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MEDL > SEC Filings for MEDL > Form 10-K on 31-Mar-2014All Recent SEC Filings

Show all filings for MEDL MOBILE HOLDINGS, INC.

Form 10-K for MEDL MOBILE HOLDINGS, INC.


31-Mar-2014

Annual Report


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

You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and the related notes included elsewhere in this Form 10-K. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Form 10-K, particularly in "Forward-Looking Information" and "Risk Factors."

Historical Overview

On June 24, 2011, we acquired MEDL Mobile, Inc., a California corporation ("MEDL"), which became our wholly owned subsidiary. In connection with this acquisition, we changed our name from Resume in Minutes, Inc. to MEDL Mobile Holdings, Inc., discontinued our former business, and succeeded to the software business of MEDL Mobile, Inc. as our primary line of business.

On February 28, 2012, we acquired Inedible Software, LLC ("Inedible"), a developer of mobile apps and related mobile app technologies whose principal asset was a customer list. While the acquisition of Inedible was structured as a purchase of an entity, we did not acquire any ongoing business operations and the purpose of the transaction was to acquire Inedible's customer list as a conduit to Apple for future potential. As a result, Inedible became a wholly owned subsidiary of the Company. The results of operations of Inedible are included on a going forward basis from the date of acquisition, although Inedible is no longer actively engaged in any business activities.

On November 2, 2102, we formed Hang With, Inc. to focus on creating a live social mobile video platform. The App is called "Hang w/" and was approved for release by Apple on March 20, 2013. This new App provides an important new channel of advertising revenue.As of the date of this Report, "Hang w/" is available for download on the Apple App Store. 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. "Hang w/" allows live real-time video to be sent from one phone to many. We intend to generate revenues from advertisement seen by the viewer before watching a live video feed sent directly from the broadcaster's smartphone camera and a post-roll advertisement at the end of the broadcast. Because we want Hang w/ to be adopted by a larger number of users before we implement our advertising strategy, we have not released any such advertisements on Hang w/.

Results of Operations

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

The following table presents our results of operations for the year ended
December 31, 2013 compared to the year ended December 31, 2012.



                                       Year Ended          Year Ended
                                      December 31,        December 31,
                                          2013                2012             $ Change         % Change
Revenues                            $    2,310,815      $    3,391,182      $ (1,080,367 )            -32 %

Cost of goods sold                       1,046,692           2,287,764        (1,241,072 )            -54 %

Gross profit                             1,264,123           1,103,418           160,705               15 %

Expenses:
Selling, general and
administrative                           4,522,426           4,432,294            90,132                2 %

Loss from operations                    (3,258,303 )        (3,328,876 )         (70,573 )             -2 %

Other income (expense):
Change in fair value of warrants           (57,247 )           495,446          (552,693 )           -112 %
Interest expense                           (21,338 )                -             21,338              100 %
Total other income (expense)               (78,585 )           495,446          (574,031 )           -116 %

Net loss before provision for
income taxes                            (3,336,888 )        (2,833,430 )         503,458               18 %
Provision for income taxes                      -                   -                 -                -%

Net loss                                (3,336,888 )        (2,833,430 )         503,458               18 %

Less: Net loss attributable to
non-controlling interest                   444,690                  -            444,690              100 %

Net loss attributable to MEDL
Mobile Holdings, Inc.               $   (2,892,198 )    $   (2,833,430 )    $     58,768                2 %

Revenues

Revenues primarily consisted of fees we received for developing custom Apps for third parties. Revenues for the year ended December 31, 2013 decreased to $2,310,815 as compared to $3,391,182 for the year ended December 31, 2012, a decrease of $1,080,367 or 32%. The decrease is primarily attributable to a reduction in the development of customized mobile applications for third parties during the year ended December 31, 2013 as compared to the year ended December 31, 2012 due our focus on the development and expansion of the "Hang w/" App in 2013. Hang With pays us for providing product development and maintenance services for live their social mobile video App.

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 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 year ended December 31, 2013 decreased to $1,046,692 as compared to $2,287,764 for the year ended December 31, 2012, a decrease of $1,241,072 or 54%. The decrease is primarily due to the reduction in employees and outside contractors needed because of the reduction in the development of customized mobile applications for third parties in order to focus on the development and expansion 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 75.77% of Hang With as of December 31, 2013. In addition, having fewer customers in 2013 versus 2012, and having an additional year of experience, allowed us to plan better and more effectively manage the custom development projects. During the year ended 2012, some of our custom development projects required more work than we anticipated when we submitted our bid for the work, which required us to deploy more resources to produce the mobile applications finished product for our customers.

Gross Profit

Gross profit for the year ended December 31, 2013 increased to $1,264,123 as compared to $1,103,418 for the year ended December 31, 2012, an increase of $160,705 or 15%. The gross profit increased due to better planning, bidding and management of our custom development projects. Some of our custom development projects in 2012 required more work than we anticipated when we submitted our bid for the work, which increased our costs to produce the custom mobile applications for our customers.

Selling, general and administrative Expenses

Selling, general and administrative expenses for the year ended December 31, 2013 increased to $4,522,426 as compared to $4,432,294 for the year ended December 31, 2012, an increase of $90,132 or 2%. The slight increase is primarily attributable to our shift in focus from the development of customized mobile applications for third parties to the development and expansion of the "Hang w/" App. Reducing the number of customized mobile applications we build for third parties, and a focused effort to reduce costs, allowed for various cutbacks resulting in a $1,223,544 decrease in payroll and contract labor costs, a $318,563 decrease in marketing expense, a $102,664 decrease in bad debt expense, a $53,016 decrease in rent expense and a net $7,387 decrease in other general and administrative expenses. In addition, better management of legal and other professional fees resulted in a $407,864 decrease in legal, accounting and other professional fees. These reductions were offset by an increase of $2,202,475 in expenses for our Hang With, Inc. subsidiary, a $39,156 increase in insurance expense and a $59,194 increase in stock option expenses.

Other Income/Expenses

Other expense for the year ended December 31, 2013 was $78,585 as compared to other income of $495,446 for year ended December 31, 2012, a decrease of $574,031 or 116%. $552,692 of the decrease is attributable to the warrants issued in a private placement in March 2012 being valued at $501,588 on the date of issuance but only having a fair value of $6,142 as of December 31, 2102, resulting in other income of $495,446 as of December 31, 2012, and the fair value of the warrants as of December 31, 2013 being $63,389, resulting in other expense of $57,247 for the year ended December 31, 2103. The remaining decrease relates to $21,338 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 for the year ended December 31, 2013 increased to $2,892,198 as compared to $2,833,430 for the year ended December 31, 2012, an increase of $58,768 or 2%. The increased loss was a result of the increase in costs at a faster rate than the revenue growth of the company as discussed above. The slight 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 and expansion of the "Hang w/" App, as well as the fluctuations in the fair value of warrants, 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.

To date we have financed our operations through internally generated revenue from operations, the sale of equity securities, borrowings under a line of credit and shareholder loans.

At December 31, 2013 and 2012, we had cash of $887,322 and $112,745, respectively and as of December 31, 2013 we had working capital of $653,997 and a working capital deficit of $120,663 as of December 31, 2012. During 2013 our Hang With, Inc. ("Hang With") subsidiary raised an aggregate of $2,744,502 from the sale of shares of Hang With common stock to accredited 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 Company'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 year ended December 31, 2013 was $2,523,938 compared to net cash used in operating activities of $2,367,792 for the year ended December 31, 2012. The $156,146 increase in net cash used in operating activities was partially attributable to the $58,768 increase in net loss and primarily attributable to the 347,522 reduction in accounts payable and accrued expenses, offset by various other fluctuations. Net cash used in investing activities for the year ended December 31, 2013 was $5,649 as compared to $83,045 for the year ended December 31, 2012. The decrease in net cash used in investing activities was due to decreases in the amount of computer equipment purchased. Net cash provided by financing activities for the year ended December 31, 2013 was $3,304,164 as compared to net cash provided by financing activities of $1,448,275 for the year ended December 31, 2012. Net cash provided by financing activities reflects the $2,744,502 raised by our subsidiary, Hang With, Inc., in a private placement, $550,000 of net proceeds from a private placement described below that closed on December 31, 2013 and $9,662 received for the exercise of stock options. Net cash provided by financing activities for the period ended December 31, 2012 was the result of $1,485,000 of net proceeds from a private placement of our common stock that closed on March 28, 2012 and $3,275 received for the exercise of stock options.

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

On January 17, 2013, we entered into a three-year, $500,000 secured revolving credit agreement (the "Line") with an investment fund. 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. All borrowed funds from the Line are secured by all of our assets. Although we have, from time to time, borrowed funds under the Line, we had fully repaid all such borrowings as of December 31, 2013.

On December 31, 2013, we completed a sale to one (1) investor pursuant to a Securities Purchase Agreement of 2,000,000 shares of the Company's common stock at a price of $0.275 per share ("Financing"). On December 31, 2013, the Company and the investor also entered into an Amendment and Consent Agreement to amend certain terms of the March 28, 2012 Securities Purchase Agreement and Warrant agreements to, among other things, obtain consent for the Financing and eliminate certain restrictions placed on the Company. In connection with the Amendment and Consent Agreement, the investor agreed to a warrant reset price of $0.30, instead of a warrant reset price of $.0275 that would have been required due to the Financing. Also in connection with the Amendment and Consent Agreement and the Financing, the Company issued the investor 2,454,545 shares of the Company's common stock.

We do not have any material commitments for capital expenditures during the next twelve months. Although we believe our net revenues and proceeds from the above described Line of Credit are sufficient to fund our current operating expenses, we may seek 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 2 to our consolidated financial statements included in our Annual Report for the year ended December 31, 2013. 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 guidance and certain production-type contracts contained in ASC 605-35. We use the percentage of completion method provided all of the following conditions exist:

the contract includes provisions that clearly specify the enforceable rights regarding goods or services to be provided and received by the parties, the consideration to be exchanged and the manner and terms of settlement;

the customer can be expected to satisfy its obligations under the contract;

the Company can be expected to perform its contractual obligations; and

reliable estimates of progress towards completion can be made.

We measure completion based on achieving milestones detailed in the agreements with the customers. Costs of providing services, including services accounted for in accordance with ASC 605-35, are expensed as incurred.

The following is an example of how revenue is recognized involving an arrangement with a customer that includes significant production, modification, or customization of the software: a typical project will require between 50-100 working days from beginning to end. On average 25-50 cumulative working days are expended prior to the start of development and this work typically includes, design, storyboards, and architecture. Prior to developing the App, hard costs are incurred as a number of variables are taken into account for preparation.
Those often include the following:

understanding the client's business situation and environment, including their competitive landscape;

researching and establishing the goals of the App;

understanding and researching the target and potential App use cases;

developing a monetization strategy;

determining functionality and articulating the functionality through a storyboard and functional specification document; and

determining the resources and timeline needed to complete the final work product.

Fifty percent (50%) of the work is completed upon completion of these five phases and at that point in time the customer typically signs our contract and makes a nonrefundable 50% payment. We record the 50% nonrefundable payment as revenue at that point in time. When the Beta version of the App is complete, or at such other time as may be specifically agreed to in the contract, the customer is invoiced for an additional 25% of the total contract price and such payment is booked as revenue. When the App is completed and ready for app store release, the customer is invoiced for the final 25% of total contract price and such payment is booked as revenue.

We also generate revenue from in-App advertising and the sale of Apps through the Apple store and other App marketplaces. Revenue from advertising is recognized in the period that the ad impressions are delivered, on an accrual basis. Revenue from the sale of Apps is recognized in the period the App is sold to the end user, on an accrual basis.

Marketable Securities

Marketable securities are investments in publicly traded equity securities and are generally restricted for sale under Federal securities laws. Since these securities are often restricted, the Company is unable to liquidate them until the restriction is removed. Pursuant to ASC Topic 320, "Investments -Debt and Equity Securities" the Company's marketable securities have a readily determinable and active quoted price, such as from NASDAQ, NYSE Euronext, the Over the Counter Bulletin Board, and the OTC Markets Group.

Marketable securities are carried at fair value, with changes in unrealized gains or losses are recognized as an element of comprehensive income based on changes in the fair value of the security. Once liquidated, realized gains or losses on the sale of marketable securities will be reflected in the net income
(loss) for the period in which the security was liquidated.

Intangible Assets

Intangible assets are stated at cost. Expenditures of costs incurred to renew or extend the term of a recognized intangible asset and materially extend the useful life are capitalized. When assets are sold or otherwise written off due to asset impairment, the cost and the related accumulated amortization are removed from the accounts and any realized gain or loss is recognized at that time. Useful lives of intangible assets are periodically evaluated for reasonableness and the assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may no longer be recoverable.

Amortization is computed primarily on the straight-line method for financial statement purposes over the estimated useful life. Estimated useful lives will vary based on the nature of the intangible asset.

Fair Value of Financial Instruments

The Company adopted ASC 820, Fair Value Measurements and Disclosures, for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing US GAAP that requires the use of fair value measurements that establishes a framework for measuring fair value and expands disclosure about such fair value measurements.

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data
Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity's own assumptions.

The carrying amounts reported in the balance sheet for cash, accounts payable, and accrued liabilities approximate their estimated fair market value based on the short-term maturity of this instrument.

In addition, FASB ASC 825-10-25, Fair Value Option was effective for January 1, 2008. ASC 825-10-25 expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value.

Goodwill and Other Intangible Assets

In accordance with ASC 350-30-65 (formerly SFAS 142, Goodwill and Other Intangible Assets), the Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Intangible assets were comprised of website assets. Factors the Company considers to be important which could trigger an impairment review include the following:

1. Significant underperformance relative to expected historical or projected future operating results;

2. Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and

3. Significant negative industry or economic trends.

When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows. The Company did not consider it necessary to record any impairment charges during the period ended December 31, 2013.

Stock-Based Compensation

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third parties, compensation expense is determined at the "measurement date." The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the reporting date.

Off Balance Sheet Arrangements

We do not engage in any activities involving variable interest entities or off-balance sheet arrangements.

Recent Accounting Pronouncements

We do not believe that the adoption of any recently issued accounting standards will have a material effect on our financial position and results of operations.

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