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MBIT > SEC Filings for MBIT > Form 10-Q on 20-Sep-2013All Recent SEC Filings

Show all filings for MOBILEBITS HOLDINGS CORP

Form 10-Q for MOBILEBITS HOLDINGS CORP


20-Sep-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.

Plan of Operation

MobileBits Holdings Corporation (""MobileBits", "MB", or the "Company") was incorporated in the State of Nevada on July 22, 2008. MobileBits is a globally focused direct mobile marketing and engagement software supplier helping drive consumer purchases into the bricks and mortar stores. The Company offers consumer retail businesses a mobile marketing and loyalty network solution called SAMY that provides enterprise software tools to merchants and retailers brands. SAMY enables any merchant the ability to create and manage mobile campaigns, deals, offers, loyalty/rewards, social media and commerce to a subscribed consumer through their mobile devices resulting in increased in-store purchases at the brick and mortar store locations and continued engagement when the consumer is away from the physical store.

The solution provides businesses a complete set of cloud based tools to connect with to a subscribed consumer through a mobile application called SAMY. To consumers, SAMY provides a single "Mobile Mall" application and experience where a shopper can quickly and easily view and be alerted of special offers, purchase products or services at the physical store location with a mobile coupon, earn rewards, and seamlessly integrate loyalty cards with their mobile devices eliminating the need to carry plastic rewards or gift cards.

MobileBits began its business in 2009 with the goal to create a cloud based platform connecting consumers and marketers around relevant content and information through mobile devices. On December 6, 2011 the Company merged with Pringo Inc., through MB Pringo Merger Sub, Inc., a Delaware corporation and our wholly-owned subsidiary ("Merger Sub"), completed a merger with Pringo, Inc. a Delaware corporation ("Pringo"), pursuant to an Agreement and Plan of Merger (the "Merger Agreement") dated June 23, 2011 (the "Pringo Merger"). The Los Angeles based Pringo, brought the Company a hardened development platform suite called Pringo Connect, created in 2006, as well as increasing the product development team strengthening its PHP based development capabilities. Pringo's business focus was licensing software and selling professional services to enterprises in the market to create a socially integrated website or portal.

On September 28, 2012, the Company also completed a share exchange with Aixum Tec AG, a Liechtenstein Company ("Aixum") operating in Switzerland, pursuant to a Stock Exchange Agreement (the "Stock Exchange Agreement"), dated May 21, 2012 (the "Stock Exchange"). Aixum Tec AG, a European based organization focused on a merchant and consumer application software platform called SAMY4ME which provided an easy to use software interface for both businesses and consumers synchronizing loyalty card integration and offers.

MobileBits subsequently the integrated the Pringo Connect and the SAMY4ME platforms, shortening the name to SAMY for a broader local market while increasing SAMY'S ability to integrate third party software solutions like gift cards, loyalty and commerce systems already in the marketplace.

SAMY provides a complete set of cloud based tools to connect with, create and manage mobile campaigns, deals, offers, loyalty and rewards to a subscribed mobile consumer. To businesses, SAMY provides a single self-serve out-of-the-box mobile engagement marketing and loyalty platform that enables retail businesses to create, design and publish their offers, coupons, promotions, loyalty cards and gift cards to a branded mobile storefront within SAMY. To consumers, SAMY provides a single "Mobile Mall" application and experience where a shopper can quickly and easily view branded storefronts and be alerted of special offers, purchase products or services, earn rewards, obtain local information and seamlessly integrate their loyalty cards with their mobile devices.

For larger deployments MobileBits offers the Pringo Connect platform under the brand SAMY Enterprise.


Summary of Acquisition Transactions

MobileBits Holdings Corporation was incorporated in the State of Nevada on July 22, 2008. On January 25, 2010, BC changed its name to MobileBits Holdings Corporation.

MobileBits Corporation ("MBC") was incorporated in Florida on March 2009. The business was founded with the intention of providing a platform that connected marketers to consumers around meaningful content available on mobile devices.

Merger of MBC

The Company entered into a Share Exchange Agreement, dated March 12, 2010 (the " Share Exchange Agreement") between MBC and the shareholders of MBC (the "MBC Shareholders") pursuant to which MB acquired MBC, an early stage software development firm targeting its software at the mobile search market.

The transaction closed on March 12, 2010 and MB acquired 100% of the outstanding shares of common stock of MBC (the "MBC Stock") from the MBC Shareholders. In exchange for MBC common stock and $275,000, MB issued 18,752,377 shares of its common stock to the MBC Shareholders, which represented approximately 87.9% of MB's issued and outstanding common stock. Upon closing, MBC became a 100% wholly-owned subsidiary of the Company.

Pringo Acquisition

On December 6, 2011, we, through MB Pringo Merger Sub, Inc., a Delaware corporation and our wholly-owned subsidiary ("Merger Sub"), completed a merger with Pringo, Inc. a Delaware corporation ("Pringo"), pursuant to an Agreement and Plan of Merger (the "Merger Agreement") dated June 23, 2011 (the "Pringo Merger"). As a result of the Merger, Merger Sub merged with and into Pringo, with Pringo surviving the Merger as our wholly owned subsidiary.

Pursuant to the Merger Agreement, each share of common stock of Pringo issued and outstanding immediately prior to the effective time, was converted into the right to receive a number of shares of our common stock such that immediately after the Merger, Pringo's stockholders, and the holders of Pringo's outstanding options and warrants, owned fifty percent (50%) of our then outstanding shares of common stock on a fully diluted basis (as if all of Pringo's and Parent's options and warrants were exercised), and our stockholders, and holders of our outstanding options and warrants, owned fifty percent (50%) of its then outstanding shares of our common stock on a fully diluted basis (as if all of Pringo's and our options and warrants were exercised). At the closing of the Pringo Merger on December 6, 2011, Pringo's stockholders immediately prior to the Pringo Merger were issued 29,453,544 shares of common stock and employees were granted 8,220,469 stock options of Parent.

Pringo is a Delaware "C" Corporation headquartered in Los Angeles, California. Established in 2006, Pringo offers software products that combine enterprise-class portals, content management systems, social collaboration features, extensive API and extension capabilities and user management tools in various open-source packages. Pringo distinguishes itself from other products of the same class in the market in four distinct areas: Pringo products are offered in an open-architecture format; available in 23 languages; Pringo products are easily integrated and easily deployed by enterprises; and Pringo offers over 400 customizable features.

Aixum Acquisition

On September 28, 2012, the Company completed a share exchange with Aixum Tec AG, a Liechtenstein Company ("Aixum"), pursuant to a Stock Exchange Agreement (the "Stock Exchange Agreement"), dated May 21, 2012 (the "Stock Exchange"). As a result of the Stock Exchange Aixum is a wholly-owned subsidiary of MobileBits.

Pursuant to the Stock Exchange Agreement, at the closing of the Stock Exchange each seller (a "seller", and collectively, the "Sellers") sold to the Company its shares of Aixum (the "Transferred Shares"). In consideration for the Transferred Shares, the Company issued to each Seller such seller's pro rata portion of a number of shares of the Common Stock, par value $0.001 per share, of the Company, equal to (A) 6,666,667 minus (B) the sum of (i) the Liability Shares (as defined in the Stock Exchange Agreement), if any, plus (ii) the Cost Shares (as defined in the Stock Exchange Agreement), if any. On the Closing Date, MobileBits issued an aggregate of 5,803,061 of its Common Stock to the Sellers.

Acquisition of MBPM from Proximus Mobility, LLC

On May 2, 2013, the Company and Proximus Mobility, LLC ("Proximus") formed a Delaware limited liability company named MBPM, LLC ("MBPM"). Pursuant to the operating agreement entered between the parties, the Company initially has a 51% ownership interest in MBPM, and Proximus has a 49% ownership in MBPM. In connection with the formation of MBPM, the Company contributed certain goodwill and management services to MBPM and Proximus contributed all of its assets to the joint venture. On May 2, 2013, the Company entered into Equity Exchange Agreements with the members of Proximus, pursuant to which the members of Proximus agreed to within a two-year period to exchange their membership units in Proximus for shares of the Company's common stock, valued up to $3,000,000 pursuant to the terms and conditions of the Equity Exchange Agreement.

ValuText LLC Acquisition

On May 7, 2013, the Company purchased JDN Development Company Inc.'s 50 % membership interest in Value Text LLC ("ValuText") for 250,000 warrants to purchase the Company's common stock at an exercise price of $0.50 per share of which 205,000 warrants were issued to JDN Development Company and 45,000 warrants were issued to the J Cohn Marketing Group. The 250,000 warrants were valued at $60,528. The remaining 50% interest in ValuText was acquired by the Company in connection with the acquisition of Proximus.


Over the next twelve months, we intend to continue growing our business by expanding our direct sales team focused on tier one, tier two retailers, shopping center owners and REITS to grow the market for SAMY. We plan to expand our sales channel into the tier three merchants as well and offer SAMY worldwide through qualified in-country re-seller partners in countries where we are currently unable or unwilling to enter ourselves due to financial requirements or unstable economic conditions.

MB currently anticipates the implementation of its business plan will require additional investment capital. The Company hopes to raise up to $10 million in equity financing in the next twelve months. If we are successful in raising the necessary funds, we will use those funds to grow our consumer network and to acquire new customers through increased advertising, sales, and marketing product fulfillment, to fund product development providing additional product functionality, to provide working capital for strategic acquisitions and for other corporate purposes.

Results of Operation

Three Months Ended July 31, 2013 compared to the Three Months Ended July 31, 2012

Revenues

Revenues were $284,056 for the three months ended July 31, 2013 compared to $97,907 for the three months ended July 31, 2012. The increase is primarily due to a $100,000 SAMY licensing fee for the country of Ukraine. The remaining increase is attributable to SAMY merchant subscription fees of $103,663. As the Company acquired Aixum on September 28, 2012 and the Company did not begin marketing the SAMY application in other territories until 2013, there were no SAMY merchant subscription fees in the three-month period ended July 31, 2012.

Cost of Revenues

Our cost of revenues was $36,774 for the three-months ended July 31, 2013 compared to $88,052 for the three months ended July 31, 2012. The decrease is due to the lower labor costs to support Pringo customers during the three months ended July 31, 2013.

Selling, General and Administrative Expenses

Our total selling, general and administrative expenses were $1,031,642 for the three months ended July 31, 2013 compared to $2,024,204 for the three months ended July 31, 2012. The $992,562 decrease is primarily due to a decrease of $734,090 in stock compensation expense, reduced professional fees of $155,211, a decrease in salary and wages of $130,250 resulting from a reduction in headcount and reduced salaries offset by an increase in outsourced services.


Depreciation and Amortization

Depreciation and amortization was $490,359 for the three months ended July 31, 2013 compared to $253,294 for the three months ended July 31, 2012. The increase is primarily due to the amortization related to additional intangible assets acquired in the Aixum Acquisition on September 28, 2012.

Unrealized foreign currency exchange gains

During the three months ended July 31, 2013, the Company incurred an unrealized foreign exchange gain of $5,836 compared with a $10,262 loss in the comparable three months in 2012, related to transactions of Aixum.

Interest Expense (Income), net

Net interest income was $10,723 for the three months ended July 31, 2013 compared to interest expense $1,012 for the three months ended July 31, 2012. The interest income is related to amortization of the accounts receivable discount related to the long term receivable for the Middle East license fee.

Nine Months Ended July 31, 2013 compared to the Nine Months Ended July 31, 2012

Revenues

Our revenues were $1,531,515 for the nine months ended July 31, 2013 compared to $386,887 for the nine months ended July 31, 2012. The increase is primarily due to $913,369 in license fees for nine Middle East countries. The remaining increase is attributable to SAMY merchant subscription fees of $183,740. As the Company acquired Aixum on September 28, 2012 and the Company did not begin marketing the SAMY application in other territories until 2013, there were no SAMY merchant subscription fees in the nine month period ended July 31, 2012.

Cost of Revenues

Our cost of revenues was $109,753 for the nine months ended July 31, 2013 compared to $195,786 for the nine months ended July 31, 2012. The decrease is due to the lower labor costs to support Pringo customers during the nine months ended July 31, 2013. .

Selling, General and Administrative Expenses

Our total general and administration expenses were $4,109,426 for the nine months ended July 31, 2013 compared to $9,198,084 for the comparable nine month period ended July 31, 2012. The decrease of $5,088,658 is primarily attributable to decreases of $5,209,929 in non-cash stock compensation expense, $145,340 in professional fees and $74,573 in reduced bad debt expenses offset by $189,611 in increased salary costs related to new hires and additional employees from acquisitions, $145,498 in higher marketing expenses and a $40,380 increase in outsourced services.

Depreciation and Amortization

Depreciation and amortization was $1,440,453 for the nine months ended July 31, 2013 compared to $671,569 for the nine months ended July 31, 2012. The increase is primarily due to the amortization related to additional intangible assets acquired in the Aixum Acquisition.

Unrealized foreign currency exchange gain

During the nine months ended July 31, 2013 the Company incurred an unrealized foreign exchange gain of $1,165 compared with a loss of $12,462 for the comparable three month period in 2012, related to transactions of Aixum.

Interest Expense (Income), net

Net interest income was $5,967 for the nine months ended July 31, 2013 compared to $212,546 in interest expense for the nine months ended July 31, 2012. In the nine months ended July 31, 2013, the Company recognized $14,125 of interest income related to amortization of the accounts receivable discount related to the long term receivable for the Middle East license fee. In the comparable nine month period in 2012, the company recorded $200,872 as interest expense in connection with the conversion of a note payable into the Company's common stock, representing the value in excess of the note payable's principal.


Liquidity and Capital Resources

As reflected in the accompanying consolidated financial statements, the Company has suffered recurring losses from operations. The Company has a net loss of $4,120,986; a working capital deficit of $4,695,351; net cash used in operations of $1,489,592 for the nine months ended July 31, 2013; and an accumulated deficit of $20,292,682 at July 31, 2013. In addition, the Company has not completed its efforts to establish a stable recurring source of revenues sufficient to cover its operating costs for the next twelve months. These factors raise substantial doubt regarding the Company's ability to continue as a going concern.

The ability of the Company to continue its operations is dependent on the successful execution of management's plans, which include the expectation of raising debt or equity based capital, with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. The Company may need to issue additional equity and incur additional liabilities with related parties to sustain the Company's existence although no commitments for funding have been made and no assurance can be made that such commitments will be available.

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of assets or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

In response to these factors, the management intends to take on the following actions:

? seek additional funding from private placement and public offerings,
? seek additional funding from third party debt financings; and
? continue the implementation of the business plan, which may include merging or acquiring with an operating entity.

Cash flows from operating activities

Cash used in operating activities for the nine months ended July 31, 2013 and 2012 was $1,489,592 and $1,747,608, respectively. The change is primarily due to lower professional fees offset by increases in accounts receivable, increases in salary, marketing expenses and outsourced services.

Cash flows from investing activities

Cash used in investing activities for the nine months ended July 31, 2013 and 2012 was $374,619 and $372,168, respectively. The increase is due to money we spent on software and website development.

Cash flows from financing activities

Cash provided by financing activities for the nine months ended July 31, 2013 and 2012 was $1,886,851 and $1,176,750, respectively. The cash provided by financing for both periods were primarily due to us completing approximately $1,876,868 and $1,233,750 of private placements, respectively. In the nine months ended July 31, 2013, the proceeds from the note payable were $9,983. In comparable period in 2012, the company paid $57,000 of the notes payable outstanding.

Critical Accounting Policies

Use of Estimates

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates.


Significant estimates made by the Company in 2013 and 2012 included: 1) 100% valuation allowance for deferred taxes due to the Company's continuing and expected future losses; 2) inputs used in its option-pricing model to calculate the Company share-based compensation arrangements; 3) allowance estimated for doubtful accounts; 4) assumptions used in the valuation models to calculate the fair values of assets acquired and liabilities assumed under acquisitions; and
5) assumptions used in the projections and discounted cash flows analysis to assess the goodwill impairment.

Software Development Costs

Costs of software developed internally for licensing to third parties are expensed until the technological feasibility of the software product has been established. Thereafter, software development costs incurred through the general release of the software products are capitalized and subsequently reported at the lower of unamortized cost or net realizable value. Capitalized software development costs are amortized on a straight-line basis over the products' respective estimated economic lives, which are typically three years. The amortization of capitalized software development costs, including any amounts accelerated for products that are not expected to generate sufficient future revenue to realize their carrying values, is included in depreciation and amortization expense in the consolidated statements of operations.

Intangible Assets

Intangible assets consist of expenditures for a domain name, the value of trade name, customer relationships, and software, which was initially recorded at the fair value on the acquisition date of Aixum and Pringo. The domain name has an estimated indefinite life, is not subject to amortization, but is reviewed annually for impairment. The identifiable intangibles are amortized over their useful lives of 3 to 10 years and are reviewed annually for impairment.

Goodwill

Costs of investments in excess of the underlying fair value of net assets at the date of acquisition are recorded as goodwill and assessed annually for impairment. The carrying amount of goodwill is not amortized, but we perform an annual assessment of goodwill for impairment by first comparing the book value of net assets to the fair value of the reporting units. If the fair value is determined to be less than the book value or qualitative factors indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value.

Revenue Recognition

License revenue consists principally of revenue earned under software license agreements or reseller agreements to license the use of SAMY in foreign countries. License revenue is generally recognized when a signed contract or other persuasive evidence of an arrangement exists, the software has been electronically delivered, the license fee is fixed or is measured on a paid user basis; and collection of the resulting receivable is probable. When contracts contain multiple elements wherein Vendor-Specific Objective Evidence ("VSOE") exists for all undelivered elements, we account for the delivered elements in accordance with the "Residual Method." VSOE of fair value for maintenance and support is established by a stated renewal rate, if substantive, included in the license arrangement or rates charged in stand-alone sales of maintenance and support. Revenue from subscription license agreements, which include software, rights to unspecified future products and maintenance, is recognized ratably over the term of the subscription period.

Provided all other revenue criteria are met, the upfront, minimum, non-refundable license fees from customers are generally recognized upon delivery and on-going royalty fees are generally recognized upon reports of new licenses issued. Revenue on sales to resellers is recognized when evidence of an end user arrangement exists and recorded net of related costs to the resellers.


Professional services revenue consists primarily of revenue received for assisting with the customization and implementation of our software, on-site support, and other consulting services. Many customers who license our software also enter into separate professional services arrangements with us. We always account for professional services separately from license revenue as professional services are considered essential to the functionality of the software based on the nature of our software products. Substantially all of our professional services arrangements that are billed on a time and materials basis are recognized as the services are performed. Contracts with fixed or not-to-exceed fees are recognized on a percentage-of-completion. If there is significant uncertainty about the project completion or receipt of payment for professional services, revenue is deferred until the uncertainty is sufficiently resolved. VSOE of fair value of consulting services is based upon stand-alone sales of those services. Payments received in advance of consulting services performed are deferred and recognized when the related services are performed. Work performed and expenses incurred in advance of invoicing are recorded as unbilled receivables. These amounts are billed in the subsequent month.

Maintenance revenue consists of fees for providing software updates on a when and if available basis and technical support for software products ("post-contract customer support" or "PCS"). Maintenance revenue is recognized ratably over the term of the agreement.

Hosting revenues are recognized in the month services are delivered.

Payments received in advance of services performed are deferred. Allowances for estimated future returns and discounts are provided for upon recognition of revenue.

Subscription revenue is generated from businesses that pay MobileBits a subscriber fee for each SAMY mobile subscriber. Each mobile subscription generates a monthly fee beginning when a mobile customer subscribes to a specific branded storefront within the SAMY application. Subscription fees are charged for the length of time a SAMY shopper remains subscribed to branded storefront. Each SAMY shopper can subscribe to more than one branded storefronts within the SAMY application. Average revenue per user is determined by multiplying the subscription fee by the number of individual storefronts a SAMY shopper subscribes to.

Share-Based Payments

The Company estimates the fair value of each stock option or warrant award at the grant date by using the Black-Scholes option pricing model and common shares based on the last applicable market price of the Company's common stock on the date of the share grant. The fair value determined represents the cost for the award and is recognized over the vesting period during which an employee or . . .

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