UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

[X]	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended March 31, 2018
[  ]	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: 3,975,519,454 common shares as of June 14, 2018

 

 

 

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	8
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	8
Item 3:	Defaults Upon Senior Securities	8
Item 4:	Mine Safety Disclosures	8
Item 5:	Other Information	8
Item 6:	Exhibits	9

 

 

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 March 31, 2018 (unaudited) and December 31, 2017;
F-2	Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017 (unaudited);
F-3	Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017 (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 March 31, 2018 are not necessarily indicative of the results that can be expected for the full year.

 

 

TEXTMUNICATION HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

		March 31, 2018				December 31, 2017
ASSETS
Current assets
Cash and cash equivalents		$	4,012			$	10,158
Receivables			14,635				2,849
Total current assets			18,647				13,007
Software			72,288				45,229
Investment in equity method investee			452,064				452,336
Total assets			542,999				510,572
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Accounts payable and accrued liabilities		$	337,814			$	480,719
Due to related parties			11,750				11,750
Convertible notes payable, net of discount			53,215				172,230
Derivitive liability			72,415				319,041
Total current liabilities			475,194				983,740
Total liabilities			475,194				983,740
Stockholders’ equity (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				200
Common stock; $0.0001 par value; 250,000,000 shares authorized; 3,975,519 and 2,435,179 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively.			399				244
Additional paid-in capital			15,173,070				14,676,221
Accumulated deficit			(15,106,271	)			(15,150,240	)
Total stockholders’ equity (deficit)			67,805				(473,168	)
Total liabilities and stockholders’ equity (deficit)		$	542,999			$	510,572

 

The accompanying notes are an integral part of these unaudited consolidated financial statements

 

 

TEXTMUNICATION HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		The Three Months Ended
		March 31, 2018				March 31, 2017
Revenues		$	263,864			$	228,760
Cost of revenues			55,438				73,419
Gross profit			208,426				155,341
Operating expenses
Officer compensation			15,000				6,074,500
General and administrative expenses			318,414				88,751
Total operating expenses			333,414				6,163,251
Loss from operations			(124,988	)			(6,007,910	)
Other income (expense)
Interest expense			(2,792	)			(32,683	)
Gain on change of derivative liability			103,653				(4,645,571	)
Amortization of debt discount			(28,356	)			(84,711	)
Gain on settlement of notes payable			96,721				6,245
Total other income (expense)			169,226				(4,756,720	)
Income (loss) from investment in equity method investee			(269	)			(1,524	)
Net income (loss)		$	43,969			$	(10,766,154	)
Basic weighted average common shares outstanding			3,641,249				132,006
Net loss per common share: basic and diluted		$	0.01			$	(81.56	)

 

The accompanying notes are an integral part of these unaudited consolidated financial statements

 

 

TEXTMUNICATION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		Three Months Ended
		March 31, 2018				March 31, 2017
Cash Flows from Operating Activities
Net income (loss)			43,969			$	(10,766,154	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization of debt discount			28,356				84,711
(Gain) loss on derivative liability			(103,653	)			4,645,571
Non cash interest expense			-				50,000
Depreciation			-				305
Share based compensation			-				6,004,200
Gain on the settlement of debt			(96,721	)			-
Income from equity method investee			272				1,524
Changes in assets and liabilities
Receivables			(11,786	)			-
Accounts payable and accrued expenses			185,476				4,667
Net cash provided by operating activities			45,913				24,824
Capitalized cost for internal use software			(27,059	)			-
Net cash used in investing activities			(27,059	)			-
Cash Flows from Financing Activities
Payments on loans payable			-				(3,712	)
Payments on convertible notes payable			(25,000	)			(20,387	)
Net cash used in financing activities			(25,000	)			(24,099	)
Net increase in cash			(6,146	)			725
Cash, beginning of period			10,158				-
Cash, end of period		$	4,012			$	725
Supplemental disclosure of cash flow information
Cash paid for interest		$	-			$	-
Cash paid for tax		$	-			$	-
Non-Cash investing and financing transactions
Conversion of debt		$	299,490			$	-
Conversion of convertible notes payable		$	54,541			$	172,975
Settlement of derivative liability		$	103,653			$	705,244

 

The accompanying notes are an integral part of these unaudited consolidated financial statements

 

 

TEXTMUNICATION HOLDINGS, INC.

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 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, 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

 

 

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 500 clients and more than 800 different locations in the United States and Canada. 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. However, we are also working with Quick Service Restaurants (QSR), Beauty/Tanning salons, hospitality, entertainment, digital marketing and sporting events

 

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 Months Ended March 31, 2018 and 2017

 

Revenues

 

For the three months ended March 31, 2018, we earned revenues in the amount of 263,864, as compared with revenues of $228,760 for the three months ended March 31, 2017.

 

The increase in revenues for the three months ended March 31, 2018 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 2018 over 2017.

 

 

Cost of Revenues

 

Cost of revenues was $55,438 for the three months ended March 31, 2018, as compared with $73,419 for the same period ended March 31, 2017. Our gross profit was $208,426 for the three months ended March 31, 2018 or approximately 79% of revenues, as compared with $155,341 for the same period ended March 31, 2017, or approximately 68% of revenues. Our cost of revenues decreased for 2018 compared with the 207 and was mainly attributable to less spent on subcontracted labor and servers. We expect a similar or increased cost of revenues for the rest of 2018.

 

Operating Expenses

 

Our operating expenses were $333,414 for the three months ended March 31, 2018, as compared with $6,163,251 for the three months ended March 31, 2017.

 

The main reason for our increased operating expenses in 2018 was a result of stock-based compensation to our CEO, Wais Asefi. We expect that our operating expenses for the rest of 2018 will decrease, provided that we do not have to issue stock for services. 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 2018 and beyond.

 

Other Income/Expenses

 

We had other income of $169,226 for the three months ended March 31, 2018 compared with other expenses of $4,756,720 for the same period ended March 31, 2017.

 

Other income for the three months ended March 31, 2018 consisted mainly of a $103,653 change in the fair value of derivative liabilities based on Black Scholes, along with a $96,721 gain on the settlement of notes payable, offset mainly by the amortization of debt discount of $28,356. Other expenses for the three months ended March 31, 2017 consisted of $4,645,571 due to the loss on change of derivative liabilities, $84,711 in amortization of debt discount and $32,6583 in interest expenses, offset by $6,245 for the loss on the settlement of notes payable.

 

Net Income/Loss

 

We had net income of $43,969 for the three months ended March 31, 2018, as compared with a net loss of $10,766,154 for the three months ended March 31, 2017.

 

Liquidity and Capital Resources

 

As of March 31, 2018, we had total current assets of $18,647, consisting of cash and receivables. Our total current liabilities as of March 31, 2018 were $475,194. We had a working capital deficit of $456,547 as of March 31, 2018.

 

Cash Flows from Operating Activities

 

Operating activities provided $45,913 in cash for the three months ended March 31, 2018, compared with cash provided of $24,824 for the three months ended March 31, 2017. Our positive operating cash flow for the three months ended March 31, 2018 was largely the result of changes in accounts payable and accrued expenses of $185,476 and our net income of $43,969 offset mainly by the loss on derivative liability of 103,653 and the gain on the settlement of debt of 96,721. Our positive operating cash flow was largely the result of our share based compensation of $5,004,200 and loss on derivative liabilities of $4,645,571, offset by our net loss of $10,766,154.

 

Cash Flows from Investing Activities

 

Investing activities used $27,059 in cash for the three months ended March 31, 2018, compared with no cash used for the three months ended March 31, 2017. Cash flows used in investing activities for the three months ended March 31, 2018 resulted from the capitalized cost for internal use software.

 

 

Cash Flows from Financing Activities

 

Cash flows used by financing activities during the three months ended March 31, 2018 amounted to $25,000, compared with cash flows used by financing activities of $24,099 for the three months ended March 31, 2017. Our negative cash flows for the three months ended March 31, 2018 consisted of payments on convertible notes payable. Our negative cash flows for the three months ended March 31, 2017 consisted of payments on convertible notes payable and loans payable.

 

The features of the debt instruments and payables concerning our financing activities are detailed in the footnotes to our financial statements.

 

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 March 31, 2018, we have an accumulated deficit of $15,106,271. 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 March 31, 2018, 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.

 

 

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 March 31, 2018, 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 March 31, 2018, 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 March 31, 2018, 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 March 31, 2018. 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.

 

 

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 March 31, 2018, 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

 

As of March 31, 2018, all litigation has been resolved except for the following case:

 

Lester Einhaus vs. Textmunication

United States District Court – Northern District

Filed on 6/14/2017

Case: 1:17-cv-04478

 

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 three months ended March 31, 2018, we 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, we issued 647,459 shares of common stock (post-split) for the settlement of $54,541 in notes payable.

 

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

 

 

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 March 31, 2018 formatted in Extensible Business Reporting Language (XBRL).
		**Provided herewith

 

 

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:	June 26, 2018
By:	/s/ Wais Asefi
	Wais Asefi
Title:	President, Chief Executive Officer, and Director