
|
$
|
870,921
|
|
Debt discount originated from derivative liabilities
|
|
|
-
|
|
Initial loss recorded
|
|
|
-
|
|
Adjustment to derivative liability due to debt conversion
|
|
|
(705,244
|
)
|
Change in fair market value of derivative liabilities
|
|
|
4,923,923
|
|
Balance March 31, 2017
|
|
$
|
4,811,248
|
|
During the three months ended March 31, 2017,
the Company issued 461,788,457 shares of common stock with a fair value of $222,975 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 $705,44. 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, 2017:
Fair value assumptions – derivative notes:
|
|
March 31, 2017
|
|
Risk free interest rate
|
|
|
0.48-0.74
|
%
|
Expected term (years)
|
|
|
0.01-0.49
|
|
Expected volatility
|
|
|
276-351
|
%
|
Expected dividends
|
|
|
0
|
%
|
TEXTMUNICATION HOLDINGS,
INC.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE QUARTER ENDED
MARCH 31, 2017
NOTE 7 – INVESTMENT IN ASPIRE CONSULTING
GROUP, LLC
On January 5, 2016, the Company entered into
a Share Exchange Agreement with Aspire Consulting Group, LLC, a Virginia limited liability company and certain members of Aspire.
Pursuant to the terms of the Exchange Agreement, the Company agreed to acquire 49% of all of the issued and outstanding membership
units of Aspire in exchange for the issuance of 66,667 shares of the Company’s newly created Series B Convertible Preferred
Stock to the Members valued at $460,002.
The Company has concluded that it has the ability
to exercise significant influence, but not control, over an Aspire through its acquired 49% equity interest and therefore has accounted
for the acquisition of the interest under the equity method.
The following table presents details of the
Company’s investment is Aspire as of March 31, 2017 and December 31, 2016:
|
|
Amount
|
|
Balance December 31, 2016
|
|
$
|
454,062
|
|
Fair value of shares issued for ownership 49% interest in Aspire
|
|
|
-
|
|
Income (loss) from equity method investee
|
|
|
(1,524
|
)
|
Distributions received from Aspire
|
|
|
-
|
|
Balance March 31, 2017
|
|
$
|
446,813
|
|
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Office Lease
On January 6, 2015 the Company signed an amendment
to its lease originally signed on May 9, 2008. The amended lease commenced January 1, 2015 and expires on thirty days’ notice.
Rent expense was approximately $5,268 and $5,268 for the three months ended March 31, 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 in the
amount of $100,000 per annum plus an annual discretionary bonus plus benefits commencing on December 17, 2013 and ending May 1,
2017 with an automatic renewal on each anniversary date (May 1) thereafter.
Litigations, Claims
and Assessments
The Company may become
involved in various lawsuits and legal proceedings, which arise in the ordinary course of business.
Included in this litigation
is a dispute over a $36,363 note secured by 59,400,000 shares of the Company’s common stock . In the view of management,
there are significant issues of fact regarding the proper issuance and assumption of this note by the Company. Additionally, there
are issues over the validity of the prior debt. Regardless, the Company is in discussions to settle this note, and while no guarantee
can be given as to the successful resolution of this matter, the Company believes it will be resolved without litigation.
TEXTMUNICATION HOLDINGS,
INC.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR
THE QUARTER ENDED MARCH 31, 2017
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.
On July 7, 2016, the Company entered into an
agreement to settle the note and accrued interest for 2,000,000 shares of common stock valued at $146,000. (See Note 6).
NOTE 9 – STOCKHOLDERS’ EQUITY
The Company is authorized to issue an aggregate
of 4,000,000,000 shares of common stock with a par value of $0.0001. The Company is also authorized to issue 10,000,000 shares
of “blank check” preferred stock with a par value of $0.0001, which includes 4,000,000 shares of Series A preferred
stock (“Series A”).
As of March 31, 2017, and December 31, 2015,
2,644,193,397 and 199,404,940 shares of common stock, 4,000,000 and 0 shares of Series A preferred stock and 66,667 and 0 Series
B preferred stock, were issued and outstanding, respectively.
During the three months ended March 31, 2017,
the Company issued 461,788,457 shares of common stock with a fair value of $222,975 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 $705,44. The conversion of the derivative liabilities has been recorded through additional paid-in capital.
On February 16, 2017, the Company issued a
total of 2,000,000,000 shares of our common stock to our officer and director, Wais Asefi, as compensation for services rendered.
On February 23, 2017, the Company issued 3,000,000
shares of common stock for services.