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MBIT > SEC Filings for MBIT > Form 10-K on 7-Feb-2014All Recent SEC Filings

Show all filings for MOBILEBITS HOLDINGS CORP

Form 10-K for MOBILEBITS HOLDINGS CORP


7-Feb-2014

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Management's Discussion and Analysis or of Financial Condition and Results of Operations ("MD&A") section of this Report discusses our results of operations, liquidity and financial condition, and certain factors that may affect our future results. You should read this MD&A in conjunction with our financial statements and accompanying notes included in this Report.

Plan of Operation

MobileBits Holdings Corporation, formerly Bellmore Corporation ("BC") was incorporated in the State of Nevada on July 22, 2008. On January 25, 2010, BC changed its name to MobileBits Holdings Corporation (the "Company" or "MB). Today, MobileBits is a globally focused direct mobile marketing and loyalty software supplier. The Company offers businesses a mobile marketing and loyalty network called Samy that enables merchants, retailers or brands to connect with consumers in their local area through their mobile devices. The solution provides businesses a complete set of cloud based tools to connect with, create and manage mobile campaigns, deals, offers, loyalty, social media, commerce and rewards 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, earn rewards, obtain local information and seamlessly integrate their loyalty cards with their mobile devices.

Samy extends the same optimal shopping experience of a mall or shopping center into a digital, 'Mobile Mall'. Samy provides consumers with a single application to connect with any number of their favorite stores, view offers, receive and store coupons, receive promotions and earn rewards. Mobile consumers collect and gather their favorite restaurants, stores, retailers, deals, loyalty programs and more right on their smartphone; resulting in a personalized shopping experience.

MobileBits began development of its product in 2009 in the area of mobile content delivery with the goal to create a platform connecting consumers and marketers around relevant information on mobile devices. On December 6, 2011, we merged with Pringo Inc., through Merger Sub, completed a merger with Pringo, Inc., pursuant to the Merger Agreement and Plan of Merger (the "Merger Agreement") dated June 23, 2011. Pringo, Inc. based in Los Angeles California brought the Company a full development platform called Pringo Connect, in development since 2006, as well as a new product development team. Pringo's business focus was licensing software and selling professional services to enterprises looking to create a socially integrated website.

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

In 2012, MobileBits completed the integration of Pringo Connect and the SAMY4ME platforms, re-branding the name to Samy and re-focused the Company to offer businesses a mobile direct marketing network focusing on delivering a network that provides similar perceived value to today's shopping centers and malls.

Samy now 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 mobile marketing & loyalty platform that enables businesses to create, design and publish their offers, coupons, promotions, loyalty cards and gift cards to a mobile storefront. 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

The Company entered into a Share Exchange Agreement, dated March 12, 2010 between MB, MBC and 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 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. Concurrently, pursuant to the terms of the Share Exchange Agreement, Walter Kostiuk, the principal shareholder of the Company, cancelled a total of 14,000,000 shares of common stock. Upon Closing, MBC became a 100% wholly-owned subsidiary of the Company. The $275,000 was recorded as merger costs as a component of general and administrative expense. Since the Merger was between entities under common control, the Merger was accounted for similar to a pooling of interests whereby the assets and liabilities of MBC were recorded at historical cost. On March 16, 2010, concurrently with the merger, our Board of Directors authorized a 7-for-1 forward split of our common stock, par value $0.001 per share, in the form of a stock dividend which was paid on the same date, to holders of record on that date. All share and per share numbers have been adjusted to give effect to the stock split unless otherwise stated. On October 13, 2011, we amended our Articles of Incorporation in the State of Nevada to increase the maximum number of shares of stock that we are authorized to have outstanding at any time to two hundred fifty million (250,000,000) shares of par value $0.001 common stock.

On December 6, 2011, we, through Merger Sub, Inc completed a merger with Pringo, Inc. pursuant to aMerger 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 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.

On September 28, 2012, the Company completed a share exchange with Aixum Tec AG, pursuant to a Stock Exchange Agreement, dated May 21, 2012. 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.

On May 2, 2013, the Company and Proximus formed a Delaware limited liability company named MBPM, LLC. 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.

On, September 30, 2013, LOPAR, LLC ("LOPAR"), Mechael Zeto ("Zeto") and David Reppetoe ("Rippetoe") (collectively the "Proximus Plantiffs". Owner of Proximus Mobility) filed an action with the Superior court of Fulton County, Georgia (the "Georgia Court", C.A. File No. 2013-CV-237131 (the "Civil Action").

On December 5, 2013 and upon prior motion of the Plaintiffs, the Court in the Civil Action entered a Default Judgment against the Company: (i) directing it and its officers, agents, directors and all others acting in concert and participation with the Company to take all steps necessary to issue and effectuate the delivery of the following shares of Mobile bits stock within fourteen days from the date of entry of the Default Judgment: (a) 13,878,307 shares to LOPAR; (b) 3,064,805 shares to Zeto; and (c) 2,402,568 to Rippetoe;
(ii) granting Plaintiffs jointly and severally, a monetary judgment of $44,470 in reasonable attorney's fees and expenses; and (iii) casting the costs of the Civil Action on the Company. The Company has filed motions opposing the Default Judgment in the Superior Court and has also filed a Notice of Appeal on the Default Judgment to the Georgia Court of Appeals. The Company believes the outcome of this lawsuit is still unpredictable.

On May 7, 2013, the Company purchased JDN Development Company Inc.'s 50 % membership interest in Value Text LLC 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 Inc. and 45,000 warrants were issued to the J Cohn Marketing Group, a Company that JDN Development Company Inc. owed money to. The remaining 50% interest in ValuText was acquired by the Company in connection with the acquisition of Proximus.

During fiscal year 2013 we continued to license Samy in Switzerland and commenced operations in the Canada and the United States. In addition, we also licensed the Samy franchise in the Ukraine, Russia and the Middle East.

Over the next twelve months, we intend to continue growing our business by expanding the availability and distribution of the Samy network into other markets and regions. We also plan to offer Samy under license to certain qualified re-sellers.

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 2014. 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 Operations

Fiscal Year Ended October 31, 2013 Compared to Fiscal Year Ended October 31, 2012

Revenues

Our revenues from our operations for the fiscal year ended October 31, 2013 were $1,843,944 compared to $781,151 for the fiscal year ended October 31, 2012. We started to generate revenues from enterprise licenses and services after we acquired Pringo. Our revenues from the licensing of the Samy franchise in foreign territories increased $863,369 primarily from the licensing the franchise for the Middle East territories. The increase in Samy subscription revenues was primarily due to the fact that the Company operated in Switzerland for twelve months in 2013 compared with only one month in 2012, as Aixum Tec AG was acquired on September 28, 2012. In addition, in 2013 the Company began earning subscription revenues in the United States and Canada. Pringo contract revenues decreased $176,767 due to fewer customers in fiscal year 2013 compared with fiscal year 2012.

Cost of Revenues

Our cost of revenues was $139,632 for the fiscal year ended October 31, 2013 compared to $245,261 for the fiscal year ended October 31, 2012. For the twelve months ended October 31, 2013 and October 31, 2012, costs associated with professional service fees related to Pringo contracts were $55,025 and $233,957, respectively. The $178,932 decrease is attributable to fewer Pringo customers requiring professional services in 2013. The costs of hosting services for the year ended October 31, 2013 were $84,607 compared with $11,304 for the year ended October 31, 2012. The $73,303 increase is primarily attributable to the cost of hosting the expanding Samy network.


General and Administrative Expenses

Our total general and administration expenses were $5,377,429 for the fiscal year ended October 31, 2013 compared to $10,974,661 for the fiscal year ended October 31, 2012. The decrease of $5,597,232 is primarily attributable to a decrease of $5,542,819 in non-cash stock compensation expense; $161,000 in lower salary expenses due primarily to a reduced staff level; $141,000 decrease in professional fees; lower bad debt expense of $106,000; offset by a $216,000 increase in marketing expenses and a $105,000 increase in contracted services.

Goodwill Impairment

In 2013, the Company recorded a $15,564,369 impairment of goodwill related to the Pringo acquisition as a result of the Company modifying the original business plan and integrating the Pringo platform into the Samy business. There was no goodwill impairment in 2012.

Amortization and Depreciation

Amortization and depreciation was $2,158,679 for the fiscal year ended October 31, 2013 compared to $958,167 for the fiscal year ended October 31, 2012. The increase is due to increased amortization of intangible assets acquired in the Pringo Merger and the Aixum share exchange, amortization of intangible assets acquired in the ValuTex and MBPM acquisitions in 2013 as well as the amortization of software and development costs capitalized during the period.

Lawsuit Settlement

For the fiscal year ended October 31, 2012, the Company realized a gain on lawsuit settlement with Birlasoft, Inc, in the amount of $88,801.

Unrealized gain or loss on foreign currency exchange

For the fiscal year ended October 31, 2013, the Company had unrealized foreign gains of $22,319 compared with $3,059 in unrealized losses in 2012.

Interest Income/Expense, net

Net interest income was $10,517 for the fiscal year ended October 31, 2013 compared to net interest expense of $216,595 for the fiscal year ended October 31, 2012. In 2013, the interest income relates to the amortization of the discount on the Middle East franchise fee receivable. In 2012, the conversion of a note payable into the Company's common stock of $200,872 representing the value in excess of the note payable's principal was recorded as interest expense.

Liquidity and Capital Resources

As of October 31, 2013, we had a negative cash balance of $11,863 (reflected in accounts payable) compared to a cash balance of $122,428 as of October 31, 2012. The decrease in cash is primarily due to losses from operations, the additional expenditures associated with the Pringo Merger, increased costs of software development and licenses, and movements in working capital. The Company had a working capital deficit of $5,086,439 at October 31, 2013 compared to a working capital deficit of $1,205,609 at October 31, 2012. The Company has an accumulated deficit at October 31, 2013 of $37,535,025 and $1,800,310 of cash used in operations during the twelve months ended October 31, 2013. 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 incur additional liabilities with related parties to sustain the Company's existence.

The accompanying 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 the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

In response to these factors, management has taken the following actions:

? seek additional funding from private placements and/or public offerings,

? seek additional third party debt and/or equity financing; and

? continue the implementation of the business plan to increase operating profits, including the distribution of the Samy application in additional regions.


The use of proceeds from our unregistered common share sales that occurred for the fiscal years ending October 31, 2013 and 2012 were primarily used for salaries, product development, merger costs, consulting fees, office expenses, travel costs, offering expenses, professional fees, advertising/marketing, and working capital.

We are currently seeking funding for our plan of operations. We intend to seek funding up to $10,000,000 in order to continue our marketing plan, continue building our customer/merchant base and expand into new markets. To achieve our goals, a large portion of the funds raised will be invested in advertising/ marketing our product and an increase in headcount to support our expansion plans. Our success is contingent upon having enough capital to build enough customers to support the business. We expect to raise additional funds within the next 6-8 months. A private placement is the most likely scenario for the Company to achieve success in raising additional funds for its operations.

Cash used in operating activities

Cash used in operating activities for the years ended October 31, 2013 and 2012 were $1,800,310 and $2,144,599, respectively. The decrease in 2013 was due to lower operating expenses and an increase in revenues, which resulted in lower cash outflows in operations.

Cash used in investing activities

Cash used in investing activities for the years ended October 31, 2013 and 2012 were $500,163 and $487,771, respectively. The increase in 2013 is due to money spent on software development and property and equipment.

Cash flow from financing activities

Cash provided by financing activities for the years ended October 31, 2013 and 2012 were $2,169,933 and $1,429,511, respectively. The majority of cash provided by financing activities for both years resulted from our private placements of common stock for cash.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

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