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MEDL > SEC Filings for MEDL > Form 10-Q on 14-May-2014All Recent SEC Filings

Show all filings for MEDL MOBILE HOLDINGS, INC.

Form 10-Q for MEDL MOBILE HOLDINGS, INC.


14-May-2014

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.

Organizational History

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, 2012, we formed Hang With, Inc. to focus on creating a live social mobile video platform. Hang With, Inc. has issued shares to third party investors to fund its operations and, as a result, it now operates as a standalone company with MEDL as its largest shareholder.

Current Business

We currently operate two related businesses. Through our MEDL Mobile, Inc. subsidiary, we have developed a proprietary system for developing mobile application software, or "Apps". To date, we have architected, designed and developed a library of several hundred apps and related technologies designed predominately for iPhone, iTouch, iPad and Android Devices. MEDL and MEDL Apps have been featured on CNBC, BBC, ABC, CBS, NBC, CNN, in the pages and web pages of USA Today, Esquire, Billboard, 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, Yahoo, Huff Post College, TNW and Gizmodo. Multiple MEDL Apps have reached #1 in their category on the Apple App Store. Through our Hang With, Inc. subsidiary, we operate our "Hang w/" live social mobile video platform that is available for download on iPhone and android phones via Apple App Store and the Google Apps Marketplace.

Our principal executive offices are located at 18475 Bandilier Circle, Fountain Valley, California 92708, and our current telephone number at that address is
(714) 617-1991. We maintain a website at: www.medlmobile.com. Our annual reports, quarterly reports, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and other information related to this company are available on our website as soon as we electronically file those documents with, or otherwise furnish them to, the Securities and Exchange Commission. Our Hang With, Inc. subsidiary also maintains a website at www.hangwith.com. Our Internet websites and the information contained therein, or connected thereto, are not and are not intended to be incorporated into this Annual Report on Form 10-K.

MEDL's business today is primarily organized in two areas of opportunity:

1. MEDL Custom Development

Mission: To develop the cutting edge standard for mobile applications across platform, operating system and classification - as work for hire on behalf of third parties.

2. Hang With, Inc.

Mission: To allow the world to Hang w/ each other via live-streaming video and simultaneous chat - and in so doing, to be the recognized leader in live-streaming social media.

In November 2012, we incorporated Hang With, Inc. and transferred the Hang w/ assets to that entity. Hang With, Inc. has issued shares to third party investors to fund its operations and, as a result, it now operates as a standalone company with MEDL as its largest shareholder.

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, Experian, Goodwill Industries, UCLA, BBK Worldwide, 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. 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 extensive 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.

Our custom development team is well versed in working closely with in-house IT departments and other third party technology providers in order to deliver complex back-end integrations that result in simple-to-use front end user experiences.

2. Hang With, Inc.

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.

In January of 2014, the Hang w/ App passed 1,000,000 downloads.

By streaming live video directly from the phone of a celebrity ("Celeb") to the phone of a fan, we believe Hang w/ allows a Celeb to create a real-time genuine relationship - and a built-in advertising model has the ability to generate revenue. More than just a celebrity platform, Hang w/ allows anyone with an iPhone, iPad or Android device to broadcast live to friends, family or even millions of viewers.

Broadcasts can be viewed live in the app, on Facebook, on the web, and via links shared on Twitter. Archived content can be viewed in the App, shared via social media, and distributed to content distribution partners. The App is free to use and is available on both iOS and Android.

Ad serving technology is fully embedded. Every broadcast can begin with a short video or image-based ad unit and can end with a clickable rich media ad unit.

An in-app "digital coin" system has been embedded and can be implemented to generate additional revenue through the purchase of digital goods.

Our goal is to generate revenues from our "Hang w/" live social mobile video platform through the sale of short video advertisements that will be played before and after each live broadcast. We have not yet initiated this revenues model and are currently permitting ad-free broadcasting over this platform.

Application features include:

Live streaming broadcast from one to many with variable bit rate broadcasting and simultaneous chat

Push Notification powered by Parse.

Integrated advertising platform capable of running video and rich media

Integrated "Coin" monetization platform

24 hour moderation platform with user protections

#hashtag content tagging and related channels

Broadcasts can be scheduled or spontaneous.

Viewers chat with the broadcaster and with each other

Broadcasters can choose to broadcast in 3, 6 or 9 minute units

60 minute broadcasts are available for verified celebrity accounts

Broadcasters can choose to make archived broadcasts public or private

Broadcasts stream live and on-demand to web and Facebook.

Hang w/ passed one million downloads in only nine months. We believe growth has been driven in part by celebrity social media activity, which has been shown to create spikes in downloads and activity.

The Hang w/ app provides multiple opportunities for users to share activity and content to social media - and allows users to invite their Facebook friends to download the application - all of which we believe drives awareness and growth.

Industry Background and Trends

Apps are designed to help a user perform specific tasks and are generally downloaded by users from an App store directly onto their smartphone or tablet. Apps have become increasingly popular which is evidenced by the following statistics published by the noted sources:

56% of American adults are now smartphone owners. Pew Internet & American Life Project, 2013

Apple has sold 500 million iPhones since its launch in 2007. - Forbes 2014

Up from 19.4% in 2013, mobile search will comprise an estimated 26.7% of the [Google's] total ad revenues this year. - eMarketer 2014

Mobile app use [grew] 115% in 2013 - Flurry 2014

92 of the top 100 best global brands ranked by Interbrand were present in the Apple App Store, while 75 of the brands were present on Google Play. - Distimo 2013

On a typical day in November 2013, Distimo estimates the global revenues for the top 200 grossing apps at over $18M in the Apple App Store and over $12M for Google Play. In November 2012, these estimates were at $15M for the Apple App Store and only at $3.5M for Google Play. - Distimo 2013

Consumer spend on music apps increased 77% in 2013. - App Annie 2014

Apps are a now vital marketing tool for Hollywood movies, and provide additional revenue. In 2012, seven of the top 10 grossing movies had associated tie-in apps. In 2013, all of the top 10 grossing movie titles had tie-in apps. - App Annie, 2014

Nearly all Generation Y consumers owned a mobile phone of some kind and 72% owned smartphones. - Forrester, 2013

1.2 billion people worldwide were using mobile apps at the end of 2012. This is forecast to grow at a 29.8 percent each year, to reach 4.4 billion users by the end of 2017. - Portio Research 2013

In Q1 2013, there were 13.4 billion app downloads, up 11 percent from Q4 2012, creating revenue of US$2.2 billion. - Canalys 2013

By 2017, 25 percent of enterprises will have an enterprise app store - Gartner 2013

Global mobile traffic now accounts for 15% of all Internet traffic. - Internet Trends 2013

85% of people prefer mobile apps to mobile websites - WebDAM 2014

40% of CNN's website traffic came from mobile in 2013 - CNN 2014

En route to the store, 70 percent of smartphone shoppers use a store locator to plan their shopping trip - Nielsen 2013

Mobile coupons are redeemed 10 times as often as traditional coupons. - eMarketer 2013

Results of Operations

Three Months Ended March 31, 2014 Compared to the Three Months Ended March 31, 2013 (unaudited)

The following table presents our results of operations for the three months ended March 31, 2014 compared to the three months ended March 31, 2013.

                                       Three Months ended March 31,
                                          2014               2013           $ Change        % Change
Revenues                            $      623,291       $   473,081      $  150,210               32 %
Cost of goods sold                         236,650           227,552           9,098                4 %
Gross profit                               386,641           245,529         141,112               57 %
Expenses:
Selling, general and
administrative                             987,072         1,030,792         (43,720 )             -4 %
Net loss before other income
(expense)                                 (600,431 )        (785,263 )      (184,832 )            -24 %
Other income (expense):
Change in fair value of warrants             3,765           (51,337 )        55,102             -107 %
Interest expense                            (2,022 )          (2,638 )          (616 )            100 %
  Total other income (expense)               1,743           (53,975 )        55,718             -103 %
Net loss before provision for
income taxes                              (598,688 )        (839,238 )      (240,550 )            -29 %
Provision for income taxes                      -                 -               -                 0 %
Net loss                                  (598,688 )        (839,238 )      (240,550 )            -29 %
Less: Net loss attributable to
non-controlling interest                   138,197            30,147         108,050              100 %
Net loss attributable to MEDL
Mobile Holdings, Inc.               $     (460,491 )     $  (809,091 )    $ (348,600 )            -43 %

Revenues

Revenues primarily consisted of fees we received for developing custom Apps for third parties. Revenues for the three months ended March 31, 2014 increased to $623,291 as compared to $473,081 for the three months ended March 31, 2013, an increase of $150,210 or 32%. The increase is primarily attributable to an increase in the development of customized mobile applications for third parties during the three months ended March 31, 2014 as compared to the three months ended March 31, 2013 due to the majority of our company focusing on launching Hang With during the period ended March 31, 2013 but in 2014 we have a team dedicated to the Hang With application and a separate team dedicated to the development of customized mobile applications for third parties. This allowed our custom App development division to achieve profitability in the quarter ended March 31, 2014.

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 March 31, 2014 increased to $236,650 as compared to $227,552 for the three months ended March 31, 2013, an increase of $9,098 or 4%. Cost of goods sold increased only 4% even though revenues increased 32% primarily due to the elimination of legacy applications that we created in previous years that were causing us to incur additional programming costs but were not generating additional revenues. In the period ended March 31, 2014, the MEDL programmers dedicated to development of customized mobile applications mainly worked on creating new applications for third parties.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended March 31, 2014 decreased to $987,072 as compared to 1,030,792 for the three months ended March 31, 2014, a decrease of $43,720 or 4%. The decrease is primarily attributable toa $223,325 decrease in payroll and contract labor costs and a $95,445 reduction in general expenses due to our focused effort to reduce costs and the elimination of legacy applications that required additional personnel in the period ended March 31, 2013. In addition, better management of legal and other professional fees resulted in a $36,861 decrease in legal, accounting and other professional fees. These reductions were offset by an increase of $311,822 in expenses for our Hang With, Inc. subsidiary.

Other Income/Expense

Other income for the three months ended March 31, 2014 was $1,743 is comprised of a $3,765 decrease in the recorded fair value of warrants issued in a private placement in March 2012 less $2,022 of interest expense on our $500,000 line of credit. Other expense of $53,975 for the three months ended March 31, 2013 is comprised of a $51,337 increase in the recorded fair value of warrants issued in a private placement in March 2012 plus $2,638 of interest expense on our $500,000 line of credit.

Net Loss

Net loss attributable to MEDL Mobile Holdings, Inc. for the three months ended March 31, 2014 decreased $348,600 or 43% as compared to the three months ended March 31, 2013. The decrease in net loss was primarily the result of the majority of our custom App development division achieving profitability in the quarter ended March 31, 2014, our focused effort to reduce costs and the elimination of legacy applications that required additional personnel but did not generate additional revenues. The majority of our company focused on launching Hang With during the period ended March 31, 2013 but in 2014 we have a team dedicated to the Hang With application and a separate team dedicated to the development of customized mobile applications for third parties

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.

As of March 31, 2014, we had cash of $147,800 and working capital of $134,478. As of the date of this Quarterly Report, our 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 three months ended March 31, 2014 was $745,874 compared to net cash used in operating activities of $500,698 for the three months ended March 31, 2013. The increase in net cash used in operating activities was primarily attributable to the fluctuations in accounts receivable, offset by various other fluctuations. Net cash used in investing activities for the three months ended March 31, 2014 was $0 as compared to $1,377 for the three months ended March 31, 2013. Net cash used in investing activities during the 2013 period resulted from the purchase of computer equipment. No such purchases were made during the 2014 period. Net cash provided by financing activities for the three months ended March 31, 2014 was $6,352 as compared to net cash provided by financing activities of $718,000 for the three months ended March 31, 2013. Net cash provided by financing activities during the 2014 period consists of proceeds received from the exercise of stock options. Net cash provided by financing activities for the 2013 period was the result of $193,000 of proceeds from a line of credit and $525,000 raised by Hang With.

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 March 31, 2014.

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 1 to our consolidated financial statements included in our Annual Report dated 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

Securities Available for Sale

Intangible Assets

Fair Value of Financial Instruments

Goodwill 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, . . .

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