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PROTEXT MOBILITY, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.
(Edgar Glimpses Via Acquire Media NewsEdge) The following is a discussion of our results of operations and current financial
position. This discussion should be read in conjunction with our unaudited
consolidated financial statements and related notes included elsewhere in this
report, as well as our audited consolidated financial statements and related
notes included in our Annual Report on Form 10-K/A for the year ended December
31, 2011.
As used in this quarterly report on Form 10-Q, references to the "Company,"
"we," "us," "our" or similar terms include ProText Mobility, Inc. and its
consolidated subsidiaries.
Forward Looking Statements
Except for the historical information contained herein, the matters discussed
below or elsewhere in this quarterly report may contain forward-looking
statements that involve risks and uncertainties that could cause actual results
to differ materially from those contemplated by the forward-looking statements.
Forward-looking statements reflect the Company's views and assumptions based on
information currently available to management. Such views and assumptions are
based on, among other things, the Company's operating and financial performance
over recent years and its expectations about its business for the current and
future fiscal years. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. Such statements are
subject to certain risks, uncertainties and assumptions, including, but not
limited to, (a) the Company's ability to secure necessary capital in order to
continue to operate (b)
the Company's ability to complete and sell its products and services, (c) the
Company's ability to achieve levels of sales sufficient to cover operating
expenses, (d) prevailing economic conditions which may significantly
deteriorate, thereby reducing the demand for the Company's products and
services, (e) regulatory or legal changes affecting the Company's business and
(f) the effectiveness of the Company's relationships in the parental control and
monitoring software and services, and imaging products business.
General
Protext Mobility develops innovative products and solutions for the mobile
communications market. As disclosed in public filings, the Company has evolved
from a software developer for personal computers ("PC") to products designed for
the mobile industry. We have built a unique, feature rich, flexible and robust
mobile messaging platform. The current solutions were developed out of the
need for, and desire of, consumers to gain necessary insight and visibility into
their children's use of today's mobile technology. The mobile solutions we have
developed on our platform for the direct-to-consumer market helps to provide
parents peace of mind as it relates to the 3 most serious dangers a child may
encounter as they use mobile devices...Bullying, Sexting and Distracted Driving.
We have bundled certain features developed on our platform and have released
them under the SafeText and DriveAlert brands. Both offerings are available to
consumers at the www.FamilyMobileSafety.com_website.SafeText is a premium
service for mobile devices that provides parents a solution to help manage their
children's mobile communication activities. SafeText is an easy to use and
effective mobile solution, providing notification when potentially "dangerous"
situations are happening through a text messaging interaction. The comprehensive
offering enables and empowers parents with an easy to use, robust set of tools
and features designed to help protect and manage their children's text messaging
activities. SafeText maintains a proprietary database including an extensive
library of words, phrases, and slang that allow for a complete auto-analysis of
text conversations. Furthermore, SafeText provides detailed information on voice
calls, mobile web browsing, and geo-location. Core features of SafeText are
proprietary, patent-pending technology, and we consider to be competitively
advantageous. The SafeText solution is designed to operate on multiple mobile
platforms. The current configuration is fully compatible with the ANDRIOD and
Blackberry operating systems;
other mobile offerings are currently in development.DriveAlert is a virtual
"lock-box" designed to help mitigate the risks of driving while distracted. The
smartphone solution launches automatically when the vehicle is in motion, sends
customized auto-replies to incoming texts and emails, automatically sends
in-coming calls to voicemail, and in an emergency, the driver can easily
override DriveAlert to make out-going calls. DriveAlert not only blocks texting,
but also all other applications the driver may be distracted by, such as
Twitter, Facebook, Instant Messaging, Email and Browsing while the phone is in
motion. DriveAlert is available for ANDROID and BlackBerry smartphones.
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The accompanying unaudited consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. These circumstances
raise substantial doubt about the Company's ability to continue as a going
concern. The consolidated unaudited financial statements do not include any
adjustments that might result from the outcome of this uncertainty. Management's
efforts have been directed towards the development and implementation of a plan
to generate sufficient revenues to cover all of its present and future costs and
expenses. The plan includes, among other things, continuing to market our
SafeText and DriveAlert products and leveraging the Company's core competencies.
Our marketing strategy for SafeText and DriveAlert device-base solution is
primarily direct-to-consumer. The Company has established relationships with
mobile resellers and is in discussions with numerous mobile resellers for
additional distribution opportunities.
If the Company does not generate sufficient revenues from the sales of its
products in an amount necessary to meet its cash needs, the Company will need
additional financing to continue to operate. As the Company increases sales from
its products and services, the Company expects to increase cash flows from
operations.
Results of Operations
Comparison of the Results for the Nine Months Ended September 30, 2012 and 2011
Revenue for the nine months ended September 30, 2012 and 2011 was approximately
$9,500 and $19,000, respectively, a decrease of approximately $9,500. Gross loss
increased to approximately $72,000 from $51,000 due to the amortization of
capitalized software costs in the period ended September 30, 2011 of $81,000
compared to $70,000 in the same period in the current year.
Selling costs decreased to approximately $15,000 from approximately $17,000 for
the nine months ended September 30, 2012 and 2011, respectively.
Website costs increased by approximately $16,000 for the nine months ended
September 30, 2012 compared to the same prior period.
General and administrative expenses decreased to approximately $906,000 from
approximately $1,775,000 for the nine months ended September 30, 2012 and 2011,
respectively. The decrease of approximately $869,000 consists of the following
changes:
· Compensation costs (which includes stock compensation, salaries, taxes
and benefits) decreased approximately $1,014,000 for the current period
ended September 30, 2012 compared to the prior comparable period due to
a decrease in stock based compensation, salaries, employee benefits and
related taxes.
· Professional fees (which include accounting/auditing, consulting and
legal fees) increased approximately $246,000 for the nine months ended
September 30, 2012 compared to the same period in 2011. This is
primarily a result of the increase in consulting expense of
approximately $333,500 and a decrease of approximately $87,000 in legal
and other professional services.
· Decrease in marketing expense of approximately $15,000, software
development expense of approximately $18,000 and a decrease in
insurance expense of approximately $40,000 compared to the same period
in 2011.
Interest expense for the nine months ended September 30, 2012 and 2011 was
approximately $194,000 and $80,000 respectively, an increase of approximately
$114,000. The increase in interest expense is due to the fact that the
outstanding balance of convertible notes was higher as of September 30, 2012
compared to the prior period.
Gain on extinguishments of liabilities totaled approximately $0 and $22,000 for
the nine months ended September 30, 2012 and 2011, respectively and was due to
settlements of outstanding liabilities and a due to shareholder balance.
Amortization expense from deferred note discounts for the nine months ended
September 30, 2012 and 2011 was approximately $295,000 and $566,000,
respectively. Although the principal amount of notes payable is lower in the
prior period, the Company recorded the amortization when the debtors extended
the notes in the first quarter of the fiscal year ended December 31, 2011.
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Comparison of the Results for the Three Months Ended September 30, 2012 and 2011
Revenue for the three months ended September 30, 2012 and 2011 was approximately
$2,600 and $6,300, respectively, a decrease of approximately $3,700. Gross loss
increased to approximately $25,000 from $19,000 due to the increased
amortization of software costs as well as the decrease in sales for period ended
September 30, 2012.
Selling costs decreased to approximately $3,700 from approximately $1,500 for
the three months ended September 30, 2012 and 2011, respectively.
Website costs increased by approximately $1,200 for the three months ended
September 30, 2012 compared to the same prior period.
General and administrative expenses decreased to approximately $316,000 from
approximately $533,000 for the three months ended September 30, 2012 and 2011,
respectively. The decrease of approximately $217,000 consists of the following
changes:
· Compensation costs (which includes stock compensation, salaries, taxes
and benefits) decreased approximately $,000 for the current period
ended September 30, 2012 compared to the prior comparable period due to
a decrease in salaries, employee benefits and related taxes.
· Professional fees (which include accounting/auditing, consulting and
legal fees) increased approximately $XX,000 for the three months ended
September 30, 2012 compared to the same period in 2011. This is
primarily a result of the increase in consulting expense of
approximately $XX00 and a decrease of approximately $XX,000 in legal
and other professional services.
· Decrease in rent expense of approximately $6,000, and a decrease in
insurance expense of approximately $5,000 compared to the same period
in 2011.
Interest expense for the three months ended September 30, 2012 and 2011 was
approximately $63,000 and $30,000 respectively, an increase of approximately
$33,000. The increase in interest expense is due to the fact that the
outstanding balance of convertible notes was higher as of September 30, 2012
compared to the prior period.
Gain on extinguishments of liabilities totaled approximately $0 and $2,000 for
the three months ended September 30, 2012 and 2011, respectively and was due to
settlements of outstanding liabilities and a due to shareholder balance.
Amortization expense from deferred note discounts for the three months ended
September 30, 2012 and 2011 was approximately $295,000 and $566,000,
respectively. The increase in amortization expense from deferred note discounts
is due to the full amortization of the deferred notes in the three months ended
September 30, 2011.
Liquidity and Capital Resources
The Company's liquidity and capital needs relate primarily to working capital
and other general corporate requirements. To date, the Company has funded its
operations with stockholder loans, by issuing notes and by the sale of common
and preferred stock. Since inception, the Company has not generated any
significant cash flows from operations. At September 30, 2012, the Company had
cash and cash equivalents of approximately $1,000 and a working capital
deficiency of approximately $3,070,000. If the Company does not generate
sufficient revenues from the sales of its products in an amount necessary to
meet its cash needs, the Company would need additional financing to continue to
operate. As the Company increases sales from its products and services, the
Company expects to increase cash flows from operations.
Net cash used in operating activities for the nine months ended September 30,
2012 and 2011 was approximately $596,000 and $592,000, respectively. The
current period net cash used in operating activities relates to the net loss of
approximately $1,594,000 offset by adjustments totaling approximately $998,000,
which primarily relates to approximately $230,000 of non cash stock compensation
expense, and $383,000 of amortization. The prior comparative period's net cash
used in operating was due to a net loss of approximately $2,610,000 offset by
non cash stock compensation of approximately $680,000 and approximately $656,000
of depreciation and amortization.
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Net cash used in investing activities for the nine months ended September 30,
2012 and 2011 was approximately $0 and $141,000 and is attributable to the
additions of capitalizable software and website development costs in 2011.
Net cash provided by financing activities was approximately $594,000 and
$712,000 for the nine months ended September 30, 2012 and 2011, respectively.
The decrease of approximately $118,000 was the result of lower proceeds from the
sale of common stock, and an increase in payments of bridge notes payable as
compared to the prior period.
While the Company has raised capital from equity and debt transactions as
mentioned above, we are dependent on improved operating results and raising
additional funds over the next twelve month period. There are no assurances that
we will be able to secure additional funding. In the event that we are unable to
generate sufficient cash flow or receive proceeds from offerings of debt or
equity securities, the Company may be forced to curtail or cease its activities.
Research and Development
Research and development costs are generally expensed as incurred. In accordance
with the provisions of FASB Codification Topic ACS 985-20, "Costs of Software to
be Sold, Leased, or Marketed," software development costs are subject to
capitalization beginning when a product's technological feasibility has been
established and ending when a product is available for release to customers. For
the nine months ended September 30, 2012, and 2011 the Company capitalized
approximately $0 and $141,000 of software and website development costs,
respectively. The software and website costs are amortized on a straight line
basis over the estimated useful life of three years. Amortization expense for
the nine months ended September 30, 2012 and 2011 was approximately $89,000 and
$76,000 respectively.
In accordance with FASB Codification Topic ASC 360-10-15, Impairment or Disposal
of Long-Lived Assets, we review long-lived assets for impairment whenever
circumstances and situations change such that there is an indication that the
carrying amounts may not be recovered. In such circumstances, we will estimate
the future cash flows expected to result from the use of the asset and its
eventual disposition. Future cash flows are the future cash inflows expected to
be generated by an asset less the future outflows expected to be necessary to
obtain those inflows. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, we will recognize an impairment loss to adjust to the fair value of
the asset. There was no impairment for the period ended September 30, 2012. For
the period ended September 30, 2011, the Company recorded a write off of
approximately $39,000 for website development costs which is included in the
accompanying consolidated statement of operations.
The Company continually strives to enhance and improve the functionality of its
software products. As such all new programming must be tested, even if it is
only a small component of a larger existing element of the software, before
being released to the public. Testing is an ongoing process and generally occurs
in three areas. First, upgrades and enhancements are done on a continual basis
to prolong the lifecycle of the products and as new enhancements and upgrades
are completed, each item must be tested for performance and function. Testing is
also performed to assure that new components do not adversely affect existing
software. Finally, as with all software, testing must assure compatibility with
all third party software, new operating systems and new hardware platforms.
Critical Accounting Policies:
Refer to the Annual Report on Form 10-K/A for the year ended December 31, 2011
filed with SEC for a listing of all such accounting principles.
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