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| MWIS.OB > SEC Filings for MWIS.OB > Form 10-Q on 14-Aug-2009 | All Recent SEC Filings |
14-Aug-2009
Quarterly Report
The following discussion should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Quarterly Report.
This filing contains forward-looking statements. The words "anticipate,"
"believe," "expect, "plan," "intend," "seek," "estimate," "project," "will,"
"could," "may," and similar expressions are intended to identify forward-looking
statements. These statements include, among others, information regarding future
operations, future capital expenditures, and future net cash flow. Such
statements reflect our management's current views with respect to future events
and financial performance and involve risks and uncertainties, including,
without limitation: (a) the timing of our sales could fluctuate and lead to
performance delays; (b) without additional equity or debt financing we cannot
carry out our business plan; (c) our stockholders have pre-emptive rights to
purchase securities of m-Wise, which could impair our ability to raise capital;
(d) we operate internationally and are subject to currency fluctuations, which
could cause us to incur losses even if our operations are profitable; (e) we are
dependent upon certain major customers, and the loss of one or more of such
customers could adversely affect our revenues and profitability; (f) our
research and development facilities are located in Israel and we have important
facilities and resources located in Israel which could be negatively affected
due to military or political tensions; (g) certain of our officers and employees
are required to serve in the Israel defense forces and this could force them to
be absent from our business for extended periods; (h) the rate of inflation in
Israel may negatively impact our costs if it exceeds the rate of devaluation of
the NIS against the U.S. Dollar. Should one or more of these risks or
uncertainties occur, or should underlying assumptions prove to be incorrect,
actual results may vary materially and adversely from those anticipated,
believed, estimated or otherwise indicated. These forward-looking statements
speak only as of the date of this Quarterly Report. Subject at all times to
relevant federal and state securities law disclosure requirements, we expressly
disclaim any obligation or undertaking to disseminate any update or revisions to
any forward-looking statement contained herein to reflect any change in our
expectations with regard thereto or any changes in events, conditions or
circumstances on which any such statement is based. Consequently, all of the
forward-looking statements made in this Quarterly Report are qualified by these
cautionary statements and there can be no assurance of the actual results or
developments.
OVERVIEW
We were incorporated in February 2000, and commenced operations immediately thereafter. We initially primarily provided pan-European wireless application service provider operations by hosted MOMA Platform services to customers in the United Kingdom, Spain, France and Italy. We established data centers in Spain, Italy, and France that were connected to our main data center in the United Kingdom. We had connectivity and billing arrangements with cellular operators that enabled us to provide our hosted services. We gained strong credibility and experience as a wireless application service provider during calendar years 2000 and 2001, while we continued to build and develop our wireless middleware product. However, due to the high costs and low revenues in the European wireless application service provider (ASP) market, in 2002, our management decided to transition our focus away from pan-European wireless application service providers, toward installing and licensing our middleware technology at cellular operators and wireless application service providers worldwide, and to operate through original equipment manufacturers (OEMs) and regional sales representatives to sell our products. Our shift away from hosted wireless application services using our Platform enabled us to focus more on the core middleware benefits of our technology in fiscal 2002.
During calendar 2002, we channeled our research and development efforts to enhance and update our middleware technology to interface with advanced and emerging wireless technologies such as MMS (Multimedia Messaging Service - delivery of highly enhanced images and audio files) and J2ME, which utilizes Java programming technology built into certain cellular phones, enables applications to be written once for a wide range of devices, to be downloaded dynamically, and to leverage each device's native capabilities. We also upgraded our middleware platform to incorporate modules for application deployment and management, for centralized management of multiple value added services and multiple third-party content and media providers, and for managing increased data traffic and real-time billing and reporting requirements. In addition, we restructured our sales efforts toward establishing distribution channels via OEMs and partnerships with major IT vendors and system integrators. In fiscal 2003, we had to direct our research and development resources in an effort to respond to specific business opportunities that were introduced to us by our distributors and original equipment manufacturers, and to be able to meet our customers' enhanced requirements in elements such as increased transactions volume support and new J2ME possibilities.
During calendar 2004, we followed the market evolution with respect to the enhanced ability to deliver downloadable content directly to mobile phones and invested significant research and development efforts to comply with such new market trends. We substantially improved the MOMA Platform mobile content management abilities, especially with respect to content adaptation to a growing number and types of mobile handsets, and connectivity between the MOMA platform and content presentation layers such as Internet and WAP interfaces. We also concluded sales agreements with new wireless operators and wireless application service provider clients, and at the same time, improved our product positioning in the market.
During calendar 2005, we continued to follow-up with the rapid changes in the mobile entertainment market, especially with the growing introduction of enhanced mobile entertainment services through the third generation infrastructure for wireless services, and the continuous development of wireless handsets and their ability to present higher levels of multi media. We invested significant research and development efforts in complying with these changes, and indeed, the delivery of enhanced mobile entertainment services became a central part of the MOMA Platform functionalities. We also identified a growing trend in the market that many potential customers preferred to outsource platform functionalities to service providers (ASPs) rather than to purchase platform and install on site (Customer Premises Model) and we invested significant funds and efforts in the infrastructure that was required for this ASP model. During 2006, we invested extensive efforts in establishing our customer base and expanding our distribution channels, by enhancing our technology and expanding the terms and scope of our relationships with our customers.
During calendar 2007, we were able to acquire prestige and market leader customers, and strengthen the profit share model that we began developing in 2005. We signed profit share based deals with News International, part of the News Corp group, to deliver mobile entertainment services in conjunction of leading UK newspapers, The Sun and The Times. We signed a profit share based deal with Telcogames, a leading mobile games company, to provide a hosted environment for the delivery of their services to their customers. This deal expanded the reach of our technology and it made it available to the large market of mobile games provider which we actively pursue. We signed a deal with Arvato Mobile, part of the great media group Bertelsmann and one of the largest leaders in mobile entertainment worldwide, to provide large variety of mobile content management and delivery services on a profit share model. We also strengthened our relationships with existing customers such as Thumbplay, SupportComm, Logia Mobile and Interchan (formerly Comtrend) by providing the needed support and technical expertise to their expansion and expanding the basis for cooperation. We clearly saw that our business shift made in 2005 from a license model to profit share model started to bear the desired outcome by generating a stable business environment for recurring revenues and consistently increasing profitability. Also during 2007, we made considerable business development investments in the penetration into the US market and the establishment of a local sales and marketing presence.
During calendar 2008, we expanded our business in our primary markets of the USA and Brazil. Our US presence, which we established in 2007, developed and expanded as we had hoped, and we signed new deals in this territory during 2008. We geared our special expertise in the mobile entertainment industry and signed deals with records labels such as Universal Motown Republic Group and Interscope which are part of the Universal Records Group, to deliver various artist specific mobile content experience. We started working with the leading WPP advertising agency, Burson Marsteller, and delivered a relatively small mobile marketing project for them with the expectation to become their selected technology partner in this market segment and launch additional projects in the future. We also laid the groundwork for two additional significant business deals in the US which we expect to execute early in 2009. We also secured two major deals in the territory of Brazil with Zero 9 and David2Mobile's Boltcel, leaders in the Italian mobile entertainment market that plan to launch their services in Brazil using our technology. We have also been able to strengthen our partnerships with existing customers, Thumbplay, Arvato Mobile, Interchan, Logia Mobile and Supportcomm and have been able to benefit from the revenue share model that we have established with some of them and see growth in our revenues following their growth in business. Unfortunately we have had to depart from customers such as The Sun newspaper (one of the accounts we had in News International), due to expiration of our contract, and Telcogames, due to Telcogames bankruptcy procedures. We have seen the implication of the global economy downturn reflected in the activity of some of our customers, yet despite that, we experienced significant improvement in our revenue growth of 23% since 2007.
During the first quarter of 2009, we expanded our business in our primary markets of the USA and Brazil. Our US presence, which we established in late 2007, has developed and expanded as we had hoped, and we signed new deals in this territory. We geared our special expertise in the mobile marketing industry and signed deals with leading players such as The Secret and WPP's advertising and PR agency Burson Marsteller. We also launched a major customer in the Brazilian market and we expect to see significant revenues coming from this customer this year. We further created a strategic alliance with Ozonion, an important player in the Brazilian mobile entertainment market and we expect to see new deals coming through this partnership. We have seen the implication of the global economy downturn reflected in the activity of some of our customers, yet despite that, we have seen a significant improvement in our revenue growth of 16% from the comparative quarter of last year.
During the second quarter of 2009, we have continued to expand our presence in the Americas. We won an RFP with the Digicel Group, the leading mobile carrier in 23 countries in Central America and the Caribbean. According to the purchase order that has already been received, m-Wise will provide its service and content delivery platforms in a hosted and service model, and we expect to sign the agreement shortly and work for Digicel as a content aggregator as well as the technology service provider. We have also closed some strategic deals in the US market which are expected to boost our revenues in this market and pave the way for additional deals of the same type. We have closed a deal with Malaco, a relatively small record label where our platform will be used as the end-to-end content storefront for this label. We intend to use this relatively unique model and approach the major record labels with the same offer and concept. We have also closed a deal with Tribune Media Services to deliver daily horoscope services through all the publishers and newspapers who syndicate content from this global leader of content licensing and syndications. We expect dozens of publishers to pick this service and make it available to millions of readers in the US market. We have also strengthened our position in the Brazilian market by signing a new customer, a company called Mega-Vas, and seeing growing revenue share rates from our existing customers. Brazil has become a primary market for m-Wise and we intend to make investments in order to leverage our strong position in this market and generate substantially higher rates of revenues in this market.
For the rest of calendar 2009, we plan to emphasize the resource-saving advantages of our technology, and are planning to target those potential customers who can significantly benefit from outsourcing their technical services to us instead of continuing the research and development in-house. We believe that 2009 will be characterized by serious efforts by many enterprises to save on expenses as a result of the current state of the global economy, and we plan to offer our relative advantages in that respect. Additionally, we intend to further deepen our presence in the emerging market of Brazil and expand our business alliances in that region with an objective to expand beyond Brazil and extend our technology offering to large neighboring regions such as Mexico and Argentina. We also plan to expand further into the mobile entertainment market in the USA, especially in the music market, and leverage our existing relationship with Universal Records to gain additional mobile entertainment and infotainment deals. In all cases, we plan to continue our software-as-a-service based business model and use our successes in an effort to generate reoccurring revenues that will provide us with future stability.
We believe that the strength of our technology and position in the market allows some of our potential customers to become more effective with our technology and therefore, despite of the global economy downturn and based on the current sales pipeline we have, we expect 2009 to be another year of growth in revenues where we expect to achieve profitability.
Revenues
Our revenues grew from $1,295,161 in the six months ended June 30, 2008 to $1,474,595 in the six months ended June 30, 2009 and from $2,295,260 in the year ended December 31, 2007 to $2,833,626 in the year ended December 31, 2008. Management believes that our efforts to refocus our resources towards building relationships with OEMs may yield additional contracts. Although we are in negotiations for several new contracts there can be no assurance that such contracts will be secured or that they will generate significant revenue. We derive revenues from product sales, licensing, revenue share, customer services and technical support.
When we license our MOMA Platform solutions to our customers, we generate revenues by receiving a license payment, ongoing support fees which are typically 15% of the annual license payment, and professional service fees which are generated from our customers' request for additional training, IT administration and tailoring of our products for their specific needs. When we license our products to our customers, we install our product at a location specified by our client. We also derive revenue through our hosted services, whereby we enable customers to remotely use features of our MOMA Platform (such as a mobile content sales and delivery service for ring tones and color images), which is installed and hosted at our location, and receive a set-up fee for launching the services for them, as well as a portion of our customer's revenues generated through our platform. When we provide hosted services, we maintain the MOMA Platform at our location on behalf of our customer.
Customers and customer concentration. Historically we have derived the majority of our revenues from a small number of customers and, although our customer base is expanding, we expect to continue to do so in the future. For the six months ended June 30, 2009, approximately 37% of our sales were derived from sales to Thumbplay, 20% to Arvato Mobile and 11% to Comtrend. In the year ended December 31, 2008, approximately 45% of our sales were derived from sales to Thumbplay, 17% to Arvato Mobile and 9% to Comtrend.
Geographical breakdown. We sell our products primarily to customers in America
and Europe. For the six months ended June 30, 2009, we derived 73% of our
revenues from sales in America, 16% from sales in Europe and 11% from sales in
the Far East. Of these revenues, 73% were derived from sales by the Company, and
27% of our revenues were derived from sales by our subsidiary.
For the year ended December 31, 2008, we derived 71% of our revenues from sales
in America, 19% from sales in Europe and 10% from sales in the Far East. Of
these revenues, 99% were derived from sales by the Company, and 1% of our
revenues were derived from sales by our subsidiary.
Cost of revenues
Customer services and technical support cost of revenues consist of the salary and related costs for our technical staff that provide those services and support and related overhead expenses.
Operating expense
Research and development. Our research and development expenses consist primarily of salaries and related expenses of our research and development staff, as well as subcontracting expenses. All research and development costs are expensed as incurred except equipment purchases that are depreciated over the estimated useful lives of the assets.
General and administrative. Our general and administrative expenses consist primarily of salaries and related expenses of our executive, financial, administrative and sales and marketing staff. These expenses also include costs of professional advisors such as legal and accounting experts, depreciation expenses as well as expenses related to advertising, professional expenses and participation in exhibitions and tradeshows.
Financing income and expenses
Financing income consists primarily of interest earned on our cash equivalents balances and other financial investments and foreign exchange gains. Financing expenses consist primarily of interest payable on bank loans and foreign exchange losses.
Critical Accounting Policies.
We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available.
These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of the periods presented. To fully understand and evaluate our reported consolidated financial results, we believe it is important to understand our revenue recognition policy.
Revenue recognition. Revenues from products sales are recognized on a completed-contract basis, in accordance with Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB No. 101"), Statement of Position 97-2 "Software Revenue Recognition" and Statement of Position 81-1 "Accounting for Performance of Construction-Type and Certain Production-Type Contracts". The Company has primarily short-term contracts whereby revenues and costs in the aggregate for all contracts is expected to result in a matching of gross profit with period overhead or fixed costs similar to that achieved by use of the percentage-of-completion method. Accordingly, financial position and results of operations would not vary materially from those resulting from the use of the percentage-of- completion method. Revenue is recognized only after all the three stages of deliverables are complete; installation, approval of acceptance tests results by the customer and when the product is successfully put into real-life application. Customers are billed, according to individual agreements, a percentage of the total contract fee upon completion of work in each stage; approximately 40% for installation, 40% upon approval of acceptance tests by the customer and the balance of the total contract price when the software is successfully put into real-life application. The revenues, less its associated costs, are deferred and recognized on completion of the contract and customer acceptance. Amounts received for work performed in each stage are not refundable.
On-going service and technical support contracts are negotiated separately at an additional fee. The technical support is separate from the functionality of the products, which can function without on-going support.
Technology license revenues are recognized in accordance with SAB No. 101 at the time the technology and license is delivered to the customer, collection is probable, the fee is fixed and determinable, a persuasive evidence of an agreement exists, no significant obligation remains under the sale or licensing agreement and no significant customer acceptance requirements exist after delivery of the technology.
Revenue share is recognized as earned based on a certain percentage of our clients' revenues from selling services to end users. Usage is determined by receiving confirmation from the clients.
Revenues relating to customer services and technical support are recognized as the services are rendered ratably over the period of the related contract.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2009, COMPARED WITH THE THREE MONTHS ENDED JUNE 30,
2008.
Revenues.
License fees and products. Revenues from license fees and products were $99,999 for the three months ended June 30, 2009, and $99,999 for the same period in 2008.
Revenue share. Revenues from revenue share increased 54% to $267,569 for the three months ended June 30, 2009, from $173,849 for the same period in 2008. The increase is primarily due to revenues received from current customers who were not our customers during 2008 and from customers that did not previously generate revenues from selling services to end users.
Customer services and technical support. Revenues from customer services and technical support decreased 7% to $314,248 for the three months ended June 30, 2009, from $338,736 for the same period in 2008.
Cost of revenues.
Cost of revenues decreased 32% to $184,529 for the three months ended June 30, 2009, from $271,615 for the same period in 2008. The decrease was primarily due to a decrease in payroll and related expenses during the three month period ended June 30, 2009.
Operating expenses.
Research and development. Research and development expenses decreased 16% to $153,184 for the three months ended June 30, 2009, from $182,431 for the same period in 2008. This decrease was primarily due to a $29,514 decrease in stock options expenses. Research and development expenses, stated as a percentage of revenues decreased to 22% for the three months ended June 30, 2009, from 30% for the same period in 2008.
General and administrative.
General and administrative expenses decreased 20% to $395,104 for the three months ended June 30, 2009, from $495,405 for the same period in 2008. This decrease was primarily due to a $50,405 decrease in payroll and related expenses and a $25,934 decrease in consulting expenses. General and administrative expenses, stated as a percentage of revenues, decreased to 58% for the three months ended June 30, 2009, from 81% for the same period in 2008.
Financing expenses.
Our financing expenses decreased 79% to $2,279 for the three months ended June 30, 2009, from $10,689 for the same period in 2008.
SIX MONTHS ENDED JUNE 30, 2009 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 2008.
Revenues
License fees and products. Revenues from license fees and products decreased 25% to $199,998 for the six months ended June 30, 2009, from $267,518 for the same period in 2008. This decrease in revenues of $67,520 is due to a one time payment by a new customer in 2008.
Revenue share. Revenues from revenue share increased 58% to $596,811 for the six months ended June 30, 2009, from $378,647 for the same period in 2008. The increase is primarily due to revenues received from current customers who were not our customers during 2008 and from customers that did not previously generate revenues from selling services to end users.
Customer services and technical support. Revenues from customer services and technical support increased 4% to $677,786 for the six months ended June 30, 2009, from $648,996 for the same period in 2008.
Cost of revenues.
Cost of revenues decreased 28% to $362,894 for the six months ended June 30, 2009, from $504,391 for the same period in 2008. The decrease was primarily due to a decrease in payroll and related expenses during the six months ended June 30, 2009.
Operating expenses.
Research and development. Research and development expenses decreased 25% to $292,303 for the six months ended June 30, 2009, from $387,657 for the same period in 2008. This decrease was primarily due to a $34,229 decrease in payroll and related expenses. Research and development expenses, stated as a percentage of revenues, decreased to 20% for the six months ended June 30, 2009, from 30% for the same period in 2008.
General and administrative.
General and administrative expenses decreased 21% to $730,156 for the six months ended June 30, 2009, from $926,787 for the same period in 2008. This decrease was primarily due to a $97,440 decrease in payroll and related expenses and a $42,219 decrease in consulting expenses. General and administrative expenses, stated as a percentage of revenues, decreased to 50% for the six months ended June 30, 2009, from 72% for the same period in 2008.
Financing expenses.
Our financing expenses decreased 91% to $3,053 for the six months ended June 30, 2009, from $33,774 for the same period in 2008.
Liquidity and Capital Resources
Our principal sources of liquidity since our inception have been private sales of equity securities, stockholder loans, borrowings from banks and to a lesser extent, cash from operations. We had cash and cash equivalents of $38,078 as of June 30, 2009 and $169,206 as of December 31, 2008. Our initial capital came from an aggregate investment of $1.3 million from Cap Ventures Ltd. To date, we have raised an aggregate of $5,300,000 from placements of our equity securities (including the investment by Cap Ventures and a $4,000,000 investment by Syntek Capital AG and DEP Technology Holdings Ltd.). We have also borrowed an aggregate of $1,800,000 from Syntek Capital AG and DEP Technology Holdings Ltd. and as of the date of this quarterly report we have no funds available to us under bank lines of credit. We have a credit line agreement for $500,000 with Miretzky Holdings Limited. As of June 30, 2009, $303,807 is outstanding under the credit . . .
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