Resonate Blends, Inc. - Annual Report: 2017 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2017

For the transition period from _________ to ________

Commission file number: 000-21202

Registrant’s telephone number: 925-777-2111

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [  ] No [X]

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act 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. Yes [  ] No [X]

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). Yes [  ] No [X]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [X]

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrants most recently completed second fiscal quarter. $49,983

Indicate the number of shares outstanding of each of the registrant’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

PART I

Item 1. Business

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).

Mobile Marketing Business

Principal Products and Services

We are 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. We provide a mobile marketing platform where merchants can send customers the most up-to-date offers, discounts, alerts and events schedules, such as, for instance, happy hours, trivia night, and other campaigns. The consumer can also access specials and promotions that merchants choose to distribute through us by opting keywords designated to the merchant’s keywords. This allows consumers to take their information wherever they go and learn about the latest buzz as soon as it is available, providing the consumer with events, deals, and messages on their cellphone via SMS messaging. We are a mobile marketing platform that connects the mass consumer to the content that they crave – anywhere, anytime, through virtually any mobile device for all local events and promotions.

Our mobile marketing solutions apply to any industry, offering a new and innovative way to reach out to a merchant’s customer base. Some examples include:

Additionally, we are a mobile marketing platform that allows merchants to get more impact out of their promotions. Our merchants will be able to recommend promotions to their customers proactively, which will help merchants increase foot traffic and revenue. Utilizing the information that is being collected, our merchants can better target their clients. This system empowers merchants and enables them to adjust programs at a moment’s notice.

Our Focus

We began providing SMA text advertising in 2009 to small businesses, including bars, salons, restaurants and medical professionals. We have changed our strategy and decided that instead of directing our energy on smaller businesses we will focus on larger chain and franchise businesses in the Gym, Health and Fitness Club market place offering unique automated solutions to help clubs communicate with their members and increase membership. In order to entrench ourselves as firmly as possible in this marketplace we have add-on service provided with companies that provide billing solutions to the Gym, Health & Fitness Club market place. We now have relationships with the following Gym, Health & Fitness Club billing providers: ASF Payment Solutions, ClubSystems, ABC Financial, Motionsoft, Paramount Acceptance and Jonas Fitness. These sources have access to a combined 17,000 gyms and fitness centers. We plan on introducing new services such as Rich Communication Services (RCS). This new service will shift the paradigm in the mobile communication market by sending rich images, interactive buttons and video in a single text.

Below is a list of services that we intend to perform for the health and fitness industry:

SMS Texting

New Sales:

Inside sales:

Member Communication & retention:

Operations:

Our goal is to partner with the industry leading enterprise software providers to the Health and Fitness Industry. We believe the top five enterprise software providers in the health and fitness industry account for more than 50% of the total gyms and fitness centers worldwide. By integrating our web based platform into the existing infrastructure of an enterprise software provider, we can then uniquely market our service to gyms and fitness centers on a ‘turnkey’ basis. We believe this provides a significant competitive advantage to us. Our monthly billing rates range between $49-$299 per club. Over the next 24 months our goal is to become an add-on component to the billing features of at least 50% of the gym billing providers so that we can attract as many as 5,000 Gym, Health & Fitness clubs in the US. We then intend to expand internationally where there are as many as 165,000 Gyms, Health & Fitness clubs as of 2016. In addition, we plan on utilizing the same strategy in the salon, entertainment, hospitality, sporting event and healthcare markets. We are also looking at new technologies and services such as Rich Communication Services (RCS) which will help us expand our leadership in the health and fitness market.

TXMT Platform Features

We offer our clients a mobile marketing platform. We completed our new Generation 3 software platform named “Smart Automated Messaging” or SAM. This new platform will have the ability to send more than one billion SMS per month. Our new platform should attract new API partners, open new markets and broaden the capacity to send more messages than our GEN2 platform. We now offer White Label, API, Integrated API and Standalone SMS options. We can compete with Tier One SMS providers and open new opportunities with the completion of SAM. The total cost to develop SAM was $96,000 and our ongoing costs to add enhancements, develop new APIs and maintain the platform is $8000 per month. Our new software platform can take on thousands of new clients and deliver on new services such as Rich Communication Services (RCS) which will be launched in Q3 or Q4 of 2018 with our technology partner OpenMarket.

Our current platform offers the following:

Features of our HTTP/S API:

API supports text, Unicode, binary SMS and flash messaging in the following ways:

White label - (Fully Customized Design)

We provide an all-inclusive, branded platform that delivers everything you need to create a user interface that will seamlessly appear and takes it much further than just the standard logo and dashboard by providing a branded SMS message system, sign-up forms, alerts and customized buttons. The merchants will never know that you didn’t build it from scratch. Our pricing system makes it simple for our white labels to maintain full control over pricing plans. Our white label reseller program provides a powerful platform for resellers rebranded as their own and pay wholesale rates and keep 100% of their profit. Seamless set-up within 72 hours includes payment integration and shortcode activation with over hundred domestic and international carriers. Resellers set their own pricing plans, text credits and keywords. Analytics, reports and account monitoring are available for tracking customers.

Our Vertical Markets are the following:

Referral Partners

We have signed up more than 500 Gym, Health and Fitness Clubs from our relationships listed above . We have spent our efforts developing strategic partnerships in the fitness and salon sectors. These relationships allow us the ability to scale our business due to their status and control in their respective markets. Many of these relationships are on an exclusive basis. Textmunication has positioned itself as the SMS mobile marketing leader in both the fitness and salon markets. By integrating with software management systems, the clubs and salons using the software platform will have the SMS option easily available to them. Our new White Label program takes our strategic partnerships to the next level. Our White Label program is owned by our partners on the front-end while we support the technology and database. This provides a solution controlled by our partners allowing for more visibility to their end clients.

Marketing Plan and Personnel

The goal is to build engaging content for potential clients to make it clear what we do and that we excel at it. The target audience for potential and existing clients is larger chain and franchise businesses in the Gym, Health and Fitness Club market. We also intend to continue marketing to small to medium businesses that have need of our services.

Our objectives to meet this goal include the following:

To accomplish these objectives, we will need to hire bloggers, programmers, and graphic, web and video developers.

We also need to revamp our website, purchase marketing software and materials, Google Analytics, hire IR/PR consultants, set aside money for conventions, and advertise for Facebook, LinkedIn and other social media.

Competition

In the past few years, the number of mobile marketing options and companies have grown rapidly. The markets for the products and services that we offer are very competitive, are rapidly evolving and have relatively low barriers to entry. We compete with all general advertising and marketing companies who eventually will want to include mobile marketing in their suite of product offerings, and who may develop their own similar products and compete with us for market share. These potential competitors may have more mature lines of distribution than us, be better financed than us, or may create a product offering that is superior to ours. Any of these factors can cause a competitor to take market share away from us or otherwise substantially hurt our business. We believe that competition in our market is based predominantly on:

Government Regulation

We are subject to a number of laws and regulations that affect companies generally and specifically those conducting business in the mobile messaging market, many of which are still evolving and could be interpreted in ways that could harm our business. Existing and future laws and regulations may impede our growth. These regulations and laws may cover online marketing, e-mail marketing, telemarketing, taxation, privacy, data protection, pricing, content, copyrights, distribution, mobile communications, electronic contracts and other communications, consumer protection, web services, the provision of online payment services, unencumbered internet access to our services, the design and operation of websites, and the characteristics and quality of products and services. It is not clear how existing laws governing issues such as property ownership, libel, and personal privacy apply to the internet, e-commerce, digital content, and web services. Unfavorable regulations and laws could diminish the demand for our products and services and increase our cost of doing business.

We expect that the regulation of our industry generally will continue to increase and that we will be required to devote increasing amounts of legal and other resources to address this regulation. In addition, the application of existing domestic and international laws and regulations relating to issues such as user privacy and data protection, marketing, advertising, consumer protection and mobile disclosures in many instances is unclear or unsettled.

In addition to its regulation of wireless telecommunications providers generally, the U.S. Federal Communications Commission, or FCC, has examined, or is currently examining, how and when consumers enroll in mobile services, what types of disclosures consumers receive, what services consumers are purchasing and how much consumers are charged. In addition, the Federal Trade Commission, or FTC, has been asked to regulate how mobile marketers can use consumers’ personal information. Consumer advocates claim that many consumers do not know when their information is being collected from cell phones and how such information is retained, used and shared with other companies. Consumer groups have asked the FTC to: identify practices that may compromise privacy and consumer welfare; examine opt-in procedures to ensure consumers are aware of what data is at issue and how it will be used; investigate marketing tactics that target children; and create policies to halt abusive practices. The FTC has expressed interest in the mobile environment and services that collect sensitive data, such as location-based information.

The principal laws and regulations that pertain to us and our customers in connection with their utilization of our platform, include:

Intellectual Property

Although we believe that our business methodology is proprietary in terms of how we deliver our service to our client, and how we use mobile marketing, we currently hold no patents, copyrights or trademarks. It is our plan to trademark our key products as we develop them, subject to applicable laws and regulations, however, we have not filed for any such protection as of yet. It is our policy to enter into confidentiality agreements with any outsourced sales or service providers so that our proprietary methodology, customer’s lists and business information are contractually protected, and we intend to enforce any such contractual provisions as the law allows in the event of a breach. We cannot assure you that these contractual arrangements will prevent third parties from acquiring or using our proprietary business information to compete against us.

IT Consulting

We own a minority 49% interest in Aspire Consulting, LLC.

Aspire is headquartered in Gaithersburg, Maryland. It provides IT consulting and solution based services as a Service Disabled Veteran Owned Small Business Concern (SDVOSBC) to commercial, state and federal contractors. Aspire’s leadership and advisory board consists of executives from Cyber Security, Healthcare, Quality Management, Unified Communications and Financial Services.

On December 16, 2003, the Veterans Benefits Act (the “Act”) was passed by Congress. Section 308 of the Act established a procurement program for SDVOSBCs. This procurement program provides that federal contracting officers may restrict competition to SDVOSBCs and award a sole source or set-aside contract where certain criteria are met.

The purpose of the procurement program is to provide procuring agencies with the authority to set acquisitions aside for exclusive competition among SDVOSBCs, as well as the authority to make sole source awards to SDVOSBCs if certain conditions are met.

Aspire meets the requirements of a SDVOSBC and is eligible for the procurement program. Aspire was verified as SDVOSB by U.S. Department of Veterans Affairs (VA), Center for Verification and Evaluation (CVE) on December 2, 2015. This verification allows Aspire to compete for SDVOSB set-aside contracts in both federal and state government sectors. Acceptance into the Veterans First Contracting Program within the VA System ensures legitimately owned and controlled VOSBs and SDVOSBs are able to compete for VA VOSB and SDVOSB set-aside contracts and are credited by VA’s large prime contractors for subcontract plan achievements.

Aspire provides cutting edge IT solutions and consulting services built on technologists and professional subject matter experts. Aspire’s services are comprised of the following:

IT Strategy and Planning

Aspire helps clients navigate through strategic planning to create change and achieve corporate alignment. Its value based management methodology allows it to help clients align their decisions to business needs.

IT Performance and Governance

Aspire’s modern governance models provide a bridge for stronger relationships with IT and the client ensuring alignment with IT operational priorities. Its IT Service Management (ITIL) and Business Intelligence expertise make it an ideal partner in this area.

BPO/IT Process Improvement

Aspire strives to make organizations more competitive by driving down costs and increasing performance. Its team will draw on real-world experience and deep industry best practice knowledge to help clients achieve a more effective and efficient IT organization.

IT Security and Compliance

Aspire helps to reduce IT related risk, securing client’s critical information assets, and ensuring regulatory compliance through the application of industry-leading security practices. Domain expertise across multiple industries helps Aspire to fully assess risk and ensure compliance.

Development and Maintenance

Aspire designs and develops custom software for enterprise-wide and mission-critical solutions. It supports current programs with top developers in all technologies. It has proven experience across the technology spectrum with adherence to Quality Control and Assurance standards to ensure results meet requirements.

Verification and Validation

Aspire’s QA team has vast experience making sure software systems meet specification and performance objectives. This is done independent of the client’s development, testing, and user acceptance team environments. It provides the client an unbiased approach to testing and certifies that the application does what it is intended to do. This also provides a good audit for applications working in compliant environments.

Information Management

Aspire provides data integration, information architecture, information delivery, business intelligence and information management. It conducts business and technology assessments across each category. Aspire creates and executes an information strategy that supports the business demands for better and more comprehensive information for business decision making.

IT Service Management

Aspire designs, configures, and installs the leading business service management tools to meet the needs of its client’s environment. Experienced consultants understand both the technical nature of client applications as well as the real-world usability needs of their business.

Infrastructure & Development

Aspire designs and implements virtualized infrastructure solutions that optimize distribution and availability of IT services. This end-to-end service provides critical details for planning and design as well as best practices implementation.

Human Capital Solutions

Aspire supports on-site/off-site IT with resources across the entire SDLC spectrum. It targets Cloud, Big Data/Analytics, Mobile and Security. Aspire provides “Best of Breed” technical and IT experts to deliver cost cutting solutions.

Managed Services

Aspire provides outsourced IT service management. Specialties include - service desk, applications and database

support.

Business Process Outsourcing

Aspire provides financial, document management, electronic healthcare, human resources and procurement support. Aspire is knowledgeable in process efficiency and improvements, coupled with resource expertise with functions from assessments to post-deployment and process management support.

IT Outsourcing

Aspire provides security and risk management, business continuity planning, IT assessment, systems/networks, infrastructure, project management, agile lifecycle management and business strategy support.

Domain Expertise

Aspire provides healthcare, banking, human resources, financial services and technology expertise. It has extensive vendor experience ranging from back office support to design, testing, deployment, and optimization, highlighted by our expertise in virtualization and domain management technologies.

Recent Developments

Aspire was notified on March 1, 2017 that it has been awarded a significant 10-year government contract. Aspire is a teammate on an Indefinite Delivery/Indefinite Quantity (IDIQ) contracting vehicle. The team consists of several well-known companies serving specialty areas within Health IT.

The Strategic Partners Acquisition Readiness Contract (SPARC) is a cost-effective, innovative solution for procuring information technology (IT) professional services from a pool of Centers for Medicare & Medicaid Services (CMS) experienced partners. SPARC is a $25B 10-year multiple award performance-based contract. There are currently 85 teams (small and large) divided into various set-aside procurement divisions.

Aspire is a subcontractor to Northrop Grumman on the Social Security Administration (SSA) ITSSC2 contract which is expected to kick-off in July 2018. They are also a subcontractor to Cogent Solutions on the Veterans Affairs VECTOR program. This program has yet to begin. Aspire submitted a proposal for Maryland Consulting and Technical Services+ (CATS+). This contracting vehicle enables State government to procure IT consulting services for all its agencies. The contract notification should occur in Q4 of 2018. Aspire has two contracts pending with the state of Maryland. Details of both contracts will be made public as more information becomes available.

Employees

We will need to pay our management team and consultants that assist with managerial and administration efforts in the next twelve months. We have 5 employees, including a CEO, COO, VP of Sales, Lead Developer, Marketing Director and Client Success Manager. We have 5 consultants that assist with development, systems engineering, and inside sales. We recently contracted an API Engineer and Scalability Engineer to help build-out our new SMS software platform. We do not have employment agreements or written consulting agreements with any of our personnel, except for our CEO, Wais Asefi. His employment agreement obligates us to pay him $120,000 annually. In order to compensate him and all of the above managerial and administrative support, we estimate we will require and additional $100,000 in revenue in the next twelve months.

We intend to hire sales personnel to help grow our business. Our anticipated sales force will work in teams of two. There will be a position for LDR (Lead Development & Research), who is responsible for originating new leads and converting those leads into scheduled appointments for an AR (Account Representative), who will perform an online demo overview about our company and the services we offer. We expect to pay an LDR $25,000 annually and the AE $30,000 annually.

We hope to eventually have a team in place for each our targeted customer groups, which are as follows:

As we continue to grow, sales teams will be added in each targeted customer group according to geographic region.

From our past experience, one team should be able to reach out to 1,600 contacts, and yield 60 demos per month. With this forecast, which is really just an estimate, one team could generate $6,000 in new sales per month. We hope to hire 2 teams for a total of $100,000 in the next twelve months.

We will have one VP of Sales over teams and more may be added as our company grows and our geographical customer base expands. The VP of Sales is responsible for leading and developing the sales team, organizing and assigning industry specifics and regions and working hand in hand with current and new partners for sustained growth. We have one VP of Sales already in place.

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. Properties

We currently do not own any real property. Our principal executive office is located at 1940 Contra Costa Blvd. Pleasant Hill, CA 94523. We currently lease our executive offices at $2,000 per month.

Item 3. Legal Proceedings

We issued a Current Report on Form 8-K on March 6, 2017 regarding hiring the law firm Ellsworth Young LLP to vigorously protect us against abusive lending practices. In 2017, we had several cases concerning convertible promissory notes:

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

95th District Court of Dallas County, Texas

Filed on 2/7/2017

Case: DC-17-01404

On May 24, 2017, our company and JSJ Investments Inc. (“JSJ”) entered into a Final Settlement Agreement. Pursuant to the Settlement Agreement, the parties agreed to execute an amendment to the 12% convertible promissory note, which allowed JSJ to convert the note’s outstanding balance and accrued interest of $53,280.57 into a fixed 262,500,000 shares of our common stock.

Auctus Fund vs. Textmunication Holdings, Inc.

United States District Court – District of Massachusetts

Filed on 3/24/2017

Case 1:17-cv-10504

On July 3, 2017, our company and Auctus Fund entered into a Settlement Agreement and Mutual General Release (the “Settlement Agreement”). Pursuant to the Settlement Agreement, we agreed to issue 550,000,000 shares of our common stock with a 5-month Leak-Out Agreement to Auctus Fund.

Textmunication Holdings, Inc. vs. Carebourn Capital.

United States District Court – District of Nevada

Filed on 4/5/2017

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

On October 3, 2017, our company and Carebourn Capital agreed to settle all the outstanding principal, interest, and penalties owed under the Note for an issuance of an aggregate total of 70,000,000 shares of its common stock.

Textmunication vs. Lester Einhaus

Eighth Judicial District Court of Clark County, NV

Filed on 4/10/2017

Case: A-17-753743-C

This case was dismissed in October 2017.

As of December 31, 2017, 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

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is quoted under the symbol “TXHD” on the OTCPink operated by OTC Markets Group, Inc. Only a limited market exists for our securities. There is no assurance that a regular trading market will develop, or if developed, that it will be sustained. Therefore, a shareholder may be unable to resell his securities in our company.

The following tables set forth the range of high and low bid prices for our common stock for the each of the periods indicated as reported by the OTCPink. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

On June 14, the last sales price per share of our common stock on the OTCPink was $0.0002.

Penny Stock

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer’s account.

In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.

These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.

Holders of Our Common Stock

As of June 14, 2018, we had 3,975,519,454 shares of our common stock issued and outstanding, held by 93 shareholders of record, other than those held in street name.

Dividends

There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where after giving effect to the distribution of the dividend:

We have not declared any dividends and we do not plan to declare any dividends in the foreseeable future.

Recent Sales of Unregistered Securities

The information set forth below relates to our issuances of securities without registration under the Securities Act of 1933 during the reporting period which were not previously included in a Quarterly Report on Form 10-Q or Current Report on Form 8-K.

During the year ended December 31, 2017, we issued 1,710,458,945 shares of common stock for the partial conversion and settlements of $857,717.

During the year ended December 31, 2017, we issued 305,688,000 shares of common stock valued at $120,555 for the settlement of debt.

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.

Securities Authorized for Issuance under Equity Compensation Plans

We have no equity compensation plans.

Item 6. Selected Financial Data

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

Item 7. 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.” 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. 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.

Results of Operations for the Years Ended December 31, 2017 and 2016

Revenues

For the year ended December 31, 2017, we earned revenues in the amount of $943,739, as compared with revenues of $458,271 for the year ended December 31, 2016. The increase in revenues for 2017 over 2016 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 Sales

Cost of sales was $317,336 and $103,085 for the years ended December 31, 2017 and 2016, respectively. Our cost of sales increased for 2017 compared with the 2016 and was mainly attributable to increased cost of services related to servers and SMS messaging. We expect a similar or increased cost of sales for 2018.

Operating Expenses

Our operating expenses were $7,175,163 for the year ended December 31, 2017, as compared with $1,265,810 for the year ended December 31, 2016. The main reason for our increased operating expenses in 2017 was a result of stock-based compensation to our CEO, Wais Asefi.

We expect that our operating expenses in 2018 will resemble 2017, provided that we do not have to issue stock for services, which was the main reason for our increased expenses in 2017. 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 Expenses

We had other expenses of $1,098,734 for the year ended December 31, 2017 and other expenses of $2,431,697 for the same period ended December 31, 2016. Other expenses for 2017 consisted of $850,753 in the loss on change of derivative liabilities, $188,549 in amortization of debt discount, $37,561 in a gain on settlement of notes payable and $96,993 in interest expenses. Other expenses for 2016 consisted of $1,377,637 in the loss on change of derivative liabilities, $610,951 in amortization of debt discount, $300,016 in the loss on settlement of notes payable and $143,093 in interest expenses.

Net Loss

We had a net loss of $7,649,220 for the year ended December 31, 2017, as compared with net loss of $3,323,926 for the year ended December 31, 2016.

Liquidity and Capital Resources

As of December 31, 2017, we had total current assets of $13,007. Our total current liabilities as of December 31, 2017 were $983,740. We had a working capital deficit of $970,733 as of December 31, 2017.

Cash flows from Operating Activities

Operating activities used $145,719 in cash the year ended December 31, 2017, as compared with $433,283 for the year ended December 31, 2016. Our net loss of $7,649,220 was the main component of our negative operating cash flow, offset mainly by stock-based compensation of $6,115,100.

Cash flows from Financing Activities

Cash flows provided by financing activities during the year ended December 31, 2017 amounted to $201,106, as compared with $347,818 for the year ended December 31, 2016. Our positive cash flow in 2017 consisted mostly of proceeds from the sale of convertible promissory notes, offset by payments on loans payable.

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 December 31, 2017, we have an accumulated deficit of $15,150,240. 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 December 31, 2017, there were no off-balance sheet arrangements.

Critical Accounting Policies

Our critical accounting policies are disclosed in Note 2 of our audited financial statements included in the Form 10-K.

Item 7. Quantitative and Qualitative Disclosures About Market Risk

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

Item 8. Financial Statements and Supplementary Data

Index to Financial Statements Required by Article 8 of Regulation S-X:

Audited Financial Statements:

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and

Board of Directors of Textmunication Holdings, Inc.

Opinion on the Financial Statements

I have audited the accompanying consolidated balance sheets of Textmunication Holdings, Inc.(the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2017, and the related notes (collectively referred to as the “consolidated financial statements”). In my opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

Basis of Opinion

These consolidated financial statements are the responsibility of the Company’s management. My responsibility is to express an opinion on the Company’s consolidated financial statements based on my audits. I am a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and am required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

I conducted my audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to fraud or error. The Company is not required to have, nor was I engaged to perform, an audit of its internal control over financial reporting. As part of my audits I am required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing and opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, I express no such opinion.

My audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. My audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. I believe that my audits provide a reasonable basis for my opinion.

Substantial Doubt About the Company’s Ability to Continue as a Going Concern

As discussed in Note 1 to the consolidated financial statements, the Company’s continuing operating losses and accumulated deficit raise substantial doubt about its ability to continue as a going concern for one year from the issuance of these financial statements. Management’s plans are also described in Note 1. The consolidated financial statements do not include adjustments that might result from the outcome of this uncertainty.

/s/ Boyle CPA, LLC

I have served as the Company’s auditor since 2018

Bayville, NJ

June 19, 2018

TEXTMUNICATION HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(AUDITED)

TEXTMUNICATION HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(AUDITED)

TEXTMUNICATION, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(AUDITED)

TEXTMUNICATION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(AUDITED)

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2017

(AUDITED)

NOTE 1 – BASIS OF PRESENTATION AND GOING CONCERN

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 (post split) new shares of common stock of Holdings in exchange for 100% of the Company’s issued and outstanding shares.

Basis of Presentation

Our financial statements are presented in conformity with accounting principles generally accepted in the United States of America, as reported on our fiscal years ending on December 31, 2017 and 2016. The accompanying consolidated financial statements include the accounts of Textmunication Holdings, Inc. and its wholly owned subsidiary, Textmunication, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

We have summarized our most significant accounting policies.

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 December 31, 2017, the Company has incurred continuing operating losses and had an accumulated deficit of $15,150,240. 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.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash

The Company considers all highly liquid instruments purchased with an original 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 December 31, 2017 and 2016 no cash balances exceeded the federally insured limit.

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2017

(AUDITED)

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 December 31, 2017, and 2016 the allowance for doubtful accounts was $0 and bad debt expense of $0 and $0, respectively.

Revenue Recognition

We recognize revenue in accordance with Accounting Standards Codification, or (“ASC”), 605, Revenue Recognition. We recognize revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer; (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of our fees is reasonably assured.

Thus, we recognize subscription revenue on a monthly basis, as services are provided. Customers are billed for the subscription on a monthly, quarterly, semi-annual or annual basis, at the customer’s option.

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.

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2017

(AUDITED)

Financial assets and liabilities measured at fair value on a recurring basis are summarized below for the year ended December 31, 2017:

Financial assets and liabilities measured at fair value on a recurring basis are summarized below for the year ended December 31, 2016:

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.

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. The Company recognizes uncertain tax positions when it is more likely than not the position will be sustained upon examination by the tax authorities. Interest and penalties related to uncertain income tax positions are included in Other expense. There were no uncertain tax positions at December 31, 2016 and 2017.

Use of Estimates

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

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2017

(AUDITED)

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.

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.

For the year ended December 31, 2017 and 2016, the Company capitalized software development costs in the amount of $45,229 and $0 respectively.

Advertising Expenses

Advertising expenses are included in General and administrative expenses in the Statements of Operations and are expensed as incurred. The Company incurred $26,389 and $4,598 in advertising expenses for the year ended December 31, 2017 and 2016, respectivly.

Recent Accounting Pronouncements

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations and includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. ASU 2016-08 is effective January 1, 2018 to be in alignment with the effective date of ASU 2014-09.

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2017

(AUDITED)

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments in ASU 2016-10 clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. ASU 2016-10 is effective January 1, 2018 to be in alignment with the effective date of ASU 2014-09.

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts from Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The amendments in this update affect the guidance in ASU 2014-09, which is not yet effective. The core principle of the guidance in Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in ASU 2016-12 do not change the core principle of the guidance in Topic 606, but instead affect only the narrow aspects noted in Topic 606. ASU 2016-12 is effective January 1, 2018 to be in alignment with the effective date of ASU 2014-09. The Company will adopt the provisions of Topic 606 effective in January 1, 2018 and does not believe the adoption of the new revenue recognition standard will have a material impact on the Company’s consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments including requirements to measure most equity investments at fair value with changes in fair value recognized in net income, to perform a qualitative assessment of equity investments without readily determinable fair values, and to separately present financial assets and liabilities by measurement category and by type of financial asset on the balance sheet or the accompanying notes to the financial statements. ASU 2016-01 will be effective for the Company beginning on January 1, 2018 and will be applied by means of a cumulative effect adjustment to the balance sheet, except for effects related to equity securities without readily determinable values, which will be applied prospectively. Management has reviewed this pronouncement and has determined that it would not have a material impact to the consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, which requires an entity to recognize long-term lease arrangements as assets and liabilities on the balance sheet of the lessee. Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all long-term leases, whether operating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. The amendments also require certain new quantitative and qualitative disclosures regarding leasing arrangements. ASU 2016-02 will be effective for the Company beginning on January 1, 2019. Lessees must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. Management does not believe the adoption of ASU 2016-02 will have a material impact on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging: Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships, which clarifies that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument would not, in and of itself, be considered a termination of the derivative instrument, provided that all other hedge accounting criteria continue to be met. ASU 2016-05 is effective for the Company beginning on January 1, 2017. Early adoption is permitted, including in an interim period. Management evaluated ASU 2016-05 and determined that the adoption of this new accounting standard did not have a material impact on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments, which aims to reduce the diversity of practice in identifying embedded derivatives in debt instruments. ASU 2016-06 clarifies that the nature of an exercise contingency is not subject to the “clearly and closely” criteria for purposes of assessing whether the call or put option must be separated from the debt instrument and accounted for separately as a derivative. ASU 2016-06 is effective for the Company beginning on January 1, 2017. Management evaluated ASU 2016-06 and determined that the adoption of this new accounting standard did not have a material impact on the Company’s consolidated financial statements.

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2017

(AUDITED)

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies several aspects of the accounting and presentation of share-based payment transactions, including the accounting for related income taxes consequences and certain classifications within the statement of cash flows. ASU 2016-09 is effective for the Company beginning on January 1, 2017. Management evaluated the impact of adopting ASU 2016-09 and determined that the new accounting standard did not have a material impact on the Company’s consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable.

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. The provisions of this guidance are to be applied using a retrospective approach which requires application of the guidance for all periods presented. Management has reviewed this pronouncement and has determined that it would not have a material impact to the consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718), Scope of Modification Accounting. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. Management has reviewed this pronouncement and has determined that it would not have a material impact to the consolidated financial statements.

In July 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2017

(AUDITED)

NOTE 3 – RELATED PARTY TRANSACTIONS

Loans due to related parties are due on demand and have no interest. Amounts outstanding as of December 31, 2017 and 2016 was approximately $11,750 and $11,750, respectively

Note 4 – LOANS PAYABLE

As of December 31, 2017, and 201, the Company has short term loans payable of $0 and $3,712, respectively. During the years ended December 31, 2017 and 2016, the Company received proceeds of $11,500 and $31,200 and made payments of $15,212 and $125,923 respectively from certain short-term loans payable with interest rates ranging from 20%-94%. Interest recorded on the notes for the years ended December 31, 2017 and 2016 was $1,042 and $25,515, respectively.

NOTE 5 - CONVERTIBLE NOTE PAYABLE

Convertible notes payable consists of the following:

On February 28, 2017, we entered into a convertible promissory note pursuant to which we borrowed $14,489. Interest under the convertible promissory note is 10% per annum, and the principal and all accrued but unpaid interest is due on August 27, 2017. The note is convertible at any date after the issuance date at noteholders option into shares of our common stock at a variable conversion price of 50% of the two lowest day market price of our common stock during the previous 20 days immediately preceding the conversion date.

On May 15, 2017, we entered into a convertible promissory note pursuant to which we borrowed $115,000. Interest under the convertible promissory note is 10% per annum, and the principal and all accrued but unpaid interest is due on May 15, 2018. The note is convertible at any date after the issuance date at noteholders option into shares of our common stock at a variable conversion price of 64% of the lowest VWAP of our common stock during the previous 18 days immediately preceding the conversion date. The Company recorded a debt discount in the amount of $115,000 in connection with the initial valuation of the derivative liability of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $166,621 and an initial loss of $51,621 based on the Black Scholes Merton pricing model.

Interest expense (excluding amortization of debt discount) related to the convertible notes payable as of the year ended December 31, 2017 and 2016 was $96,993 and $143,093, respectively.

During the year ended December 31, 2017, the Company issued 711,291 shares of common stock (post-split) for the partial conversion of $215,076 in convertible notes payable. The converted portion of the notes also had associated derivative liabilities with fair values on the date of conversion of $1,271,691. The conversion of the derivative liabilities has been recorded through additional paid-in capital.

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2017

(AUDITED)

The following table presents details of the changes in the Company’s derivative liabilities associated with its convertible notes for the year ended December 31, 2017:

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 Black-Scholes model utilized the following inputs to value the derivative liability at the date of issuance of the convertible note and at December 31, 2017:

Settlement Agreements

On February 28, 2017, the Company entered into a certain settlement agreement with the holder of a certain note payable in the amount of $128,000 issued on September 8, 2015 for total proceeds of $121,755. The Company paid $21,755 cash and $100,000 of the note was purchased and assigned to a new noteholder. The difference between the original note and settlement amount of $6,245 has been recorded as a gain on settlement of notes payable as of December 31, 2017. Additionally, the new note holder agreed to forgive $50,000 of the assigned debt. The forgiven debt was recorded a gain on settlement of notes payable.

On June 23, 2017, the Company entered into a certain settlement agreement with the holder of a certain note payable in the amount of $237,750 issued on July 22, 2016 and a carrying amount as of the date of settlement of $249,421 including accrued interest and an associated derivative liability of $247,305 for 550,000 shares of common stock(post-split) with a fair value on the date of settlement of $495,000. The difference between the note and settlement amount of $1,726 has been recorded as a gain on settlement of notes payable.

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2017

(AUDITED)

During the year ended December 31, 2017, certain notes payable issued on February 13, 2014 and October 21, 2014 was forgiven by the noteholder. The carrying value of the notes payable and accrued interest of $32,375 was recorded a gain on settlement of notes payable.

During the year ended December 31, 2017, a note payable issued on April 17, 2014 was forgiven. The carrying value of the note payable of $5,000 was recorded a gain on settlement of notes payable as of December 31, 2017.

During the year ended December 31, 2017, the Company issued 70,000 shares of common stock (post-split) valued at $49,000 in settlement of a note payable issued on August 15, 2016. The carrying value of the note payable was $4,813 and difference between the fair value of the shares and note of $44,187 was recorded a loss on settlement of notes payable as of December 31, 2017.

During the year ended December 31, 2017, the Company issued 100,335 shares of common stock (post-split) valued at $82,500 in partial settlement of a note payable issued on May 15, 2017. The carrying value of the settled balance of note payable was $16,503 and difference between the fair value of the shares and note of $13,598 was recorded a loss on settlement of notes payable as of December 31, 2017.

NOTE 6 – INVESTMENT IN ASPIRE CONSULTING GROUP, LLC

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

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

The following table presents details of the Company’s investment is Aspire as of December 31, 2017 and 2016:

NOTE 7 – 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. Current month to month lease is for $2,000 a month. Rent expense was approximately $22,908 and $23,972 for the years ended December 31, 2017 and 2016, respectively.

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2017

(AUDITED)

Executive Employment Agreement

The Company has an employment agreement with the CEO/Chairman to perform duties and responsibilities as may be assigned by the Board of Directors. The base salary is in the amount of $100,000 per annum plus an annual discretionary bonus plus benefits commencing on December 17, 2013 and ending May 1, 2017 with an automatic renewal on each anniversary date (May 1) thereafter.

Litigations Claims and Assessments

September 9, 2015, the Company entered into a convertible promissory note pursuant to which we borrowed $50,000. Interest under the convertible promissory note was 8% per annum, and the principal and all accrued but unpaid interest was due on June 7, 2016. The note was convertible at any time following the issuance date at noteholders option into shares of our common stock at a variable conversion price of 50% of the lowest day market price of our common stock during the 10 trading days prior the date of the notice of conversion.

On February 27, 2017, the Company and the noteholder reached a settlement agreement. The first payment of $55,000 was to be wired to the noteholder on March 15, 2017. The second and final tranche of $45,000 was due no later than April 1, 2017.

The payments under the settlement agreement were timely made by a third party and the note was assigned to the third party. The Company and the new note holder have agreed to revise the variable conversion price in favor of a fixed $0.000125 per share conversion price.

On March 6, 2017, we hired the law firm Ellsworth Young LLP to vigorously protect us against abusive lending practices. We have several cases pending concerning convertible promissory notes outstanding, including the following.

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

95th District Court of Dallas County, Texas

Filed on 2/7/2017

Case: DC-17-01404

On May 24, 2017, our company and JSJ Investments Inc. (“JSJ”) entered into a Final Settlement Agreement. Pursuant to the Settlement Agreement, the parties agreed to execute an amendment to the 12% convertible promissory note, which allowed JSJ to convert the note’s outstanding balance and accrued interest of $53,280.57 into a fixed 262,500 (post split) shares of our common stock.

Auctus Fund vs. Textmunication Holdings, Inc.

United States District Court – District of Massachusetts

Filed on 3/24/2017

Case 1:17-cv-10504

On July 3, 2017, our company and Auctus Fund entered into a Settlement Agreement and Mutual General Release (the “Settlement Agreement”). Pursuant to the Settlement Agreement, we agreed to issue 550,000 (post split) shares of our common stock with a 5-month Leak-Out Agreement to Auctus Fund.

Textmunication Holdings, Inc. vs. Carebourn Capital.

United States District Court – District of Nevada

Filed on 4/5/2017

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

On October 3, 2017, our company and Carebourn Capital agreed to settle all the outstanding principal, interest, and penalties owed under the Note for an issuance of an aggregate total of 70,000 (post split) shares of its common stock.

TEXTMUNICATION HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2017

(AUDITED)

Textmunication vs. Lester Einhaus

Eighth Judicial District Court of Clark County, NV

Filed on 4/10/2017

Case: A-17-753743-C

This case was dismissed in October 2017.

As of December 31, 2017, 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

NOTE 8 – INCOME TAXES

For the year ended December 31, 2017, the cumulative net operating loss carry-forward from continuing operations is approximately $12,302,086 and will expire beginning in the year 2030.

The cumulative tax effect at the expected rate of 21% and 34% of significant items comprising our net deferred tax amount is as follows as of December 31, 2017 and 2016: