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| AUGT > SEC Filings for AUGT > Form 10-Q on 10-Jul-2012 | All Recent SEC Filings |
10-Jul-2012
Quarterly Report
The following discussion and analysis summarizes the significant factors affecting our results of operations, financial conditions and liquidity position for the three months ended May 31, 2012 and 2011, and should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this filing.
This report contains forward-looking statements. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements.
Factors that might affect our forward-looking statements include, among other things:
† overall economic and business conditions;
† the demand for our products and services;
† competitive factors in the industries in which we compete;
† the emergence of new technologies which compete with our product and service offerings;
† other capital market conditions, including availability of funding sources; and
† changes in government regulations related to our industry.
In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "could," "would," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "potential" and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We discuss many of these risks in greater detail under the heading "Risk Factors" included in other reports we file with the Securities and Exchange Commission. Also, these forward-looking statements represent our estimates and assumptions only as of the date of the document containing the applicable statement.
Unless required by law, we undertake no obligation to update or revise any forward-looking statements to reflect new information or future events or developments. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements.
OVERVIEW
Augme Technologies™, Augme® ("Augme"), AD LIFE® ("AD LIFE"), AD SERVE® ("AD SERVE"), A+® ("A+"), Hipcricket® ("Hipcricket"), Boombox® ("Boombox") and the Company logos are trademarks of Augme.
Augme provides strategic services and mobile technology to leading consumer and healthcare brands. For the quarter ended May 31, 2012, approximately 53% of revenues related to SaaS-based sales, approximately 27% of revenues related to mobile advertising solutions and approximately 20% of revenues were generated from other sources, including individual campaign fees, development work for marketing campaigns and shorter term licenses.
We hold a portfolio of patents related to the "Method and System for Adding Function to a Webpage," which cover technical processes and methods that we believe are an indispensable component of behavioral targeting - the automatic provision of customized content to individuals based on information such as past web activity, personal preferences, geography, or demographic data. Our technology allows marketers, brands, and agencies the ability to plan, create, test, deploy, and track mobile marketing programs across mobile channels, including SMS, 2D/QR codes, mobile websites, advertising networks, social media and branded apps. AD LIFE 4.0 facilitates consumer brand interactions and the ability to track and analyze campaign results. We believe that our patented device-detection and proprietary mobile content adaptation software provides a solution to the mobile marketing industry problem of disparate operating systems, device types, and on-screen mobile content rendering. We also provide business to consumer utilities including national mobile couponing solutions, strategic mobile healthcare tools, custom mobile application development, and consumer data tracking and analytics. We are headquartered in New York City.
On August 25, 2011, we completed our acquisition of the business and substantially all of the assets of Hipcricket. Hipcricket provides a cloud-based mobile marketing and advertising SaaS platform, HIP 7.0 that empowers its clients to engage customers, drive
loyalty, and increase sales by creating, analyzing, and optimizing integrated mobile marketing campaigns and enterprise class solutions. The HIP 7.0 platform has been combined into the AD LIFE 4.0 platform to offer clients the combined functionality of both platforms. Hipcricket's clients connect with consumers across every mobile channel, including SMS, 2D/QR codes, mobile Web sites, advertising networks, social media and branded apps. Hipcricket has also created the first comprehensive permission-based mobile ad network, targeting customers via location and highly-specific demographic information across SMS, display, rich media and video.
On July 22, 2011, we completed our acquisition of the business and substantially all of the assets of JAGTAG. As part of that acquisition, the Company acquired certain patents which amounted to date to 3 U.S. patents and 9 U.S. patents pending related to ambient targeting and is in the process of deploying this capability into its service offering.
On May 24, 2012, we completed our acquisition of all of the common stock and all of the preferred stock of Geos Communications IP Holdings, Inc. ("Geos IP"). By acquiring the Geos IP stock, the Company acquired 5 U. S. patents covering Voice over Internet Protocol ("VoIP") and other critical mobility inventions and 7 U.S. patent applications and 18 pending international patent applications covering related invention families within the field of mobile VoIP. The patents will allow the Company to expand its mobile marketing and mobile advertising technology offerings to include adaptive voice technologies for any mobile environment, VoIP-enabled mobile marketing and advertising, VoIP-enabled E-Commerce and VoIP-enabled services and support features within the Company's AD LIFE mobile marketing and mobile advertising platform.
Trends, Events and Uncertainties
The Company operates in the mobile marketing industry and, accordingly, can be affected by a variety of factors. For example, management of the Company believes that any of the following factors could have a significant negative effect on the Company's future financial position, results of operations and cash flows: unanticipated fluctuations in quarterly operating results, adverse changes in the Company's relationship with significant customers or failure to secure contracts with other customers, intense competition, regulation that may adversely impact the Company's operations, failure to attract and retain key personnel, failure to protect intellectual property, decrease in the migration trends from traditional advertising methods to digital and mobile media and the inability to manage growth.
The mobile marketing and advertising landscape, while in its early stages, is highly competitive. Many of the landscape's significant providers are focused on delivering point solutions targeting a specific segment of the mobile marketing and/or advertising landscape. We believe Augme differentiates itself from the competition by offering complete, end-to-end mobile advertising and marketing solutions delivered through its SaaS AD LIFE platform.
In late 2010, the FTC and the Department of Commerce each issued a staff report proposing new frameworks for consumer privacy protection; the FTC report called for federal "Do Not Track" legislation. If "do not track" legislation is passed, it could negatively impact our mobile ad network. Any significant restriction on our ability to utilize the functions of our technology could have a material adverse result on our business, revenues and results of operations.
Industry Overview
We believe that the convergence of several factors is fundamentally changing the way advertisers reach their audience. We anticipate consumers will continue to increase their usage of mobile devices as their medium for content consumption, creating a significant opportunity for mobile advertising. These factors include:
Adoption of faster and more functional mobile connected devices create greater mobile advertising and marketing opportunities.
The ubiquity and utility of mobile devices continue to grow, empowering advertisers and marketers with a wider audience and greater delivery capabilities than ever seen before. There has been widespread adoption of mobile connected devices, driven by intuitive user interfaces, lower price points, increased functionality, faster processing speeds, better graphics processors and advanced display technologies with touch capabilities. It has become possible to deliver innovative, interactive and engaging consumer media experiences on a wide variety of mobile connected devices. A 2011 report by Cisco Systems projects that the number of mobile connected devices worldwide will reach 7.1 billion by 2015. According to IDC, the number of smartphones shipped by vendors is expected to increase from approximately 305 million in 2010 to more than one billion by 2015, representing a compound annual growth rate of approximately 27%. IDC also estimates that nearly 63 million tablets will be shipped in 2011, growing to 135 million tablets in 2015, representing a compound annual growth rate of 22%.
Mobile usage has disrupted how content is consumed.
Consumers are increasingly using their mobile devices instead of their personal computers and other traditional media to access content. For example, according to industry research conducted by Kleiner Perkins Caufield & Byers, a venture capital firm, 33% of the traffic on Facebook came from mobile devices in 2011, up from 1% in 2008. Consumers use their mobile devices in all aspects of their daily lives, such as reading the news, playing games, checking sports scores, shopping, checking the weather, banking, obtaining maps and directions and listening to the radio. According to eMarketer, Inc., which publishes data, analysis and insights on digital marketing, media and commerce, the amount of time spent by consumers with their mobile devices is rising at a faster rate than the time spent viewing other types of media.
Advertising industry is being disrupted by mobile advertising.
As advertisers seek to maximize the effectiveness of their campaigns, we believe the attractiveness of traditional advertising media, such as outdoor billboards, newspapers, magazines, radio and even television, is declining relative to digital advertising. We believe this decline is due to several inherent limitations in traditional advertising, such as its limited ability to target specific audiences, its limited ability to measure audience reach, performance and in some cases, its limited geographic range. According to a December 2011 report by eMarketer, consumers are spending a larger proportion of their time with digital media, while there has been a concurrent decline in the share of time spent with traditional media. However, according to the eMarketer report, advertising spending is significantly lower on mobile than it is for other types of media, relative to consumer time spent with each type of media. Although there is still significant spending on traditional advertising, advertisers are shifting their budgets to digital channels, both online and mobile.
As consumers spend more time online using their personal computers, we believe digital advertising can be more effective than traditional advertising because it allows for user interaction, provides better measurement and achieves an expanded reach.
However, even PC-based online digital advertising suffers from a number of significant limitations, including:
Limited personalization. Computers often have multiple users, thus yielding audiences with limited personalization. This limits the ability of advertisers to target end users on an individual basis.
Limited real-time accessibility. Computers are typically used at home or in the office. Even laptops that can physically be with the user when traveling are usually used from a fixed location at their destination, where they are turned on and wirelessly connected to the Internet. As a result, user engagement with ads is generally limited to the time spent in front of the computer screen in a fixed location.
Limited location targeting. Most location targeting through personal computers is limited to a broad geographic area based on the records of the user's Internet service provider. This limits the ability to deliver highly targeted advertising that is relevant to a consumer.
Our Solution
We believe mobile advertising provides significant benefits both to developers and to advertisers over traditional advertising media and PC-based online digital advertising. For developers, mobile advertising provides the opportunity to make money, acquire users and gain insight into mobile application ("app") usage. For advertisers, the combination of the personal nature of mobile devices, their enhanced functionality and the rise of app-enabled experiences creates a powerful platform for highly targeted and effective advertising. Additionally;
Anytime, anywhere access. Mobile devices generally accompany users at all hours of the day and are typically turned on at all times. This provides advertisers the opportunity for nearly continual access to the user. An advertiser can reach audiences at all stages of the purchase decision - awareness, research, opinion, consideration and ultimately, purchase - in order to increase the likelihood that the viewer will become a purchaser of the product or service being advertised. This ability to target audiences at all times of the day, regardless of location, makes mobile advertising an attractive opportunity for advertisers, especially compared to newspapers, magazines, television and radio or to digital advertising delivered through personal computers.
Personalization. Mobile devices are inherently personal and are most often used by one person. Users often download and use a variety of apps that reflect their personal preferences and interests. In addition to customized apps, users can personalize and provide target ability via scans and messaging interactions with their mobile devices delivering a multi-channel mobile interface experience for the end users. When a user downloads any one of these mobile channels to his or her individual device, data is often exchanged that can provide information about the user's interests. As the user downloads and registers,
more data can be collected about this user's preferences, which provides an opportunity to personalize the mobile advertising experience.
Location targeting and relevance. Data from mobile devices is often shared in a manner that can identify the device's location. This enables location-targeted advertising, which has the potential to increase the impact and relevance of an ad to the user. For example, in PC-based online advertising, firms can assess a user's browsing behavior to provide limited targeting of advertising to that user. With mobile advertising, on the other hand, an ad can be targeted to a consumer who is in close proximity to a specific location, such as a retail store, or to a consumer who recently visited that store. We believe the ad also has the potential to influence the user to walk into a nearby store.
More complete user engagement. Apps on mobile connected devices typically show one or two ads on each page view. We believe this limited number of ads on a small device screen can often capture the attention of the user better than the many banner ads on a typical PC-based web page. Furthermore, ads on a mobile device can take advantage of features of the device itself, such as the touch screen, swipe functionality and the accelerometer, which detects motion, to enable the user to manipulate and more deeply engage with the ad. Mobile device users can also act upon an ad immediately by, for example, downloading an app or other content, calling an advertiser directly from the mobile phone, or using the map on the device to find a nearby retail store or service provider. In some cases, mobile users can even take their device to a store to physically redeem an offer from an ad.
Enhanced audience targeting. Due to the significant amount of data collected from a mobile device, highly specific audiences can be created based on location and behavioral and demographic preferences to match advertisers' objectives. We believe this ability to create and deliver highly relevant audiences also enhances the value of advertising space for developers.
AD LIFE allows Augme to provide clients a full suite of mobile marketing and advertising solutions, thus providing an end-to-end, one-stop mobile campaign management software system. The Platform delivers the following benefits to customers:
† Device recognition technology that formats traditional digital assets into content that can be optimized for virtually any mobile device regardless of operating system or network provider;
† Open architecture which we believe offers the widest variety of CRTs in the mobile market today, including SMS, MMS, 2D / QR codes, logo, and audio recognition, allowing consumers to use their mobile devices to easily and instantly access on-demand digital content;
† Ability to measure campaign effectiveness using data analysis gathered and processed using proprietary techniques; these key metrics and results of client campaigns include demographic and behavioral data;
† Ability to deliver multimedia to both smartphones and standard phones, without requiring the consumer to download an application prior to use;
† Ease of implementation and integration with a brand's existing enterprise resource planning and CRM systems provides the ability to optimize campaigns and fulfillment; and
† The software platform enables customers to implement mobile campaigns in a short time frame, typically 10-20 days, and is significantly more cost effective than sourcing technology compared to current market competition.
The key differentiating feature of Augme's end-to-end platform is its ability to serve clients throughout the entire customer lifecycle. The Platform's post-click engagement capabilities enable marketers to continuously re-engage with users for re-marketing purposes. Additionally, our platform allows our customers the ability to deliver content to any mobile network, operating system or device, regardless of how the device landscape changes. This ensures that brands have the capacity to reach 100% of any intended mobile marketplace for their messaging, whether through text, quality resolution code, or other means.
Our Strategy
Our strategy is based on multi-faceted monetization through IP and the Hipcricket operating business. The Company intends to be one of the leading providers of mobile marketing and advertising solutions across multiple media types and channels. The principal elements of our strategy are to:
† capitalize upon our existing patented technology to further develop new product innovations and licensing opportunities, including the use of ambient targeting in our mobile ad serving technology;
† deepen our existing customer relationships by providing expanded services as our customers increase their use of mobile marketing and mobile ads to gain and further engage their customers;
† add new customer relationships as our markets expand by adding to our sales force, furthering our channel sales and expanding our product offerings;
† enhance our platform by addressing technology shifts and customer driven opportunities in mobile devices, including such areas as analytics, self-service and end to end integration of mobile strategies and delivery;
† continue expansion and pursue strategic partnerships and acquisitions; and
† expand our mobile ad capabilities by investing in technology and hiring additional staff.
We believe our mobile marketing solutions, together with our patents which are critical to behavioral targeting, will enable us to pioneer a new era in marketing and new media communications with Internet applications and services for targeted consumers and communities worldwide.
Intellectual Property Summary
Through our own invention process and by making acquisitions, we continually seek to enhance and maintain our intellectual property ("IP") portfolio to better serve our clients and protect shareholder value. Our IP consists of patents, trademarks, copyrights, applications for the same, and trade secrets. We believe that our IP creates significant value in our business. Our objective with our IP is to provide protection, exclusivity and unique technologies for our customers in the mobile marketing industry.
We seek to monetize our unique IP through our business operations and licensing our IP to others and, when necessary, we enforce our IP rights through litigation. We have and will continue focused efforts to collect royalties and appropriate compensation from those that use our patented inventions and brands without authorization. We believe the prospect of infringement damages in connection with enforcement of our IP rights may also carry significant value. Assuming collection of any such infringement damages, we believe that such collection would provide a return on our investment in invention, licensing and enforcement.
To date, Augme's patent portfolio covers technology inventions with patent protection from 1999 to 2026, which protects technology that enables the following:
1) Customized content delivery to any Internet enabled device;
2) Device, browser, software, and profile detection with content targeting;
3) Content targeting based on profiles and ambient conditions;
4) Content targeting based on profiles within virtual environments;
5) Adaptive voice technologies for mobile environments;
6) Voice advertising capability;
7) Voice over Internet Protocol ("VoIP")-enabled mobile marketing - click-to-call;
8) VoIP-enabled E-Commerce; and
9) VoIP-enabled services and support.
We believe that the combined Augme and Hipcricket mobile marketing and advertising technology businesses are well positioned to capitalize on the growth of Internet enabled smartphones that have become a leading driver of growth in Internet traffic and utilization by consumers. Due to that explosive growth, marketers are refocusing to reach consumers through mobile advertising and mobile marketing strategies, initiatives and campaigns. We believe that our IP will be instrumental in our efforts to capture the marketing budgets and mobile marketing advertising spends of the future. We believe the growth in mobile marketing and mobile advertising spending by our customers across an array of industry verticals will continue to rise. Augme's objectives within its IP management include the commercialization of our inventions, on-going licensing through product sales, non-litigation licensing, litigation and the complete monetization of our inventions.
With over 150 million unique visitors over an industry-leading 200,000 campaigns completed through our patented technology platforms, we continue to develop new and innovative technologies and inventions. We project to have over 100 new patent assets under Augme's management by the end of our 2013 fiscal year.
We believe that growth in the mobile Internet market space may enhance our patent enforcement initiative because it has contributed to the creation of an emerging group of companies that have developed revenue streams that we believe are infringing on Augme's patents. Augme's inventions have solved device, infrastructure and customized content distribution problems facing Internet publishers in 1999. Now in 2012, well within the coverage of the patent protection, the identical problems are repeating in the mobile Internet and we believe that Augme's inventions again present the solution for mobile internet publishers and service providers. We believe that the growing number of market entries by highly capitalized companies and the highly sought after massive consumer
audience emerging on the mobile internet makes it likely that infringement of our patents is occurring. Companies that implement and monetize their solutions may have developed revenue streams subject to licensing and infringement damages by Augme.
Augme owns 13 patents and owns an additional 80 patents pending in the U.S. and internationally. Augme also has 11 international patents pending with near term objectives of filing more than 50 patents in various international markets involved in alignment with the strategic growth plan of the Hipcricket operating business.
Augme's first family of patented inventions plays an integral role in technology platforms and services and enables targeting of content to end-users. The patents are foundational to the methods used in two primary types of Mobile Internet operations:
1) Device Detection and Mobile Content Targeting; and
2) Customized Content & Mobile Advertising Delivery
Augme's "Method and System for Adding Function to a Webpage" family of patents teaches a two-code-module system that enables any networked content to be customized based on end-user criteria. The Augme patents thus enable a single Web page (traditional Internet and mobile Web) to have an infinite number of tailored service responses that allow Web page visitors to receive content that is customized to the user's unique computing environment, connectivity, bandwidth level, geographic location, gender, age, or any other information about the Web page visitor (targeting criteria) such as behavioral marketing data. Augme's two-code-module Web page customization process has widespread application in the fields of Targeted Advertising, E-Commerce, Mobile Marketing/Advertising and other customized content delivery operations.
Augme's patented methods and systems add function to web pages through an easily distributed software code module. The method and system deliver responses to client (computer user) requests that are customized based upon visitor information and preferences. When a web page is downloaded, the technology automatically executes a first code module embedded in the Web page. The first code module issues a first command to retrieve a second code module, via a network connection, from a server system. Next, a second code module is assembled based upon the visitor information. Finally, the assembled second code module, with a service response, is returned to the visitor's device, where, upon execution, the response is rendered on the visitor's processor platform (computer or mobile device). The patent portfolio has been granted 3 continuation patents under this family and is pursuing 2 additional patents including a "Method and System for adding Targeted Marketing to a Webpage," now . . .
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