Form 10-Q

 

 

 

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 June 30, 2019
     
  [  ] 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. [  ]

 

Securities registered pursuant to Section 12(b) of the Act: None

 

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 12,239,452 common shares as of August 12, 2019

 

 

 

   
   

 

 

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 7
Item 4: Controls and Procedures 7
PART II – OTHER INFORMATION
Item 1: Legal Proceedings 9
Item 1A: Risk Factors 9
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 9
Item 3: Defaults Upon Senior Securities 9
Item 4: Other Information 9
Item 5: Exhibits 10

 

 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, 2019 (unaudited) and December 31, 2018;
F-2 Consolidated Statements of Operations for the for the three and six months ended June 30, 2019 and 2018 (unaudited);
F-3 Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2019 (unaudited);
F-4 Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (unaudited); and
F-5 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, 2019 are not necessarily indicative of the results that can be expected for the full year.

 

 3 
 

 

TEXTMUNICATION HOLDINGS, INC.

Consolidated Balance Sheet

As of June 30, 2019 and December 31, 2018

(Unaudited)

 

   June 30, 2019   December 31, 2018 
ASSETS          
Current assets          
Cash and cash equivalents  $16,005   $68,513 
Receivables   15,528    14,516 
Total current assets   31,533    83,029 
Investment in equity method investee   438,582    450,683 
Total assets  $470,115   $533,712 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)          
Current liabilities          
Accounts payable and accrued liabilities  $220,558   $225,430 
Due to related parties   11,750    11,750 
Convertible notes payable, net of discount   20,000    20,000 
Settlement liability   163,980    360,756 
Total current liabilities   416,288    617,936 
           
Total liabilities   416,288    617,936 
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, 0 and 66,667 issued and outstanding, respectively   -    7 
Series C - Preferred stock, 2,000,000 shares authorized, $0.0001 par value, 2,000,000 issued and outstanding   200    200 
Series D - Preferred stock 40,000 shares authorized, $0.0001 par value 40,000 and 0 issued and outstanding, respectively   4    - 
Common stock; $0.0001 par value; 100,000,000 shares authorized; 11,599,452 and 4,456,452 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively.   1,161    446 
Additional paid-in capital   18,322,362    15,404,716 
Accumulated deficit   (18,270,300)   (15,489,993)
Total stockholders’equity (deficit)   53,827    (84,224)
Total liabilities and stockholders’ equity (deficit)  $470,115   $533,712 

 

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

 

 F-1 
 

 

TEXTMUNICATION HOLDINGS, INC.

Consolidated Statement of Operations

For the six months period ended June 30, 2019 and 2018

(Unaudited)

 

   Three Months Ended   Six Months Ended 
   June 30, 2019   June 30, 2018   June 30, 2019   June 30, 2018 
                 
Sales  $253,683   $227,232   $497,053   $491,124 
Cost of revenues   96,027    61,966    184,553    117,404 
Gross profit   157,656    165,266    312,500    373,720 
Operating expenses                    
Advertising   9,285    1,771    12,115    4,020 
General and administrative   34,041    23,300    64,281    64,721 
Legal and Professional fees   96,756    29,560    115,918    191,194 
Officer Compensation   118,190    35,500    216,998    75,000 
Salaries and Related   46,532    79,013    95,121    149,882 
Sales Commission   21,310    5,482    40,267    16,614 
Office Rent   5,512    4,001    11,025    9,269 
Non Cash Expenses Management fees   -    -    2,521,582    - 
Total operating expenses   331,626    178,627    3,077,307    510,700 
                     
Loss from operations   (173,970)   (13,361)   (2,764,807)   (136,980)
Other income (expense)                    
Other Income        -    1,498    - 
Interest expense   (3,070)   (1,855)   (4,897)   (6,015)
Amortization of debt discount   -    (14,178)   -    (42,534)
Gain (loss) on settlement of derivative liabilities   -    -    -    100,109 
Gain (loss) on settlement of notes payable   -    148,725    -    245,446 
Total other income (expense)   (3,070)   132,692    (3,399)   297,006 
Loss from investment in equity method investee   (11,942)   (852)   (12,101)   (1,121)
Net Income (loss) per common share: basic and diluted  $(188,982)  $118,479   $(2,780,307)  $158,905 
Basic weighted average common shares outstanding   12,059,782    3,975,519    8,456,856    3,641,249 
Net Income (loss) per common share: basic and diluted   (0.02)  $0.03    (0.33)  $0.04 

 

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

 

 F-2 
 

 

TEXTMUNICATION HOLDINGS, INC.

Consolidated Statement of Stockholders’ Equity

For the six months ended June 30, 2019

(Unaudited)

 

   Preferred stock   Preferred stock - Series B   Preferred stock - Series C   Preferred stock - Series D   Common Stock   Additional Paid-in   Accumulated   Total Stockholders’ 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
Balance, December 31, 2018   4,000,000   $400    66,667   $7    2,000,000   $200    -   $-    4,456,452   $446   $15,404,716   $(15,489,993)  $(84,224)
Settlement of liabilities                                           438,000    44    196,732         196,776 
Stock issuance for services                                           6,685,000    669    2,520,913         2,521,582 
Net loss- 3 months ended March 31, 2019                                                          (2,591,325)   (2,591,325)
Balance, March 31, 2019   4,000,000    400    66,667    7    2,000,000    200    -    -    11,579,452    1,159    18,122,361    (18,081,318)   42,809 
Preferred shares converted to common             (66,667)   (7)                       20,000    2    5         - 
Stock and warrants issued for cash                                 40,000    4              199,996         200,000 
Net loss- 3 months ended June 30, 2019                                                         $(188,982)  $(188,982)
June 30, 2019   4,000,000   $400    -   $-    2,000,000   $200    40,000   $4    11,599,452   $1,161   $18,322,362   $(18,270,300)  $53,827 

 

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

 

 F-3 
 

 

TEXTMUNICATION, INC.

Consolidated Statements of Cash flow

For the six months ended

(Unaudited)

 

   June 30, 2019   June 30,2018 
Cash Flows from Operating Activities          
Net Income (loss)  $(2,780,307)  $158,905 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:          
Amortization of debt discount   -    42,532 
Loss on derivative liability   -    (100,109)
Share based compensation   2,521,601    - 
Gain on settlement of derivative liabilities   -    (227,840)
Income from equity method investee   12,101    1,121 
Changes in assets and liabilities          
Receivables   (1,012)   (12,774)
Accounts payable and accrued expenses   (4,891)   145,814 
Prepaid expenses        (2,613)
Net cash provided by / ( used in) operating activities   (252,508)   5,036 
Cash Flows from Investing Activities          
Capitalization of software cost        (39,863)
Net cash provided by investing activities   -    (39,863)
Cash Flows from Financing Activities          
Payments on convertible notes        (25,000)
Net proceeds from issuance of common stocks        100,000 
Proceeds on Convertible Notes/ Loans Payable- RP        - 
Net proceeds from sale of stock and warrants   200,000    - 
Net cash provided by financing activities   200,000    75,000 
Net increase (decrease) in cash   (52,508)   40,173 
Cash, beginning of period   68,513    10,158 
Cash, end of period  $16,005   $50,331 
Supplemental disclosure of cash flow information          
Cash paid for interest  $4,897   $3,223 
Non-Cash investing and financing transactions          
Conversion of debt for common stock          
Conversion of convertible notes payable  $-      
Settlement of derivative liability  $-      

 

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

 

 F-4 
 

 

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTER ENDED June 30, 2019 (UNAUDITED)

 

NOTE 1 – ORGANIZATION AND BUSINESS OPERATIONS

 

The Company

 

Textmunication Holdings, Inc. (Company) was incorporated on May 13, 2010 under the laws of the State of California. Textmunication is an online mobile marketing platform service that will connect merchants with their customers and allow them to drive loyalty and repeat business in a non-intrusive, value added medium. For merchants we provide a mobile marketing platform where they can always send the most up-to-date offers/discounts/alerts/events schedule, such as happy hours, trivia night, and other campaigns. The consumer can also access specials and promotions that merchants choose to distribute through Textmunication by opting 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 65,640,207 new shares of common stock of Holdings in exchange for 100% of the Company’s issued and outstanding shares.

 

On July 9, 2018 the 1 – 1,000 Reverse Split of “Textmunication Holdings, Inc.” (TXHD) common stock took effect at the open of business. All shares and per share amounts have been retroactively adjusted to reflect the reverse split.

 

July 9th, 2018 Textmunication Holdings, Inc. (“TXHD”) entered into Advisory Agreements with Mr. Thomas DiBenedetto and Mr. Joseph Griffin. Mr. DiBenedetto will advise Textmunication on business execution, growth initiatives and strategic investment opportunities. Mr. Joseph Griffin will join Textmunication as a financial investment advisor. In his role, he will advise the company on strategic investment opportunities and investment execution.

 

On May 2, 2019 the Corporation received a notice of conversion under the Certificate of Designation of the

Corporation from Aspire Consulting Group LLC for the complete conversion of 66,667 shares of Series A Preferred Stock into 20,000 shares of the Corporation’s common stock. The board of directors approve conversion of the above shares of Series B Preferred Stock into 20,000 shares of common stock in the Corporation.

 

On May 16, 2019, the Corporation filed a Certificate of Withdrawal with the State of Nevada to withdraw its Certificate of Designation for our Series B Preferred Stock. There were no shares of preferred stock outstanding at the time of the filing and the action was approved by our Board of Directors in accordance with Nevada law.

 

Also on May 16, 2019, our Board of Directors created, out of our available shares of preferred stock, par value $0.0001 per share, a series of preferred stock known as “Series D Convertible Preferred Stock” consisting of 40,000 shares. Under the terms of the Series D Certificate of Designation, the shares shall not accrue nor pay dividends except that if dividends are declared for other equity holders of our Company then the Series D Convertible Preferred Stock shall participate on the same basis. Except with respect to any future series of preferred stock of senior rank to the Series D Convertible Preferred Stock in respect of the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of our Company or the Series D Convertible Preferred Stock and any future series of preferred stock of pari passu rank to the Series D Convertible Preferred Stock in respect of the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Company, all shares of capital stock of our Company shall be junior in rank to the Series D Convertible Preferred Stock with respect to the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of our Company. Each share of Series D Convertible Preferred Stock has a stated value of $10 and is convertible into shares of Common Stock, equal to the stated value divided by the conversion price of our stock price on the day of conversion (subject to adjustment in the event of stock splits and dividends). Failure to effect a conversion within proscribed time periods will effect both liquidated damages and buy-in charges. We are prohibited from effecting the conversion of any share of the Series D Convertible Preferred Stock to the extent that, as a result of such conversion, the holder or any affiliates would beneficially own more than 9.99%, in the aggregate, of the issued and outstanding shares of our Company’s common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series D Convertible Preferred Stock. Except as required by law and as set forth in the Series D Certificate of Designation, the Series D Convertible Preferred Stock shall have no voting rights.

 

 F-5 
 

 

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTER ENDED June 30, 2019 (UNAUDITED)

 

The rights of the holders of Series D Convertible Preferred Stock are defined in the relevant Certificate of Designation filed with the Nevada Secretary of State on May 16, 2019, attached hereto as Exhibit 3.2, and is incorporated by reference herein.

 

Also on May 16, 2019, our Board of Directors and the majority of the holders of our Series C Convertible Preferred Stock approved an amendment to the certificate of designation for our Series C Convertible Preferred Stock (the Amended Certificate of Designation”), consisting of up 2,000,000 shares, par value $0.0001. Under the Amended Certificate of Designation, holders of our Series C Convertible Preferred Stock are entitled to vote on all shareholder matters with a vote equal to 51% of the total vote of all classes of voting stock of our company. The rights of the holders of Series C Convertible Preferred Stock are defined in the relevant Amended Certificate of Designation filed with the Nevada Secretary of State on May 16, 2019.

 

On June 11, 2019, the Corporation entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with the purchasers identified therein (collectively, the “Purchasers”) providing for the issuance and sale to the Purchasers of an aggregate of up to 40,000 shares of our Series D Convertible Preferred Stock (the “Preferred Shares”) and related warrants for gross proceeds to the Company of $200,000. The Warrants have an exercise price of $0.30 per share and are exercisable sixty months from the issuance date. The Warrants provide for cashless exercise in the event we have not registered the common shares underlying the Warrants.

 

On June 25, 2019, Textmunication Holdings, Inc. (the “Company”) issued a press release announcing it plans to change its business direction from its current SMS technology business to focus on the emerging national cannabis market. The Company plans on using its mobile texting platform to enhance communication efforts with the potential acquisitions.

 

Basis of Presentation

 

The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s most recent Annual Financial Statements filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period presented have been reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted.

 

Going concern

 

These consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As of June 30, 2019, the Company has an accumulated deficit of $18,270,300. The company’s ability to continue as a going concern is contingent upon the successful completion of additional financing arrangements and its ability to achieve and maintain profitable operations. While the Company is expanding its best efforts to achieve the above plans, there is no assurance that any such activity will generate funds that will be available for operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. These consolidated financial statements do not include any adjustments that might arise from this uncertainty.

 

 F-6 
 

 

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTER ENDED June 30, 2019 (UNAUDITED)

 

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, 2019, no cash balances exceeded the federally insured limit.

 

Accounts receivable and allowance for doubtful accounts

 

Accounts receivable are stated at the amount management expects to collect. The Company generally does not require collateral to support customer receivables. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic conditions. As of June 30, 2019, and 2018 no allowance for doubtful accounts was set up.

 

Revenue Recognition

 

Revenues are recognized when control of the promised is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.

 

The Company currently derives a substantial majority of its revenue from fees associated with our subscription services, which generally include mobile marketing platform services. Customers are billed for the subscription on a monthly basis. For all of the Company’s customers, regardless of the method, the Company uses to bill them, subscription revenue is recorded as deferred revenue in the accompanying consolidated balance sheets. As services are performed, the Company recognizes subscription revenue on a monthly basis over the applicable service period. When the Company provides a free trial period, the Company does not begin to recognize subscription revenue until the trial period has ended and the customer has been billed for the services.

 

Professional services revenues are generated from SMS and RCS packages where client logs into a cloud-based application to send targeted SMS messages to their subscribers’ base. Our custom web application SMS/RCS platform is typically billed on a fixed-price based on the number of SMS/RCS allocated for each package our client purchases. Generally, revenue for SMS/RCS services is recognized immediately as our clients have instant access to their web-based application to send out messages, the number of SMS/RCS messages allocated to a client expires at the end of each month and renews beginning of each month. The Company offers whereby control of the product passes to the customer when delivered and revenue is recognized at the time of delivery.

 

Results for reporting periods beginning after January 1, 2019 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605

 

We did not have a cumulative impact as of January 1, 2019 due to the adoption of Topic 606 and there was not an impact to our consolidated statement of operations for the year ended December 31, 2018 as a result of applying Topic 606.

 

Fair Value of Financial Instruments

 

The carrying amounts reflected in the balance sheets for cash, accounts payable and accrued expenses approximate the respective fair values due to the short maturities of these items.

 

As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

 F-7 
 

 

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTER ENDED June 30, 2019 (UNAUDITED)

 

The three levels of the fair value hierarchy are described below:

 

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

 

Level 2: Quoted prices in markets that are not active, or inputs that is observable, either directly or indirectly, for substantially the full term of the asset or liability;

 

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

The fair value of the accounts receivable, accounts payable, notes payable are considered short term in nature and therefore their value is considered fair value.

 

Net income (loss) per Common Share

 

Basic net income (loss) per share is computed by dividing the net loss attributable to the common stockholders by the weighted average number of shares of common stock outstanding during the period. Fully diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.

 

Property and equipment

 

Property and equipment are stated at cost, less accumulated depreciation provided on the straight-line method over the estimated useful lives of the assets, which range from three to seven years. Expenditures for renewals or betterments are capitalized, and repairs and maintenance are charged to expense as incurred the cost and accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts, and any gain or loss thereon is reflected in operations. Company policy capitalize property and equipment for cost over $1,000, asset acquired under $1,000 are charge to operations.

 

Income Taxes

 

Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized. Because the Company has no net income, the tax benefit of the accumulated net loss has been fully offset by an equal valuation allowance.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Stock-Based Compensation

 

The Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation – Stock Compensation which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The fair value of the equity instrument is charged directly to compensation expense and credited to additional paid-in capital over the period during which services are rendered.

 

 F-8 
 

 

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTER ENDED June 30, 2019 (UNAUDITED)

 

The Company follows ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants and other non-employees. In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital over the period during which services are rendered.

 

Investments in Securities

 

Investments in securities are accounted for using the equity method if the investment provides the Company the ability to exercise significant influence, but not control, over an investee. Significant influence is generally deemed to exist if the Company has an ownership interest in the voting stock of the investee between 20% and 50%, although other factors, such as representation on the investee’s Board of Directors, are considered in determining whether the equity method is appropriate.

 

Recent Accounting Pronouncements

 

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230)”, requiring that the statement of cash flows explain the change in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This guidance is effective for fiscal years, and interim reporting periods therein, beginning after December 15, 2017 with early adoption permitted. Management evaluated ASU 2016-18 and determined that the adoption of this new accounting standard did not have a material impact on the Company’s consolidated financial statements.

 

NOTE 3 – RELATED PARTY TRANSACTIONS

 

As of March 31, 2019, 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, 2019 and December 31, 2018 were approximately $11,750 and $11,750, respectively

 

NOTE 4 - CONVERTIBLE NOTE PAYABLE

 

Convertible notes payable consists of the following as of March 31, 2019 and December 31, 2018:

 

   2019   2018 
Total convertible notes payable   20,000    20,000 
Less discounts   -    - 
Convertible notes net of discount  $20,000   $20,000 

 

The Company accounts for the fair value of the conversion features of its convertible debt in accordance with ASC Topic No. 815-15 “Derivatives and Hedging; Embedded Derivatives” (“Topic No. 815-15”). Topic No. 815-15 requires the Company to bifurcate and separately account for the conversion features as an embedded derivative contained in the Company’s convertible debt. The Company is required to carry the embedded derivative on its balance sheet at fair value and account for’ any unrealized change in fair value as a component of results of operations. The Company values the embedded derivatives using the Black-Scholes pricing model.

 

During the three months ended March 31, 2019, the Company issued 438,000 shares of common stock with a fair value of $67,500 for the settlement of liabilities payable. The conversion of the derivative liabilities has been recorded through additional paid-in capital.

 

NOTE 5 – INVESTMENT IN ASPIRE CONSULTING GROUP, LLC

 

On January 5, 2016, the Company entered into a Share Exchange Agreement with Aspire Consulting Group, LLC, a Maryland limited liability company and certain members of Aspire. Pursuant to the terms of the Exchange Agreement, the Company agreed to acquire 49% of all of the issued and outstanding membership units of Aspire in exchange for the issuance of 66,667 shares of the Company’s newly created Series B Convertible Preferred Stock to the Members valued at $460,002. Preferred shares were later converted to 20,000 common stocks.

 

 F-9 
 

 

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTER ENDED June 30, 2019 (UNAUDITED)

 

The Company has concluded that it has the ability to exercise significant influence, but not control, over an Aspire through its acquired 49% equity interest and therefore has accounted for the acquisition of the interest under the equity method.

 

The following table presents details of the Company’s investment is Aspire as of March 31, 2019 and December 31, 2018:

 

   Amount 
Balance December 31, 2018  $450,683 
Income (loss) from equity method investee   (12,101)
Distributions received from Aspire   - 
Balance June 30, 2019  $438,582 

 

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 $11,025 and $9,269 for the six months ended June 30, 2019 and 2018, respectively.

 

Executive Employment Agreement

 

The Company has an employment agreement with the CEO/Chairman to perform duties and responsibilities as may be assigned by the Board of Directors. The base salary is in the amount of $120,000 per annum plus an annual discretionary bonus plus benefits commencing on December 17, 2013 and ending May 1, 2017 with an automatic renewal on each anniversary date (May 1) thereafter.

 

NOTE 7 – STOCKHOLDERS’ EQUITY

 

During the first quarter of 2019 the company issued a total of 6,685,000 shares to employees and vendors for compensation and services rendered. The fair market value of the shares issues accounted as expenses as follows:

 

Management Fees  $2,074,600 
Payment to subcontractors   446,982 
Total   2,521,582 

 

NOTE 8 – SUBSEQUENT EVENTS

 

On July 31, 2019, the Company announced it qualified to trade on the OTCQB Market. The Company believes the move to the OTCQB Market provides investor benefits including higher reporting standards, access to analyst coverage, increased Market Maker presence and compliance requirements.

 

 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 765 clients and more than 950 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.

 

Our software platform provides a powerful nonintrusive and valued-added engagement tool capable of delivering more than one billion SMS per month. CIOReview Magazine recognized Textmunication as one of the “Top 20 Most Promising Digital Marketing Solution Providers” in its annual 2018 edition. We offer cutting-edge technology with solutions such as Rich Communication Services (RCS).

 

We have built an advanced “Communication Platform as a Service” (CPaaS) backbone enabling developers to add real-time communication features in their own applications without needing to build backend infrastructure and interfaces. We are working to develop “Messaging as a Platform” (MaaP). A MaaP platform combines advanced messaging with standardized interfaces to plugins creating a richer experience for consumers, such as RCS. Textmunication expanded its White Label program allowing companies of all sizes to implement an “out-of-the-box” solution “Powered by Textmunication”. In addition to White Label, the company offers standalone Application Programming Interfaces or APIs, integrated API solutions and non-integrated services.

 

We can produce a new API in 2-4 weeks for each new client. We now have 7 of the top 8 Health Club Management Software (CMS) companies using our integrated SMS fitness solution. There is no other automated health and fitness solution offering a completed end-to-end solution similar to ours. We now have access to more than 25,000 health clubs in North America and will focus on converting new clubs to our solution in the next 12 months.

 

 4 
 

 

On June 25, 2019, we issued a press release announcing our plans to change our business direction from the SMS technology business to focus on the emerging national cannabis market. We feel there are synergies between our mobile texting platform and the $4.2 trillion-dollar wellness lifestyle sector. Our goal is to acquire assets and companies and utilize our mobile platform for member and client communication. Our focus on the cannabis wellness lifestyle segment will be centered on products, branding, retail distribution and mobile technology.

 

We are in 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 Six Months Ended June 30, 2019 and 2018

 

Revenues

 

For the three months ended June 30, 2017, we earned revenues in the amount of $253,683 as compared with revenues of $227,232 for the three months ended June 30, 2018. For the six months ended June 30, 2019, we earned revenues in the amount of $497,053, as compared with revenues of $491,124 for the six months ended June 30, 2018.

 

The slight increase in revenues for the three and six months ended June 30, 2019 over the prior year period is due to launching a new platform and services and we are hopeful will continue to increase revenues in future quarters.

 

Cost of Revenues

 

Cost of revenues was $96,027 for the three months ended June 30, 2019, as compared with $61,966 for the same period ended June 30, 2018. Cost of revenues was $184,553 for the six months ended June 30, 2019, as compared with $117,404 for the same period ended June 30, 2018.

 

Our gross profit was $157,656 for the three months ended June 30, 2019 or approximately 62% of revenues, as compared with $165,266 for the same period ended June 30, 2018, or approximately 73% of revenues. Our gross profit was $312,500 for the six months ended June 30, 2019 or approximately 62% of revenues, as compared with $373,720 for the same period ended June 30, 2018, or approximately 76% of revenues.

 

Our cost of revenues increased for 2019 compared with the 2018 and our margins were less as a result of increased software development costs. We expect a similar or increased cost of revenues for the rest of 2019.

 

Operating Expenses

 

Our operating expenses were $331,626 for the three months ended June 30, 2019, as compared with $178,627 for the three months ended June 30, 2018. Our operating expenses were $3,077,307 for the six months ended June 30, 2019, as compared with $510,700 for the six months ended June 30, 2018.

 

The main reason for our increased operating expenses in 2019 was a result of 6,685,000 shares issued to employees and vendors for compensation and services rendered at a value of $2,521,582 and officer compensation of $214,348. We expect that our operating expenses for the rest of 2019 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 2019 and beyond.

 

 5 
 

 

Other Income

 

We had other expenses of $3,070 for the three months ended June 30, 2019 compared with other income of $132,692 for the same period ended June 30, 2018. We had net other expenses of $3,399 for the six months ended June 30, 2019 compared with other income of $297,006 for the same period ended June 30, 2018.

 

Net other expenses for the three months period ended June 30, 2019 consisted of interest expenses $3,070 compared to previous period net other income consisted of interest and amortization expenses $16,033 and gain on settlement of notes payables of $148,725. Other expenses for the six months ended June 30, 2019 consisted mainly interest expenses $4,897 and rebates from credit cards of $1,498. Net other income for the six months ended June 30, 2018 consisted mainly of a $101,109 change in the fair value of derivative liabilities based on Black Scholes, along with a $245,446 gain on the settlement of notes payable, offset mainly by the amortization of debt discount and interest expenses of $42,534 and $6,015 respectively.

 

Net Income/Loss

 

We had net loss of $188,982 for the three months ended June 30, 2019, as compared with net income of $118,479 for the three months ended June 30, 2018.We had a net loss of $2,780,307 for the six months ended June 30, 2019, as compared with net income of $158,905 for the six months ended June 30, 2018.

 

Liquidity and Capital Resources

 

As of June 30, 2019, we had total current assets of $31,533, consisting of cash and receivables. Our total current liabilities as of June 30, 2019 were $416.288. We had a working capital deficit of $384,755 as of June 30, 2019, compared with a working capital deficit of $534,907 as of December 31, 2018.

 

Cash Flows from Operating Activities

 

Operating activities used $252,508 in cash for the six months ended June 30, 2019, compared with cash provided of $5,036 for the six months ended June 30,2018. Our negative operating cash flow for the six months ended June 30, 2019 was largely the result of our net loss of $2,780,307, offset mainly by share based compensation of $2,521,580. Our positive operating cash flow for the six months ended June 30, 2018 was largely the result of changes in accounts payable and accrued expenses of $145,814 and our net income of $158,905 offset mainly by the loss on derivative liability of $100,109 and the gain on the settlement of debt of $227,840.

 

Cash Flows from Investing Activities

 

Investing activities used $0 in cash for the three months ended June 30, 2019, compared with cash used of $39,863 for the six months ended June 30, 2018. Cash flows used in investing activities for the six months ended June 30, 2018 resulted from the capitalized cost for internal use software.

 

Cash Flows from Financing Activities

 

Cash flows provided by financing activities during the six months ended June 30, 2019 amounted to $200,000, compared with cash flows provided by financing activities of $75,000 for the six months ended June 30, 2018. Our positive cash flows for the six months ended June 30, 2019 consisted of proceeds from the issuance of preferred stock and warrants.

 

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.

 

 6 
 

 

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, 2019, we have an accumulated deficit of $ 18,270,300. 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, 2019, 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, 2019, 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, 2019, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described below.

 

 7 
 

 

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, 2019, 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, 2019. 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.

 

 8 
 

 

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, 2019, 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

 

We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

 

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 first quarter of 2019 the company issued a total of 6,685,000 shares to employees and vendors for compensation and services rendered.

 

On May 2, 2019, we received a notice of conversion under our Certificate of Designation from Aspire Consulting Group LLC for the complete conversion of 66,667 shares of Series A Preferred Stock into 20,000 shares of our common stock. The board of directors approve conversion of the above shares of Series B Preferred Stock into 20,000 shares of our common stock.

 

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.

 

On June 11, 2019, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with the purchasers identified therein (collectively, the “Purchasers”) providing for the issuance and sale to the Purchasers of an aggregate of up to 40,000 shares of our Series D Convertible Preferred Stock (the “Preferred Shares”) and related warrants for gross proceeds to the Company of $200,000.

 

Item 3. Defaults upon Senior Securities

 

None

 

Item 4. Other Information

 

None

 

 9 
 

 

Item 5. Exhibits

 

Exhibit Number  

Description of Exhibit

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, 2019 formatted in Extensible Business Reporting Language (XBRL).
     
    **Provided herewith

 

 10 
 

 

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: August 14, 2019  
     
By: /s/ Wais Asefi  
  Wais Asefi  
Title: President, Chief Executive Officer, and Director  

 

 11