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MOBIFORM SOFTWARE INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion of our results of operations should be read together
with our financial statements and the related notes, included elsewhere in this
report. The following discussion contains forward-looking statements that
reflect our current plans, estimates and beliefs and involve risks and
uncertainties. Our actual results may differ materially from those discussed in
the forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below and elsewhere in this quarterly report
on Form 10-Q.
Executive Summary
Since 2003, our experience in Microsoft .NET graphics technology has given us a
unique perspective and insight into new data visualization possibilities with
emerging technologies.
We specialize in the compelling visualization of real-time data. Mobiform has
produced exceptional data visualization solutions for manufacturing, power and
utilities, automation, and other fields of business making use of HMI (Human
Machine Interface) and SCADA (Supervisory Control and Data Acquisition) software
products.
Our in-house expertise and experience has provided us the opportunity to partner
with companies from various vertical markets, and assist them in developing
custom solutions that meet their specific needs. Our goal is to help our clients
transfer their real-time production and operational data into actionable
information through graphically-compelling, functional, and intuitive user
interfaces.
Products and Services
Our technology team has more than 20 years of experience in software design and
development and has designed, built and delivered, over the years, world-class
software solutions. In addition to software development, we also derive income
from consulting services and contract development.
Overall Strategic Goals
Our intent since inception has been to use this model as a foundation for
growing our business. Our plans include developing a 'Technology Toolbox' of
software development components and design technology that can be used
repeatedly as we deliver a variety of software products for consumers and
industry in a wide range of verticals. If you can take a piece of technology,
hardware, or any manufactured item, and reuse it over and over in different
products you can achieve a very high return on investment for your research and
development efforts.
This toolbox is a set of software components that can be reused in various
software products. The types of software developed in our toolbox include
software components for visualizing information, LED displays, gauges, charting
and mapping controls. We call these our 'VantagePoint Controls™'. Mobiform has
created additional technology for graphics design for its Technology Toolbox.
'Aurora' is a Graphics Design Platform that can be used to provide design
capabilities inside of software applications built for Microsoft Windows.
Product Description
With the Technology Toolbox in place, we can quickly assemble data visualization
software products for monitoring real time data. Our target market is monitoring
and control for heavy industry since this is an area in which our team already
has expertise.
We have assembled our first vertical market application. 'Status Vision
Designer®' ("Status Designer") was released in January 2009 as an industrial
control and monitoring application for heavy industry and manufacturing.
Status Designer falls into the category of a SCADA (Supervisory Control and Data
Acquisition) or HMI (Human Machine Interface) software application.
Status Vision Designer® is a powerful data visualization software package that
allows the user to create highly graphical screens and connect the controls on
the screens to real-time data. The screens can then be published and viewed by
anyone within the company or from the web.
13
--------------------------------------------------------------------------------Status Designer is built using Aurora, a powerful graphics design package
developed by Mobiform. Aurora is used as the foundation for numerous software
products of major Fortune 500 companies.
Status Designer has built-in connectivity to real-time OPC (Open Process
Control) data and can very easily be extended to bind to other types of data.
OPC data is primarily used in the manufacturing and process control industries.
The market appeal for Status Designer is its ability to connect to a variety of
OPC servers and display real-time data from hundreds of data sources.
We have attracted a number of resellers and system integrators that are now
promoting and using 'Status Designer' in commercial settings. During the year
ended October 31, 2011 we have materially increased our international reseller
network. We believe that this will result in greater sales and distribution of
our software through retail outlets and to original equipment manufacturers
("OEM"s). We are also targeting potential customers to offer customized
applications to meet their industry requirements. Status Designer is now being
used to monitor the 4th largest subway system in the world in Seoul, South
Korea. It is monitoring HVAC performance in pharmaceutical manufacturing
facilities in China, and is used in various monitoring applications in numerous
verticals in the United States.
Consulting
In addition to sales of pre-designed software products, we generate revenue by
consulting with organizations which utilize our expertise in customized
solutions and embedding our software into theirs. We also offer training and
graphic design services. Mobiform's graphic designers provide screen design
expertise. We have also been tasked to create customized .NET and Silverlight
controls for use in the Status Designer, and produce 3D models of equipment and
machinery for use in mimics.
We assist consulting clients with their applications. From initial consulting
services and custom development, to embedding our Aurora software into their
solution, we have the expertise and personnel to assist.
Status Designer was designed from the ground up to be extensible. Numerous
companies have written custom data sources or asked Mobiform to create custom
data sources to provide their real time data into Status Designer.
Technology Licensing
In addition to selling our own software products, we also license the technology
we have developed to other software companies. Long-term licenses to
multinational automation software companies are a major part of our business.
The lead time for our engineers to work with theirs in developing successful
integration of our software with their future products is fairly long-from nine
months to two years - but the result is a multiyear high revenue license which
provides substantial revenue to us for years to come. We have a number of
agreements in place and are currently in discussions with additional companies
in the oil and gas, oil service, electric power generation and mining
industries.
The products developed using Mobiform technology include industrial automation
solutions, medical applications for use in hospitals, smart grid, HVAC and line
of business applications. The relationships established through licensing are
very strategic and may lead to acquisitions to prevent competitive companies
from having the same strategic benefits.
Development Services and Support
Mobiform has been recognized as a leading edge software development firm. We are
often asked to provide software development services, graphics design and
consulting as part of the technology licensing agreements we sign with our
customers.
Our go-to-market strategy is simple: For Stage 1, following in the footsteps of
Corel, Adobe and Macromedia, our goal is to put in place a set of core
technologies that we can leverage to create a variety of software applications
for different vertical markets. We have made some of these components available
to other software companies as either retail software development components or
as toolkits that can be used to embed our technology into their solutions. We
have offered free downloads of our components and toolkits to prospective
customers. With thousands of downloads of our products globally, we believe we
are well on our way to achieving brand-name recognition. We will continue in our
efforts to generate incremental revenue by working with global industry leaders
in selling consulting services and licensing our technology.
14
--------------------------------------------------------------------------------Now that we are equipped with the technology infrastructure developed during
Stage 1, we find that developing highly interactive and powerful software is
simplified. In Stage 2 we are moving our business focus from technology
development to product development. We are in discussions with major companies
engaged in offshore drilling platforms, mining, electric power generation and
heavy industry automation, among others. With a powerful set of software
components in our tool belt, we believe we are able to build software products
more rapidly and at a lower total cost of ownership to the consumer. Products
are created through two different scenarios, (i) in-house creation of our own
consumer products; and (ii) integration into third party products. Both
scenarios should result in additional income producing licenses to or sales of,
our technologies and products.
The third part of our strategy is a feedback loop. By providing a limited amount
of consulting services, Mobiform is able to identify potential software products
and components that are needed by industry, and produce those products for
market. These components will feed our technology base and the relationships
developed from the consulting will provide potential sales channels and
additional licensing and OEM agreements to us.
Revenue Strategy
We are currently generating revenues through the licensing of our technology to
different software companies, retailing portions of our technology as software
development components, and in the near future, retailing our software solutions
to specific vertical markets. We anticipate, in the future, a smaller portion of
our revenue will come from consulting services and custom development.
We are currently selling our products directly over the Internet from our
website and through resellers. In the future, we intend to distribute Aurora
through retail outlets and OEMs. We will also target potential customers to
offer customized applications to meet their industry requirements.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with U.S. Generally Accepted
Accounting Principles (GAAP). The preparation of the financial statements
requires us to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues, expenses, and related disclosures. Though we
evaluate our estimates and assumptions on an ongoing basis, our actual results
may differ from these estimates.
Certain of our accounting policies that we believe are the most important to the
portrayal of our financial condition and results of operations and that require
management's subjective judgments are described below to facilitate a better
understanding of our business activities. We base our judgments on our
experience and assumptions that we believe are reasonable and applicable under
the circumstances.
Revenue Recognition - Our revenues are recognized in accordance with FASB ASC
Topic 985-605 "Revenue Recognition" for the software industry. Revenue from the
sale of software licenses is recognized when standardized software modules are
delivered to and accepted by the customer, the license term has begun, the fee
is fixed or determinable and collectability is probable. Revenue from software
maintenance contracts and Application Service Provider ("ASP") services are
recognized ratably over the lives of the contracts. Revenue from professional
services is recognized when the service is provided.
We enter into revenue arrangements in which a customer may purchase a
combination of software, maintenance and support, and professional services
(multiple-element arrangements). When vendor-specific objective evidence
("VSOE") of fair value exists for all elements, we allocate revenue to each
element based on the relative fair value of each of the elements. VSOE of fair
value is established by the price charged when that element is sold separately.
For maintenance and support, VSOE of fair value is established by renewal
rates, when they are sold separately. For arrangements where VSOE of fair value
exists only for the undelivered elements, we defer the full fair value of the
undelivered elements and recognize the difference between the total arrangement
fee and the amount deferred for the undelivered items as revenue, assuming all
other criteria for revenue recognition have been met.
Results of Operations
The following tables set forth, for the periods indicated, certain items from
the statements of operations along with a comparative analysis of ratios of
costs and expenses to revenues.
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--------------------------------------------------------------------------------Comparison of the Three Months Ended July 31, 2012 and 2011
For the three months ended July 31,
2012 2011
(Unaudited) (Unaudited)
% of % of
Amounts Revenues Amounts Revenues
Revenues $ 179,893 100% $ 104,897 100%
Operating expenses:
Compensation costs $ 153,892 86% $ 142,413 136%
Consulting fees $ 1,114 1% $ 12,967 12%
Advertising $ 8,298 5% $ 509 0%
Professional fees $ 13,750 8% $ 15,975 15%
Interest and debt costs $ 4,318 2% $ 3,679 4%
Net loss $ (30,910) (17)% $ (89,587) (85)%
Net loss per share - basic and
diluted $ -- $ --
Revenues
Our revenues for the three months ended July 31, 2012 amounted to $179,893
compared to the comparative 2011 period of $104,897. Revenues for the period
increased by approximately $75,000 (72%) resulting from increases in licensing
and support fees and consulting and developmental services revenues. Service
revenues include revenues from fees charged for the implementation of our
software products and training of customers in the use of such products. We are
currently selling our software over the internet and are marketing our products
and services to companies which may want to license or joint venture some of our
software applications.
Operating Expenses
Our operating expenses consist primarily of compensation costs, advertising and
professional services.
Compensation costs consist of payroll and related expenses. Payroll expenses
amounted to $153,892 in the three months ended July 31, 2012 compared to
$142,413 in the three months ended July 31, 2011. Payroll expenses increased
$11,479 (8%), but are 86% of revenues for the period compared to 136% of
revenues in the three month period of the prior year as we continue to maintain
costs to implement our strategic plan.
Advertising costs have increased from $509 in the three months ended July 31,
2011 to $8,298 in the three months ended July 31, 2012, an increase of $7,789
primarily from increases in online advertising. We believe it is necessary that
we market our products in order to accomplish our plan for revenue growth,
although we continue to control costs while we try to secure funding for future
growth.
Professional fees have decreased to $13,750 in the three months ended July 31,
2012 from $15,975 from the three months ended July 31, 2011, a decrease of
$2,225 (14%). We reduced professional fees by internally performing certain
functions which had previously been done by our professionals.
Consulting fees decreased from $12,967 in the three months ended July 31, 2011
to $1,114 in the three month period ended July 31, 2012 as certain consulting
agreements entered into in fiscal 2011 were not renewed.
Interest and Debt Costs
Interest expense increased from $3,679 in the three months ended July 31, 2011
to $4,318 in the three months ended July 31, 2012. Interest expense is incurred
on the promissory notes totaling $164,000 with our CEO and $50,000 on
outstanding convertible debentures.
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--------------------------------------------------------------------------------
Income Taxes
The potential future tax benefits resulting from pre-tax losses have been fully
reserved as we are not able to determine if it is more likely than not that we
will be able to realize the tax benefits in the future.
Net Loss
Net loss in the three months ended July 31, 2012 totaled $30,910 compared to
$89,587 in the three months ended July 31, 2011, a decrease in net loss of
$58,677 (66%). The decrease in net loss was due to factors as described above.
Comparison of the Nine Months Ended July 31, 2012 and 2011
For the nine months ended July 31,
2012 2011
(Unaudited) (Unaudited)
% of % of
Amounts Revenues Amounts Revenues
Revenues $ 659,022 100% $ 616,818 100%
Operating expenses:
Compensation costs $ 484,525 74% $ 475,608 77%
Consulting fees $ 2,834 0% $ 38,604 6%
Advertising $ 16,917 3% $ 30,170 5%
Professional fees $ 40,648 6% $ 65,637 11%
Interest and debt costs $ 13,880 2% $ 9,728 2%
Net income (loss) $ 16,034 2% $ (86,180) (14)%
Net income (loss) per share - basic
and diluted $ -- $ --
Revenues
Our revenues for the nine months ended July 31, 2012 amounted to $659,022
compared to the comparative 2011 period of $616,818. Revenues for the period
increased by approximately $42,000 (7%) resulting from increases in consulting
and developmental services revenue. Service revenues include revenues from fees
charged for the implementation of our software products and training of
customers in the use of such products. We are currently selling our software
over the internet and are marketing our products and services to companies which
may want to license or joint venture some of our software applications.
Operating Expenses
Our operating expenses consist primarily of compensation costs, advertising and
professional services.
Compensation costs consist of payroll and related expenses. Payroll expenses
amounted to $484,525 in the nine months ended July 31, 2012 compared to $475,608
in the nine months ended July 31, 2011. Payroll expenses increased $8,917 (2%)
as we continued to implement our strategic plan while we tried to maintain our
payroll costs.
Advertising costs have decreased from $30,170 in the nine months ended July 31,
2011 to $16,917 in the nine months ended July 31, 2012, a decrease of $13,253
(44%) primarily from decreases in trade show expense net of increases in online
advertising. Although we believe it is necessary that we market our products in
order to accomplish our plan for revenue growth, we continue to control costs
while we try to secure funding for future growth.
Professional fees have decreased from $65,637 in the nine months ended July 31,
2011 to $40,648 in the nine months ended July 31, 2012, a decrease of $24,989
(38%). We reduced professional fees by internally performing certain functions
which had previously been done by our professionals.
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--------------------------------------------------------------------------------Consulting fees decreased from $37,145 in the nine months ended July 31, 2011 to
$2,834 in the nine months ended July 31, 2012 and share based consulting fees
decreased from $1,459 in the nine months ended July 31, 2011 to $0 in the nine
months ended July 31, 2012 as certain consulting agreements entered into in
fiscal 2011 were not renewed.
Interest and Debt Costs
Interest expense increased from $9,728 in the nine months ended July 31, 2011 to
$13,880 in the nine months ended July 31, 2012. Interest expense is incurred on
the promissory notes totaling $164,000 with our CEO and $50,000 on outstanding
convertible debentures.
Income Taxes
The potential future tax benefits resulting from pre-tax losses have been fully
reserved as we are not able to determine if it is more likely than not that we
will be able to realize the tax benefits in the future.
Net Income (Loss)
Net income in the nine months ended July 31, 2012 totaled $16,034 compared to a
net loss of $86,180 in the nine months ended July 31, 2011, an increase in net
income of $102,214. The increase in net income was due to factors described
above.
Liquidity and Capital Resources
We fund our operations through sales of our products and services and debt and
equity financings.
At July 31, 2012 we had cash and cash equivalents of $172,000 compared to
$14,000 at October 31, 2011. The increase of $158,000 is primarily attributable
to the cash received from payments on our licensing agreements.
Cash Flows
Net cash provided by (used for) operating activities amounted to $208,000 and
($141,000) in the nine months ended July 31, 2012 and 2011, respectively. Net
cash from operations increased as a result of the additional cash generated in
the second quarter of fiscal 2012 from our licensing agreements and services
revenues while we managed to maintain operating costs for compensation,
advertising and professional fees as discussed above.
In fiscal 2012, cash was used for investing activities for the acquisition of
property and equipment in the amount of $4,421.
In fiscal 2012, cash was used for financing activities for loan repayments to
our CEO in the amount of $45,827.
We believe that our cash on hand at July 31, 2012 will be sufficient to fund our
operations for at least the next 12 months. We have signed significant licensing
agreements and continue to market our products and services in accordance with
our strategic business plan. We are also looking to raise additional capital
through debt and/or equity financings. There is no assurance that the income
generated from these and future agreements will meet our working capital
requirements, or that we will be able to sign significant agreements in the
future. There is also no assurance that we will be able to obtain additional
capital in the amount or on terms acceptable to us.
Contractual Obligations
N/A
Off-Balance Sheet Arrangements
As of July 31, 2012, we had no off-balance sheet arrangements as defined in Item
303(a)(4) of Regulation S-K.
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