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MEDL > SEC Filings for MEDL > Form 10-Q on 14-May-2013All Recent SEC Filings

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Form 10-Q for MEDL MOBILE HOLDINGS, INC.


14-May-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward Looking Statements

Some of the statements contained in this Form 10-Q that are not historical facts are "forward-looking statements" which can be identified by the use of terminology such as "estimates," "projects," "plans," "believes," "expects," "anticipates," "intends," or the negative or other variations, or by discussions of strategy that involve risks and uncertainties. We urge you to be cautious of the forward-looking statements, that such statements, which are contained in this Form 10-Q, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors affecting our operations, market growth, services, products and licenses. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of the risks we face, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events.

All written forward-looking statements made in connection with this Form 10-Q that are attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements. Given the uncertainties that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements.

Overview

We have built a system for developing and taking ownership of Mobile Apps. To date, we have developed a library of approximately 200 Apps for iPhone, iTouch, iPad and Android. MEDL and MEDL Apps have been featured on CNBC, BBC, ABC, CBS, NBC, CNN, in the pages of Esquire, Fast Company, The New York Times, The LA Times, The Chicago Tribune, The Orange County Register, The Washington Post and The Guardian; and by top sites such as Mashable, Macworld and Gizmodo. Multiple MEDL Apps have reached #1 in their category on the Apple App Store.

In the fourth quarter of 2012 we reorganized our corporate focus to better capitalize upon market opportunities. MEDL is now focused on three symbiotic areas of opportunity:

1.

MEDL Custom Development

Mission: To develop the cutting edge standard for mobile applications across platform, operating system and classification - on behalf of industry leaders.

2.

MEDL Marketing Technologies

Mission: To create scalable technology solutions which solve the challenges of discovery and monetization in the mobile ecosystem.

3.

MEDL Ventures

Mission: To incubate and develop the next generation of great mobile apps, both in partnership and as wholly owned entities.

1. Custom Development

Our custom development arm develops Apps for customers that vary in size from small start-ups to large multinational corporations, in a diverse range of industries including retailing, fast food, air travel, medical devices, higher education and fashion. We are typically paid a fixed price for development of the App. Our customers cover the development costs and own the final work product while we retain ownership of the elements of the computer code.

MEDL believes it is known for high quality strategic mobile development, securing development and consulting contracts with companies such as: Hyundai, Disney, Taco Bell, Iconix Brand Group, Monster.com, Emirates Airlines, Teleflora, Medtronic, Kaiser Permanente and About.com.

At the present time, we prepare for our customers, packages for sale in the Apple App Store and the Google Android Marketplace. This package includes app store copy, sample screen shots and SEO tags to improve discovery of the Apps in the App stores. We are familiar with the App stores' requirements and our average approval time is 5-10 days. During this phase, we also work with customers to develop a custom launch plan, or to augment their existing plans. We use tools including social network marketing, viral videos, bloggers, banner marketing, public relations and integration into our clients' existing advertising and marketing strategies to further this launch plan. We also leverage what we believe to be our deep marketing and advertising experience to work effectively with advertising, media and PR agencies.


In addition, we provide maintenance, reporting and upgrades and also integrate third party vendors into an App to provide a complete suite of user analytics, which allows customers to track downloads, total number of App user sessions, time spent per session, features of the App accessed and advertising click-through.

2. Marketing Technologies

MEDL Marketing Technologies were created to drive user acquisition and create an ever-growing base of users who can be monetized via advertising and sponsorship.
Marketing Technologies aims to solve a vast inefficiency in the market. The low barrier to entry for app development encourages innovation on a massive scale, causing developers to create new apps faster than consumers can find them.

We believe that we have solved this problem by developing a patent-pending algorithmic MEDL Brain that learns user behavior and then makes recommendations based upon this user behavior ("MEDL Brain"). This fully proprietary technology collects quantitative and qualitative user analytics and analyzes behavior in order to place users into "Mobile Lifestyle" categories. As the Brain collects data and "gets smarter", it can use these Mobile Lifestyles to make better and better recommendations. Each user's data is kept in a Detailed Anonymous Profile ("DAP"). As a user engages a mobile application, the DAP collects information such as:

Device Data: Operating System, Language Settings, Device Type

Quantitative Data: Location, Frequency, Timing and Duration of Usage

Qualitative Data: Direct input data, App Meta data, usage patterns, direct feedback

App usage crosses traditional demographic profiles. By categorizing users into "Mobile Lifestyles" we are able to better target recommendations for new apps, ads, content, etc. MEDL has analyzed nearly 6 million of our users and ranked them on a variant scale according to approximately 250 different "Mobile Lifestyles" such as: Active, Adult, Age, Alternative, Artistic, Athletic, Beauty Conscious, Business Person, Gender, Housewife, Gamer, Education, Budget, Creative, Employment, Marital Status, Musician, Optimistic, Organized, Outdoorsman, Parent, Planner, Profession, Religious, Single, Sports Fan, Sportsman, etc.

Using this technology, we believe we will be able to 1) drive exponential downloads of apps in the MEDL Library, and 2) better monetize our user-base via targeted advertising messages. We have an aggressive campaign to extend the reach of our MEDL Brain by acquiring underperforming apps and redeploying them with our technology embedded through our Alliance program.

Push Recommendations

MEDL has developed a proprietary Push Notification Center that allows us to communicate directly with our users via push messaging. The Notification Center is able to send pushes to groups of users by App and will soon be able to target direct push notification to a specific user based upon their DAP, allowing MEDL to send targeted push notifications based on specific mobile lifestyles.

Growth of the network through the MEDL Alliance

With more than 1,000,000 apps, and more being created every day, we believe that the app stores have become seas of distressed intellectual property. Tens of thousands of great apps are languishing, unable to break through the clutter and make money.

We believe the MEDL Alliance solves the problem of increasing app proliferation while also driving rapid growth of the MEDL Library through acquisition. MEDL's developer outreach program is now ongoing with new apps being added to the library on an ongoing basis. More than 50 new Apps were added to our library in 2012.

Defined Search Criteria

MEDL has developed proprietary software that can identify existing Apple and Android Apps that meet specific acquisition criteria. Once target Apps have been identified, MEDL contacts them and in many cases can acquire these applications for a percentage of future revenues.


Low cost/No cost Acquisition

In the Alliance model, MEDL can often take ownership of all app-related IP and source code in exchange for a percentage of future revenues.

Easy Onboarding

MEDL has streamlined its on-boarding process in order to rapidly add new Apps into the MEDL library via the company's proprietary custom-developed SDK.

Generating revenue through mobile advertising

Advertising Apps, products and services from within our applications represents a major opportunity for revenue moving forward.

A study by the Mobile Marketing Association finds that mobile ads should account for 7% of marketing budgets. However, mobile ads currently only represent 1% of the average company's advertising spend. (Source: Marketing Evolution, 2012) We believe that as this disparity finds balance, MEDL is well poised to see significant growth.

Monetization beyond advertising

As the app economy continues to evolve, we are getting more sophisticated in our App monetization strategies. Our primary monetization strategies beyond advertising are Pay-to-Download and Freemium.

Pay-to-download

Users pay a one-time fee to download an application. MEDL Apps range in price from $.99 to $24.99 per copy.

Freemium

The newly dominant method of monetization, the strategy is to give away the app for free - and then charge for the purchases of digital goods, additional content, to unlock items, etc.

MEDL has a large and growing library of Apps that are monetized via Freemium content - either through the sale of Digital Goods, or through the purchase of coins in a virtual Micro Economy.

Digital Goods

Digital objects are purchased within an application. Some examples of MEDL Apps that sell Digital goods include:

My Wild Night with Ted

Cheech & Chong

Zane Lamprey

Walter Foster Learn to Draw

KIDS Learn to Draw with Walter Foster

Military Regulations

Marlee Signs

Know Skateboarding Pro Tips

Tyzen Hypnosis

Micro Economy

In this strategy a secondary economy is created within the game. The user must earn or purchase credits that can be used to unlock digital goods.

This model is employed MEDL's mobile App called Journey to Real Madrid that was developed as a revenue share and as an officially licensed product of Real Madrid.


3. MEDL Ventures

We identify emerging mobile initiatives that we believe will yield a high rate of return on investment and we create or acquire Apps that address those initiatives. In the fourth quarter of 2012 we made a significant shift of company resources in order to properly capitalize upon MEDL Ventures. We believe that this shift will allow us to grow this area of our business, and our overall business, more rapidly.

We evaluate Apps according to six criteria:

1. Original: We are not interested in redoing what others have already done.

2. Functional: Does it perform a service people want? Does it perform that service well?

3. Social: Does it have the ability to plug into the social graph in a way that's meaningful?

4. Simple: Can you pitch it in one sentence?

5. Marketability: Can we drive downloads using our existing marketing network.

6. Profitable: Can it be monetized?

Hang w/

The patent-pending "Hang w/" App allows live real-time video to be sent from one phone to many. The goal of the platform is twofold: 1) to become the premiere social media network for people around the globe to connect, communicate and share experiences via live streaming broadcasts; and 2) to enable celebrities and public figures to easily monetize their fan bases. The "Hang w/" live social mobile video platform was approved for release by Apple on March 20, 2013 and is available for download on the Apple App Store. This new App provides an important new channel of advertising revenue. "Hang w/" allows live real-time video to be sent from one phone to many. Any user can be a broadcaster and/or a follower. After a follower receives a notification that the broadcaster is live, the follower views a short pre-roll advertisement before watching a live video feed sent directly from the broadcaster's smartphone camera. The follower is able to chat with the broadcaster and other followers during the broadcast. A post-roll advertisement ends the broadcast.

MEDL Incubator and Partnerships

We work with internal teams and outside partners to incubate new mobile Apps that are either wholly owned by us or joint-owned by us and outside partners. The costs of development of partner Apps is typically covered in part by our partner and our partner provides their unique IP, perspective or licensed materials. Revenue from Apps that are developed in partnership is typically shared 50/50 with our development partners. MEDL has secured partnerships and revenue sharing deals with partners such as Real Madrid, DJ Pauly D, Quinton "Rampage" Jackson, Walter Foster Publishing, Encyclopedia Britannica, Cheech & Chong, Iowa State University and others.

Additionally, MEDL receives a steady flow of new App ideas that are submitted to MEDL via our proprietary App and web portal known as "The App Incubator." To date, more than 100,000 original App concepts have been submitted to us via The App Incubator. If the submission passes a series of tests it goes into development and eventually production. All ideas submitted pursuant to The Incubator App or website become our property. Submitters receive 25% of net revenues (proceeds received by us after App store commissions are taken out) generated by the App after all costs paid by us to develop and market the App have been reimbursed. We evaluate Apps based on their originality, functionality, simplicity, revenue opportunity, marketability, and on the submitters' motivation and subject matter expertise.

MEDL Key Performance Indicators:

A primary goal of MEDL Mobile is to accumulate a large user base that we can monetize through various revenue streams. We routinely monitor the following user metrics as a barometer of progress:

MEDL API Installs - Total Installations of the MEDL API (MEDL Brain/Analytics/Advertising Platform) increased to 5,052,179 for 2012 from 760,746 in 2011, an increase of 564%.

Daily Active Users - Daily Active Users (DAUs) of apps in MEDL's library increased to an average of 45,194 in 2012 from an average of 5,588 in 2011, an increase of 708%.

Monthly Active Users - Monthly Active Users (MAUs) of apps in MEDL's library increased to an average of 754,286 in 2012 from an average of 78,432 in 2011, an increase of 861%.


User Sessions - Total User Sessions of apps in MEDL's library increased to 28,162,433 for 2012 from 3,700,110 for 2011, an increase of 661%.

Critical Accounting Policies

There are no material changes to the critical accounting policies described in the section entitled "Critical Accounting Policies" under Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2012.

Results of Operations


Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012
(unaudited)


The following table presents our results of operations for the three months
ended March 31, 2013 compared to the three months ended March 31, 2012.


                                         Three Months ended March 31,
                                           2013               2012           $ Change     % Change
Revenues                              $       473,081    $     1,149,998   $  (676,917)       -59%
Cost of goods sold                            227,552            374,331      (146,779)       -39%
Gross profit                                  245,529            775,667      (530,138)       -68%
Expenses:
Selling, general and administrative         1,030,792          1,181,391      (150,599)       -13%
Loss from Operations                        (785,263)          (405,724)        379,539        94%
Other income (expense):
Change in fair value of warrants             (51,337)                  -         51,337       100%
Interest expense                              (2,638)                  -          2,638       100%
Net loss                                    (839,238)          (405,724)        433,514       107%
Less: Net loss attributable to
non-controlling interest                       30,147                  -         30,147       100%
Net loss attributable to MEDL Mobile
Holdings, Inc.                              (809,091)          (405,724)        403,367        99%

Revenues

Revenues for the three months ended March 31, 2013 decreased to $473,081 as compared to $1,149,998 for the three months ended March 31, 2012, a decrease of $676,917 or 59%. The decrease is primarily attributable to a reduction in the development of customized mobile applications for third parties during the three months ended March 31, 2013 as compared to the three months ended March 31, 2012 due our change in focus to develop and launch the "Hang w/" App in March 2013.

Based on the unpredictability of market and customer demand, we cannot accurately predict revenue trends on a quarter-to-quarter basis.

Cost of Goods Sold

Cost of goods sold for the three months ended March 31, 2013 decreased to $227,552 as compared to $374,331 for the three months ended March 31, 2012, a decrease of $146,779 or 39%. The decrease is primarily due to the reduction in employees and outside contractors because of the reduction in the development of customized mobile applications for third parties as we focus on the continued development of the "Hang w/".

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended March 31, 2013 decreased to $1,030,792 as compared to $1,181,391 for the three months ended March 31, 2012, a decrease of $150,599 or 13%. The decrease is primarily attributable to our shift in focus from the development of customized mobile applications for third parties to the development of the "Hang w/" App resulting in a $204,081 decrease in payroll and contract labor costs, a $107,355 decrease in marketing expense, and a $56,817 decrease in general and administrative expenses. In addition, bad debt decreased by $38,908 and better management of professional fees resulted in a $25,593 decrease in legal, accounting and other professional fees. These reductions were offset by a $258,532 increase in expenses for our Hang With, Inc. subsidiary and a $23,623 increase in insurance expense.


Other Income/Expenses

Other expense for the three months ended March 31, 2013 increased to $53,975 as compared to $0 for the three months ended March 31, 2012, an increase of $53,975 or 100%. The increase is primarily attributable to the increase in the fair value of warrants issued in a private placement in March 2012.

Net Loss

Net loss for the three months ended March 31, 2013 increased to $839,238 as compared to $405,724 for the three months ended March 31, 2012, an increase of $433,514 or 107%. The increase in net loss was the result of our shift in focus from the development of customized mobile applications for third parties to the development of the "Hang w/" App as noted above.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.

At March 31, 2013 and December 31, 2012, we had cash of $328,670 and $112,745, respectively and negative working capital of $2,890 and $120,663, respectively.

Net cash used in operating activities for the three months ended March 31, 2013 was $500,698 compared to net cash used in operating activities of $145,978 for the three months ended March 31, 2012. The increase in net cash used in operating activities was primarily attributable to the $433,514 increase in net loss. Net cash used in investing activities for the three months ended March 31, 2013 was $1,377 as compared to net cash used in investing activities of $19,276 for the three months ended March 31, 2012. The decrease in net cash used in investing activities was attributable to a reduction in fixed asset purchases. Net cash provided by financing activities for the three months ended March 31, 2013 was $718,000 as compared to net cash provided by financing activities of $1,485,000 for the three months ended March 31, 2012. Net cash provided by financing activities for the period ended March 31, 2013 was primarily the result of $525,000 a private placement performed by a subsidiary, Hang With, Inc., as described below and $193,000 borrowed from the $500,000 secured revolving line of credit agreement described below. Net cash provided by financing activities for the period ended March 31, 2012 was primarily the result of $1,485,000 of net proceeds from a private placement described below that closed on March 28, 2012.

To date we have financed our operations through internally generated revenue from operations, the sale off equity, proceeds from a line of credit, the issuance of notes and loans from a shareholder.

On March 28, 2012, we entered into a securities purchase agreement with an accredited investor whereby we sold an aggregate of 1,000,000 units (the "Units"), each Unit comprised of three shares of our common stock and a warrant to purchase one share of our common stock at a price per Unit of $1.50. As a result of the sale, which closed on the same day as entering into the securities purchase agreement, we issued to the investor 3,000,000 shares of our common stock and a warrant to purchase 1,000,000 shares of our common stock for an aggregate purchase price of $1,500,000. The warrant has a three year term and may be exercised at an exercise price of $0.90 per share, subject to adjustment in the case of stock splits, distributions, reorganizations, recapitalizations and the like, and may be exercised on a cashless basis under certain circumstances. The warrant contains full ratchet anti-dilution protection in the case of a share issuance for consideration less than the then exercise price of the warrant, subject to customary exceptions. The securities purchase agreement also grants the investor demand registration rights, piggyback registration rights and a right of participation in certain future offerings.

On January 17, 2013, the Company entered into a three-year, five hundred thousand dollar ($500,000) secured revolving credit agreement (the "Line"). The Line is a revolving line of credit that allows us to repay principal amounts and re-borrow them at any time during the three-year term. The interest rate on borrowed funds is 10% per annum and the interest rate on undrawn funds is 2.0% per annum. Interest is due within 10 business days following the end of each calendar month. The outstanding balance as of March 31, 2013 is $193,000. All borrowed funds from the Line are secured by all of our assets.

Between January 10, 2013 and March 7, 2013, our Hang With, Inc. ("Hang With") subsidiary received an aggregate of $525,000 from accredited investors in exchange for 1,050,000 shares of Hang With common stock in its private placement intended to be exempt under Rule 506 of Regulation D and Regulation S.


We do not have any material commitments for capital expenditures during the next twelve months. We may be required to raise additional funds in the future particularly if we are unable to generate positive cash flow as a result of our operations or require additional capital to expand our operations. Therefore our future operations may be dependent on our ability to secure additional financing. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we may have to curtail our marketing and development plans and possibly cease our operations.

Critical Accounting Policies

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in our consolidated financial statements and related notes. Our significant accounting policies are described in Note 1 to our consolidated financial statements included in our Annual Report dated December 31, 2012. We have identified below our critical accounting policies and estimates that we believe require the greatest amount of judgment. These estimates and judgments have a significant impact on our consolidated financial statements. Actual results could differ materially from those estimates. The accounting policies that reflect our more significant estimates and judgments and that we believe are the most critical to fully understand and evaluate our reported financial results include the following:

Revenue Recognition

Intangible Assets

Fair Value of Financial Instruments

Good will and other intangible assets

Stock-Based Compensation

Revenue Recognition

Our main source of revenue is from the development of custom applications or "Apps" for customers. We use a hybrid method for recognizing revenue that includes elements from both ASC 985-605, Software Revenue Recognition and ASC 605-35, Construction-Type and Production-Type Contracts.

We recognize revenues in accordance with ASC 985-605 when persuasive evidence of an agreement exists, delivery of the software has occurred, the fee is fixed or determinable, and collectability is probable. Nonrecurring revenues related to perpetual license sales with multiple elements are recognized in accordance with the guidance on software revenue recognition.

When the arrangement with a customer includes significant production, modification, or customization of the software, we recognize the related revenue using the percentage-of-completion method in accordance with the accounting . . .

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