UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q/A

Amendment No. 2

 

[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
   
For the quarterly period ended June 30, 2017
   
[  ] Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934

     

  For the transition period from __________ to__________

   

  Commission File Number: 000-21202

 

Textmunication Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada 58-1588291

(State or other jurisdiction of

incorporation or organization)

  (IRS Employer
Identification No.)

 

1940 Contra Costa Blvd. Pleasant Hill, CA 94523

(Address of principal executive offices)

 

925-777-2111

(Registrant’s telephone number)

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

[X] Yes [  ] No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [  ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.

 

[  ] Large accelerated filer [  ] Accelerated filer
[  ] Non-accelerated filer [X] Smaller reporting company
  [  ] Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 1,570,839,890 common shares as of August 15, 2017 

 

 

 

 
 

 

EXPLANATORY NOTE

 

This Amendment No. 2 on Form 10-Q/A (“Form 10-Q/A”) is an amendment to the Quarterly Report on Form 10-Q of Textmunication Holdings, Inc. (“Company”) dated August 16, 2017 (the “Original Form 10-Q”). This Form 10-Q/A is being filed to correct the authorized shares contained in the company balance sheet of the Original Form 10-Q. No other changes were made to the Original Form 10-Q.

 

 

 

 

 

 

TABLE OF CONTENTS
 
    Page
     
PART I – FINANCIAL INFORMATION
 
Item 1: Financial Statements 3
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 4
Item 3: Quantitative and Qualitative Disclosures About Market Risk 6
Item 4: Controls and Procedures 7
   
PART II – OTHER INFORMATION
 
Item 1: Legal Proceedings 8
Item 1A: Risk Factors 9
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 9
Item 3: Defaults Upon Senior Securities 10
Item 4: Mine Safety Disclosures 10
Item 5: Other Information 10
Item 6: Exhibits 11

 

2
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Our consolidated financial statements included in this Form 10-Q are as follows:

 

F-1 Consolidated Balance Sheets as of June 30, 2017 (unaudited) and December 31, 2016;
F-2 Consolidated Statements of Operations for the three months ended June 30, 2017 and 2016 (unaudited);
F-3 Consolidated Statements of Cash Flows for the three months ended June 30, 2017 and 2016 (unaudited); and
F-4 Notes to Consolidated Financial Statements.

 

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended June 30, 2017 are not necessarily indicative of the results that can be expected for the full year.

 

3
 

 

TEXTMUNICATION HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

    June 30, 2017     December 31, 2016  
ASSETS                
Current assets                
Cash and cash equivalents   $ 53,364     $ -  
Receivables     25,892       3,757  
Total current assets     79,256       3,757  
                 
Fixed assets, net     -       305  
Software     12,349       -  
Investment in equity method investee     452,336       454,062  
                 
Total assets     543,941       458,124  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
Current liabilities                
Accounts payable and accrued liabilities   $ 132,072     $ 196,731  
Due to related parties     11,750       11,750  
Loans payable     11,500       3,712  
Convertible notes payable, net of discount     465,308       555,464  
Derivitive liability     444,943       870,921  
Total current liabilities     1,065,573       1,638,578  
                 
Total liabilities     1,065,573       1,638,578  
                 
Stockholders’ deficit                
                 
Preferred stock, 5,933,333 shares authorized, $0.0001 par value, 4,000,000 issued and outstanding     400       400  
Series B - Preferred stock, 66,667 shares authorized, $0.0001 par value, 66,667 issued and outstanding     7       7  
Series C - Preferred stock, 2,000,000 shares authorized, $0.0001 par value, 2,000,000 issued and outstanding     200       -  
Common stock; $0.0001 par value; 4,000,000,000 shares authorized; 1,227,993,542 and 199,404,940 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively.     122,800       19,941  
Additional paid-in capital     13,561,103       6,238,344  
Accumulated deficit     (14,206,142 )     (7,439,146 )
Total stockholders’ deficit     (521,632 )     (1,180,454 )
                 
Total liabilities and stockholders’ deficit   $ 543,941     $ 458,124  

 

F- 1
 

 

TEXTMUNICATION HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

    The Three Months Ended     The Six Months Ended  
    June 30, 2017     June 30, 2016     June 30, 2017     June 30, 2016  
                         
Revenues   $ 307,788     $ 103,449     $ 536,548     $ 191,859  
                                 
Cost of revenues     84,047       32,843       157,466       50,519  
                                 
Gross profit     223,741       70,606       379,082       141,340  
                                 
Operating expenses                                
Professional fees     -               -          
Officer Compensation     227,016       -       6,301,516       -  
General and administrative expenses     83,081       184,301       171,832       377,777  
Total operating expenses     310,097       184,301       6,473,348       377,777  
                                 
Loss from operations     (86,356 )     (113,695 )     (6,094,266 )     (236,437 )
                                 
Other expense                                
Interest expense     (7,064 )     (43,438 )     (39,747 )     (110,117 )
Loss on change of derivitive liability     4,032,108       (42,593 )     (613,463 )     (961,363 )
Amortization of debt discount     (26,703 )     (112,357 )     (111,414 )     (239,705 )
Loss on settlement of notes payable     87,375       -       93,620       -  
Total other expense     4,085,716       (198,388 )     (671,004 )     (1,311,185 )
                                 
Income (loss) from investment in equity method investee     -       6,663       (1,726 )     12,279  
                                 
Net income (loss)   $ 3,999,360     $ (305,420 )   $ (6,766,996 )   $ (1,535,343 )
                                 
Basic weighted average common shares outstanding     1,227,993,542       122,472,460       1,227,993,542       117,826,454  
Net loss per common share: basic and diluted   $ 0.00     $ (0.00 )   $ (0.01 )   $ (0.01 )

 

F- 2
 

 

TEXTMUNICATION HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOW

(UNAUDITED) 

 

    Six Months Ended  
    June 30, 2017     June 30, 2016  
Cash Flows from Operating Activities                
Net loss     (6,766,995 )   $ (1,535,343 )
Adjustments to reconcile net loss to net cash provided by operating activities:                
Amortization of debt discount     96,926       239,705  
Loss on derivative liability     627,952       961,363  
Non cash interest expense     50,000       -  
Depreciation     304       362  
Share based compensation     6,115,100       -  
Gain on the settlement of debt     (87,375 )        
Income from equity method investee     1,726       (12,279 )
Changes in assets and liabilities                
Receivables     (22,135 )     (695 )
Accounts payable and accrued expenses     (64,659 )     99,517  
Net cash used in operating activities     (49,156 )     (247,370 )
                 
Distributions from equity method investee     (12,349 )     24,335  
Net cash provided by investing activities     (12,349 )     24,335  
                 
Cash Flows from Financing Activities                
Proceeds on loans payable     11,500       31,200  
Payments on loans payable     (3,712 )     (76,034 )
Proceeds from convertible notes payable     129,489       259,998  
Payments on convertible notes payable     (22,408 )     -  
Net cash provided by financing activities     114,869       215,164  
                 
Net increase in cash     53,364       (7,871 )
                 
Cash, beginning of period     -       61,130  
                 
Cash, end of period   $ 53,364     $ 53,259  
                 
Supplemental disclosure of cash flow information                
Cash paid for interest   $ -     $ 20,907  
Cash paid for tax   $ -     $ -  
                 
Non-Cash investing and financing transactions                
Preferred shares issued for equity method investee   $ -     $ 460,002  
Conversion of convertible notes payable   $ -     $ 90,441  
Settlement of derivative liability   $ -     $ 967,031  

 

F- 3
 

 

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 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 June 30, 2017, the Company has an accumulated deficit of $14,206,142. 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 June 30, 2017, no cash balances exceeded the federally insured limit.

 

Accounts receivable and allowance for doubtful accounts

 

Accounts receivable are stated at the amount management expects to collect. The Company generally does not require collateral to support customer receivables. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic conditions. As of June 30, 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.

 

  F- 4  
 

 

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 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 six months ended June 30, 2017:

 

    Level 1     Level 2     Level 3     Total  
Liabilities                                
Derivative Financial Instruments   $     $     $ 444,943     $ 444,943  

 

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.

 

  F- 5  
 

 

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 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 June 30, 2017, the Company had advances due to a related party. The loans are due on demand and have no interest. Amounts outstanding as of June 30, 2017 and December 31, 2016 were approximately $11,750 and $11,750, respectively

 

NOTE 5 – LOANS PAYABLE

 

As of June 30, 2017 and December 31, 2016, the Company has short term loans payable of $11,500 and $3,712, respectively. During the six months ended June 30, 2017 and 2016, the Company received proceeds of $11,500 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%.

 

  F- 6  
 

 

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017

 

NOTE 6 - CONVERTIBLE NOTE PAYABLE

 

Convertible notes payable consist of the following as of June 30, 2017 and December 31, 2016:

 

    2017     2016  
Total convertible notes payable     469,977       657,059  
Less discounts     (4,669 )     (101,595 )
Convertible notes net of discount   $ 465,308     $ 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 June 30, 2017 and December 31, 2016:

 

    Amount  
Balance December 31, 2016   $ 870,921  
Debt discount originated from derivative liabilities     14,489  
Initial loss recorded     11,658  
Adjustment to derivative liability due to debt conversion     (1,053,930 )
Change in fair market value of derivative liabilities     601,805  
Balance March 31, 2017   $ 444,943  

 

During the three months ended June 30, 2017, the Company issued 547,756,269 shares of common stock with a fair value of $270,928 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 $1,053,930. 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 June 30, 2017:

 

Fair value assumptions – derivative notes:   June 30, 2017  
Risk free interest rate     0.40-0.80 %
Expected term (years)     0.01-0.159  
Expected volatility     289-337 %
Expected dividends     0 %

 

  F- 7  
 

 

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 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 June 30, 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     (1,726 )
Distributions received from Aspire     -  
Balance June 30, 2017   $ 452,336  

 

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 $10,535 for the six months ended June 30, 2016 and 2015, 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.

 

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.

 

  F- 8  
 

 

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017

 

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 preferred stock.

 

On May 9, 2017, pursuant to Article III of the Company’s Articles of Incorporation, the Board of Directors voted to designate a class of preferred stock entitled Series C Convertible Preferred Stock, consisting of up 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.

 

As of June 30, 2017, and December 31, 2015, 1,227,993,542 and 199,404,940 shares of common stock, 0 and 0 shares of Series A preferred stock and 66,667 and 0 Series B preferred stock and 66,667 and 2,000,000 and 0 Series C preferred stock, were issued and outstanding, respectively.

 

During the six months ended June 30, 2017, the Company issued 547,756,269 shares of common stock with a fair value of $270,928 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 $1,053,930. 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. During the six months ended June 30, 2017, the officer exchanged the common shares for 2,000,000 shares of newly designated Series C Preferred stock.

 

During the six months ended June 30, 2017, the Company issued 77,500,000 shares of common stock for services valued at $115,100.

 

NOTE 10 – SUBSEQUENT EVENTS  

 

Effective July 3, 2017, the Company and Auctus Fund, LLC (“Auctus”) entered into a Settlement Agreement and Mutual General Release (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the parties agreed as follows:

 

  The Company agreed to issue 550,000,000 shares of our common stock to Auctus in settlement of a Securities Purchase Agreement with Auctus dated July 22, 2016;
     
  The shares are subject to a Leak-Out Agreement, which provides that Auctus may publicly sell daily the greater of 4,910,714 shares or 20% of the average daily trading volume over the prior 10-day trading period; and
     
  Upon receipt of the Shares and an irrevocable letter of instruction to our transfer agent, which was executed on July 3, 2017, the parties agreed to release each other from all claims.

 

  F- 9  
 

 

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017

 

Effective August 4, 2017, our company and Carebourn Capital, L.P. (“Carebourn”) entered into a Debt Settlement Agreement. Pursuant to the Settlement Agreement, the parties agreed as follows:

 

  We agreed to issue 70,000,000 shares of our common stock to Carebourn in settlement of the balance remaining on a convertible promissory note dated November 5, 2015, which was amended on July 12, 2016;
  $30,500 of the note was sold to a third party, and we owed $15,250 to Carebourn, which amount is settled by the issuance of shares; and
  Upon receipt of the shares, the parties agreed to release each other from all claims.

 

  F- 10  
 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

 

Company Overview

 

We are a developing player in the mobile marketing and loyalty industry, providing cutting-edge mobile marketing solutions, rewards and loyalty to our clients. With a powerful yet intuitive suite of services, clients are able to reach more customers faster and reward them for repeat business. We help clients reach their marketing and revenue goals by educating clients with the most effective tools in mobile marketing, rewards, paperless redemption and loyalty.

 

In the past 4 years, we have grown to over 300 clients and more than 800 different locations in the United States, Canada and Mexico. We have achieved this with an expanded focus on a variety of industries, including restaurants, retailers, entertainment venues and other partnership opportunities. We have decided to focus our energy on the gym, health and fitness club market.

 

More recently, we have also entered into the IT consulting business through our acquisition of a minority interest in Aspire Consulting, LLC. We plan to assist our controlling partner in the development of this consulting business in addition to improving the market position of our mobile marketing business.

 

Our principal executive office is located at 1940 Contra Costa Blvd. Pleasant Hill, CA 94523 and our telephone number is (925-777-2111).

 

Results of Operation for Three and Six Months Ended June 30, 2017 and 2016

 

Revenues

 

For the three months ended June 30, 2017, we earned revenues in the amount of $307,788, as compared with revenues of $103,449 for the three months ended June 30, 2016. For the six months ended June 30, 2017, we earned revenues in the amount of $536,548, as compared with revenues of $191,859 for the three months ended June 30, 2016.

 

The increase in revenues for the three and six months ended June 30, 2017 over the prior year period is due to more customer accounts achieved from a change in our pricing model to become more competitive. We expect to achieve greater revenues for the rest of 2017.

 

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Cost of Revenues

 

Cost of revenues was $84,047 for the three months ended June 30, 2017, as compared with $32,843 for the same period ended June 30, 2016. Cost of revenues was $157,466 for the six months ended June 30, 2017, as compared with $50,519 for the same period ended June 30, 2016.

 

Gross Profit

 

Our gross profit was $223,741 for the three months ended June 30, 2017 or approximately 73% of revenues, as compared with $70,606 for the same period ended June 30, 2016, or approximately 68% of revenues. Our gross profit was $379,082 for the six months ended June 30, 2017 or approximately 71% of revenues, as compared with $141,340 for the same period ended June 30, 2016, or approximately 74% of revenues.

 

We had spent more on web hosting costs and that is the main reason for the decrease in margin in the six months ended June 30, 2017 compared with the same period ended 2016. However, we experienced an increased margin in the three months ended June 30, 2017 over the same period ended 2016 and we expect that our increased revenues will result in a similar or greater margin in future quarters.

 

Operating Expenses

 

Our operating expenses were $310,097 for the three months ended June 30, 2017, as compared with $184,301 for the three months ended June 30, 2016. Our operating expenses were $6,473,348 for the six months ended June 30, 2017, as compared with $377,777 for the six months ended June 30, 2016.

 

Our operating expenses for the six months ended June 30, 2017 mainly consisted of a share issuance to our officer and director of 2 billion shares valued at $6,000,000. We expect that our operating expenses for the rest of 2017 will decrease, provided that we do not have to issue stock for services, which was the main reason for our increased expenses for the half year. Given our lack of operating capital, we have been forced to issue shares for services rendered to the company. We hope that increase revenues will lessen that trend for 2017 and beyond.

 

Other Income/Expenses

 

We had other income of $4,085,716 for the three months ended June 30, 2017 compared with other expenses of $198,388 for the same period ended June 30, 2016. We had other expenses of $671,004 for the six months ended June 30, 2017 compared with other expenses of $377,777 for the same period ended June 30, 2016.

 

Other income for the three months ended June 30, 2017 consisted mainly of $4,032,108 change in the fair value of derivative liabilities based on Black Scholes.

 

Net Income/Loss

 

We had net income of $3,999,360 for the three months ended June 30, 2017, as compared with a net loss of $305,420 for the three months ended June 30, 2016. We had a net loss of $6,766,996 for the six months ended June 30, 2017, as compared with net loss of $1,535,343 for the three months ended June 30, 2016.

 

Liquidity and Capital Resources

 

As of June 30, 2017, we had total current assets of $79,256, consisting of cash and receivables. Our total current liabilities as of June 30, 2017 were $1,065,573. We had a working capital deficit of $98,317 as of June 30, 2017.

 

Cash Flows from Operating Activities

 

Operating activities used $12,349 in cash for the six months ended June 30, 2017, compared with cash provided of $23,335 for the six months ended June 30, 2016. Our negative operating cash flow for the six months ended June 30, 2017 was largely the result of our net loss for the period of $6,766,995, offset by share based compensation of $6,115,100 and loss on derivative liabilities of $627,952.

 

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Cash Flows from Financing Activities

 

Cash flows provided by financing activities during the six months ended June 30, 2017 amounted to $114,869, compared with cash flows provided by financing activities of $215,164 for the six months ended June 30, 2016. Our positive cash flows for the six months ended June 30, 2017 consisted of proceeds from convertible notes and loans payable, offset by payments on such.

 

Our optimum level of growth for success will be achieved if we are able to raise $250,000 in the next twelve months. However, funds are difficult to raise in today’s economic environment. If we are unable to raise $250,000 our ability to implement our business plan and achieve our goals will be significantly diminished.

 

We have experienced a history of losses. With our revenues increasing, however, we are less reliant on outside capital as we have been in the past. We will need at a minimum $120,000 in capital to operate in the next 12 months. We are dependent on investment capital to continue our survival. We have raised money through convertible debt, almost always on unfavorable terms. There is no guarantee that these small convertible loans will be available to us in the future or on terms acceptable to us.

 

We do not have any formal commitments or arrangements for the sales of stock or the advancement or loan of funds at this time. There can be no assurance that such additional financing will be available to us on acceptable terms, or at all.

 

Going Concern

 

As of June 30, 2017, we have an accumulated deficit of $14,206,142. Our ability to continue as a going concern is contingent upon the successful completion of additional financing arrangements and our ability to achieve and maintain profitable operations. While we are expanding our 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 our ability to continue as a going concern. These financial statements do not include any adjustments that might arise from this uncertainty.

 

Off Balance Sheet Arrangements

 

As of June 30, 2017, there were no off balance sheet arrangements.

 

Critical Accounting Policies

 

In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies are disclosed in Note 2 of our audited financial statements included in the Form 10-K filed with the Securities and Exchange Commission.

 

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.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

A smaller reporting company is not required to provide the information required by this Item.

 

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Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of June 30, 2017, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of June 30, 2017, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described below.

 

Our principal executive officers do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive officers have determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Management identified the following three material weaknesses that have caused management to conclude that, as of June 30, 2017, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level:

 

  1. We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act as of the period ending June 30, 2017. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
     
  2. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
     
  3. Effective controls over the control environment were not maintained. Specifically, a formally adopted written code of business conduct and ethics that governs our employees, officers, and directors was not in place. Additionally, management has not developed and effectively communicated to employees its accounting policies and procedures. This has resulted in inconsistent practices. Further, our Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.

 

  7  
 

 

To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

 

To remediate the material weakness in our documentation, evaluation and testing of internal controls we plan to engage a third-party firm to assist us in remedying this material weakness once resources become available.

 

We intend to remedy our material weakness with regard to insufficient segregation of duties by hiring additional employees in order to segregate duties in a manner that establishes effective internal controls once resources become available.

 

Changes in Internal Control over Financial Reporting

 

No change in our system of internal control over financial reporting occurred during the period covered by this report, the period ended June 30, 2017, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings  

 

Below is a list of our legal proceedings and the settlements we recently entered into.

 

JSJ Investments, Inc. vs. Textmunication Holdings, Inc.

95th District Court of Dallas County, Texas

Filed on 2/7/2017

Case DC-17-01404

 

Auctus Fund vs. Textmunication Holdings, Inc.

United States District Court – District of Massachusetts

Filed on 3/24/2017

Case 1:17-cv-10504

 

Textmunication Holdings, Inc. vs. Carebourn Capital. L.P.

United States District Court – District of Nevada

Filed on 4/5/2017

Case 2:17-cv-00968-JAD-VCF

 

Textmunication Holdings, Inc. vs. Lester Einhaus

Eighth Judicial District Court of Clark County, Nevada

Filed on 4/10/2017

A-17-753743-C

 

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 as follows:

 

  We agreed to execute an amendment to the 12% convertible promissory note in favor of JSJ, which will allow JSJ to convert the note’s outstanding balance and accrued interest of $53,280.57 into a fixed 262,500,000 shares of our common stock under conversion notices;
  Upon receipt of the 262,500,000 shares, the parties will release each other from all claims; and
  As security for the issuance, we agreed to execute a judgment in favor of JSJ, but it will not be entered if we comply with the terms of settlement.

 

  8  
 

 

Effective July 3, 2017, our company and Auctus Fund, LLC (“Auctus”) entered into a Settlement Agreement and Mutual General Release. Pursuant to the Settlement Agreement, the parties agreed as follows:

 

  We agreed to issue 550,000,000 shares of our common stock to Auctus in settlement of a Securities Purchase Agreement with Auctus dated July 22, 2016;
  The shares are subject to a Leak-Out Agreement, which provides that Auctus may publicly sell daily the greater of 4,910,714 shares or 20% of the average daily trading volume over the prior 10-day trading period; and
  Upon receipt of the shares and an irrevocable letter of instruction to our transfer agent, which was executed on July 3, 2017, the parties agreed to release each other from all claims.

 

Effective August 4, 2017, our company and Carebourn Capital, L.P. (“Carebourn”) entered into a Debt Settlement Agreement. Pursuant to the Settlement Agreement, the parties agreed as follows:

 

  We agreed to issue 70,000,000 shares of our common stock to Carebourn in settlement of the balance remaining on a convertible promissory note dated November 5, 2015, which was amended on July 12, 2016;
  $30,500 of the note was sold to a third party, and we owed $15,250 to Carebourn, which amount is settled by the issuance of shares; and
  Upon receipt of the shares, the parties agreed to release each other from all claims.

 

Item 1A: Risk Factors

 

For our mobile marketing business, see risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2014 filed on April 15, 2015.

 

For our interest in Aspire Consulting Group, LLC, see risk factors included in our Current Report on Form 8-K filed on January 1, 2016.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

The information set forth below relates to our issuances of securities without registration under the Securities Act of 1933.

 

During the six months ended June 30, 2017, we issued 77,500,000 shares of common stock for services valued at $115,100.

 

During the six months ended June 30, 2017, we issued 547,756,269 shares of common stock with a fair value of $270,928 for the partial conversion of convertible notes payable.

 

On February 16, 2017, we issued a total of 2,000,000,000 shares of our common stock to our officer and director, Wais Asefi, as compensation for services rendered. During the six months ended June 30, 2017, the officer exchanged the common shares for 2,000,000 shares of our newly designated Series C Preferred stock.

 

On May 24, 2017, we agreed to execute an amendment to the 12% convertible promissory note in favor of JSJ, which will allow JSJ to convert the note’s outstanding balance and accrued interest of $53,280.57 into a fixed 262,500,000 shares of our common stock under conversion notices.

 

On July 3, 2017, we agreed to issue 550,000,000 shares of our common stock to Auctus in settlement of a Securities Purchase Agreement with Auctus dated July 22, 2016;

 

On August 4, 2017, we agreed to issue 70,000,000 shares of our common stock to Carebourn in settlement of the balance remaining on a convertible promissory note dated November 5, 2015, which was amended on July 12, 2016.

 

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These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.

 

Item 3. Defaults upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

N/A

 

Item 5. Other Information

 

None

 

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Item 6. Exhibits

 

Exhibit Number   Description of Exhibit
     
3.1   Certificate of Designation, dated May 15, 2017
10.1   Debt Settlement Agreement, dated August 4, 2017
31.1   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1   Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101**   The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 formatted in Extensible Business Reporting Language (XBRL).
   

 

**Provided herewith

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  Textmunication Holdings, Inc.  
     
Date: September 13, 2017  
     
By: /s/ Wais Asefi  
  Wais Asefi  
Title: President, Chief Executive Officer, and Director  

 

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