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MEDL > SEC Filings for MEDL > Form 10-Q on 13-Nov-2013All Recent SEC Filings

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Form 10-Q for MEDL MOBILE HOLDINGS, INC.


13-Nov-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.

In this section, unless the context indicates otherwise, all references herein to "MEDL," "the Company," "we," "our" or "us" refer collectively to MEDL Mobile Holdings, Inc. and its wholly owned subsidiaries.

Overview

We have built a system for developing and taking ownership of mobile application software, or "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 third parties.

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 our deep marketing and advertising experience to work 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

Our MEDL Marketing Technologies operations 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 user behavior in order to place users into "Mobile Lifestyle" categories. As the Brain collects data and "gets smarter", it can use these Mobile Lifestyle categories to continuously make 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 MEDL 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 push notifications 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 in existence, 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.

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- In this 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 by 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. The "Hang w/" live social mobile video platform was approved for release by Google on July 9, 2013 and is available for download on android phones via the Google Apps Marketplace. 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%.

Results of Operations



Three Months Ended September 30, 2013 Compared to the Three Months Ended
September 30, 2012 (unaudited)



The following table presents our results of operations for the three months
ended September 30, 2013 compared to the three months ended September 30, 2012.



                                        Three Months ended September 30,
                                               2013               2012             $ Change        % Change
Revenues                                $          669,654   $     1,118,232   $       (448,578)       -40%
Cost of goods sold                                 217,381           912,076           (694,695)       -76%
Gross profit                                       452,273           206,156             246,117       119%
Expenses:
Selling, general and administrative              1,355,229         1,000,144             355,085        36%
Loss from Operations                             (902,956)         (793,988)           (108,968)        22%
Other income (expense):
Change in fair value of warrants                         -          93,948              (93,948)      -100%
Interest expense                                   (4,822)               -               (4,822)       100%
Net loss                                         (907,778)         (700,040)           (207,738)        30%
Less: Net loss attributable to
non-controlling interest                           200,002                 -             200,002       100%
Net loss attributable to MEDL Mobile
Holdings, Inc.                                   (707,776)         (700,400)             (7,736)         1%

Revenues

Revenues primarily consisted of fees we received for developing custom Apps for third parties. Revenues for the three months ended September 30, 2013 decreased to $669,654 as compared to $1,118,232 for the three months ended September 30, 2012, a decrease of $448,578 or 40%. The decrease is primarily attributable to a reduction in the development of customized mobile applications for third parties during the three months ended September 30, 2013 as compared to the three months ended September 30, 2012 due to our continued focus on the development and expansion of the "Hang w/" App. Hang With pays us for providing product development and maintenance services for live social mobile video App. The revenue paid to us by Hang With for the development of the "Hang w/" App is eliminated in consolidation because we owned 76.29% of Hang With as of September 30, 2013.

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

Cost of Goods Sold

Cost of goods sold consists primarily of the cost of our employees and the cost of our contractors engaged in developing Apps for our customers. Cost of goods sold for the three months ended September 30, 2013 decreased to $217,381 as compared to $912,076 for the three months ended September 30, 2012, a decrease of $694,695 or 76%. 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 in order to focus on the continued development of the "Hang w/" App. The costs of goods sold for the development of the "Hang w/" App are eliminated in consolidation because we own 76.29% of Hang With as of September 30, 2013.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended September 30, 2013 increased to $1,355,229 as compared to $1,000,144 for the three months ended September 30, 2012, an increase of $355,085 or 14%. The increase 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. Reducing the number of customized mobile applications we build for third parties allowed for various cutbacks resulting in a $362,865 decrease in payroll and contract labor costs, a $49,397 decrease in marketing expense, and an $832 decrease in general and administrative expenses. In addition, bad debt decreased by $34,179 and better management of legal and other professional fees resulted in a $48,232 decrease in legal, accounting and other professional fees. These reductions were offset by $843,645 in expenses for our Hang With, Inc. subsidiary and a $6,945 increase in insurance expense.

Other Income/Expense

Other expense for the three months ended September 30, 2013 was $4,822 as compared to other income of $93,948 for the three months ended September 30, 2012, a decrease of $98,770 or 105%. The decrease is mainly attributable to a $93,948 decrease in the recorded fair value of warrants issued in a private placement in March 2012, and the remaining decrease relates to $4,822 of interest expense on the $500,000 line of credit in 2013. Since the line of credit was not in place in 2012, we did not incur interest expense in 2012.

Net Loss

Net loss attributable to MEDL Mobile Holdings, Inc. for the three months ended September 30, 2013 increased to $707,776 as compared to $700,040 for the three months ended September 30, 2012, an increase of $7,736 or 1%. 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.

Nine Months Ended September 30, 2013 Compared to the Nine Months Ended September 30, 2012 (unaudited)

The following table presents our results of operations for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012.

                                            Nine Months ended September 30,
                                               2013                 2012               $ Change         % Change
Revenues                                $         1,552,689   $       2,712,892   $       (1,160,203)       -43%
Cost of goods sold                                  795,062           1,651,949             (856,887)       -52%
Gross profit                                        757,627           1,060,943             (303,316)       -29%
Expenses:
Selling, general and administrative               3,402,247           3,482,154              (79,907)        -2%
Loss from Operations                            (2,644,620)         (2,421,211)               223,409         9%
Other income (expense):
Change in fair value of warrants                      6,142           447,976               (441,834)        99%
Interest expense                                   (18,817)                   -                18,817       100%
Net loss                                        (2,657,295)         (1,973,235)               684,060        35%
Less: Net loss attributable to
non-controlling interest                            299,833                   -               299,833       100%
Net loss attributable to MEDL Mobile
Holdings, Inc.                                  (2,357,462)         (1,973,235)               384,227        19%

Revenues

Revenues primarily consisted of fees we received for developing custom Apps for third parties. Revenues for the nine months ended September 30, 2013 decreased to $1,552,689 as compared to $2,712,892 for the nine months ended September 30, 2012, a decrease of $1,160,203 or 43%. The decrease is primarily attributable to a reduction in the development of customized mobile applications for third parties during the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012 due to our continued focus on the development and expansion of the "Hang w/" App. Hang With pays us for providing product development and maintenance services for live social mobile video App. The revenue paid to us by Hang With for the development of the "Hang w/" App is eliminated in consolidation because we owned 76.29% of Hang With as of September 30, 2013.

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

Our planned revenue model for Hang With is to show a short advertisement before and after live Hang With broadcasts, which advertisements will be sold to targeted advertisers. Hang With made a strategic decision to delay the introduction of advertisements in order to rapidly increase the number of dedicated, repeat Hang With users. Accordingly, Hang With has not yet initiated its advertising revenue model.

Cost of Goods Sold

Cost of goods sold consists primarily of the cost of our employees and the cost of our contractors engaged in developing Apps for our customers. Cost of goods sold for the nine months ended September 30, 2013 decreased to $795,062 as compared to $1,651,949 for the nine months ended September 30, 2012, a decrease of $856,887 or 52%. 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 in order to focus on the continued development of the "Hang w/" App. The costs of goods sold for the development of the "Hang w/" App are eliminated in consolidation because we own 76.29% of Hang With as of September 30, 2013.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the nine months ended September 30, 2013 decreased to $3,402,247 as compared to $3,482,154 for the nine months ended September 30, 2012, a decrease of $79,907 or 2%. 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. Reducing the number of customized mobile applications we build for third parties allowed for various cutbacks resulting in a $1,021,724 decrease in payroll and contract labor costs, a $252,335 decrease in marketing expense, and a $137,802 decrease in general and administrative expenses. In addition, bad debt decreased by $104,692 and better management of legal and other professional fees resulted in a $210,006 decrease in legal, accounting and other professional fees. These reductions were offset by $1,604,682 in expenses for our Hang With, Inc. subsidiary and a $41,970 increase in insurance expense.

Other Income/Expense

Other expense for the nine months ended September 30, 2013 was $12,675 as compared to other income of $447,976 for the nine months ended September 30, 2012, a decrease of $460,661 or 103%. The decrease is mainly attributable to a $441,834 difference in the change in recorded fair value of warrants issued in a private placement in March 2012, and the remaining decrease relates to $18,817 of interest expense on the $500,000 line of credit in 2013. Since the line of credit was not in place in 2012, we did not incur interest expense in 2012.

Net Loss

Net loss attributable to MEDL Mobile Holdings, Inc. for the nine months ended September 30, 2013 increased to $2,357,462 as compared to $1,973,235 for the nine months ended September 30, 2012, an increase of $384,227 or 19%. The increase in net loss was primarily 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, the availability of credit facilities, levels of accounts receivable and accounts payable and capital expenditures.

At September 30, 2013 and December 31, 2012, we had cash of $702,804 and $112,745, respectively and as of September 30, 2013 we had working capital of $500,685 versus negative working capital of $120,66 as of September 30, 2012. Between January 10, 2013 and September 30, 2013, our Hang With, Inc. ("Hang With") subsidiary raised an aggregate of $2,644,502 from the sale of 3,107,335 shares of Hang With common stock to accredited off-shore investors. These funds are intended to be used to fund Hang With's product development and commercialization efforts. Since we are compensated by Hang With for providing services, a portion of these funds have been paid to the Company and used by the Company to support this MEDL's liquidity needs. In accordance with GAAP, Hang With's cash is consolidated with the Company's cash in the Company's consolidated financial statements included herein.

Net cash used in operating activities for the nine months ended September 30, 2013 was $2,061,382 compared to net cash used in operating activities of $1,542,025 for the nine months ended September 30, 2012. The increase in net cash used in operating activities was primarily attributable to the $384,227 increase in net loss. Net cash used in investing activities for the nine months . . .

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