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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, 2012. 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. 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 proprietary & feature rich, mobile messaging platform. The robust and flexible feature set can be customized and applied to various vertical markets. The solutions are scalable and can be tailored to meet the specific demands or needs of a large, end user base. . Our products are designed for mobile devices running on the Android & Blackberry OS providing parents and corporations, solutions to help manage their children's / employee's mobile communications activities. The mobile solutions we've developed on our platform utilize our patent pending SmartMessageAnalysis 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 and released them under SafeText and DriveAlert . The mobile solutions for the enterprise/corporate compliance are marketed under CompliantWireless, with consumer solutions marketed under FamilyMobileSafety. Comprehensive Feature Set & Platform: Consumer & Enterprise Markets Text Message & Picture Message Dashboard- Text/Pic Messaging Summary: At-a-glance view to text alerts by calendar; Text & email alerts to parent for quick attention. Text/Pic Messaging Detail View: Access to all message details; Flagging & highlighting of violation words & phrases with description; Category & descriptions for each violation. Web Browser Dashboard- Easily monitor browsing activities via the SafeText online dashboard; At-a-glance view to web browsing activity by calendar; Displayed by date/time the website addresses which have been visited. GPS Location Dashboard- Easily review GPS Location history from the device via the Dashboard; Locate lost device via the "Locate Now" button; Automatically collects positions at the time of phone use; One-click viewing of historical positions and speed. Voice Call Dashboard- Easily review Voice Calls from the device via the Dashboard: View voice call logs including incoming and outgoing calls; Logs include indication of call direction and duration. Application Install Dashboard- Easily review Installed and uninstalled Apps log from the device via the Dashboard; Display includes application name, details and status; Includes GPS Location & speed indicator. 16 Consumer Market: SafeText: 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, which we consider being competitively advantageous. The SafeText solution is designed to operate on multiple mobile platforms. The current configuration is fully compatible with the Android and Blackberry operating systems. The SafeText solution incorporates the use of GPS technology., which enables "find my phone & locate now-on demand" & distracted driving notification with mapping displayed & speed recorded. DriveAlert: A virtual "lock-box", designed to curb mobile device use while driving and to help mitigate the risks of driving while distracted. A downloadable application, 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 override DriveAlert to make out-going calls. DriveAlert not only blocks texting, but also all other applications the driver may be distracted by, while the phone is in motion. The current configuration is fully compatible with the Android and Blackberry operating systems. Enterprise Market: Compliant Wireless Compliant Wireless is a proprietary mobile platform designed for small to large companies to manage employee's use of mobile devices for business through providing insight into the content and activity generated within their mobile work environment. The current configuration is fully compatible with the Android and Blackberry operating systems. Distracted Driving prevention is uniquely incorporated within a turnkey mobile management and productivity tool where essentially all employee mobile activity are viewable & archived, with violations to company policies being flagged and reported. CompliantWireless offers company administrator's secure access to a customized web-based and mobile dashboard to review corporate communications and activities taking place on their employee's mobile devices via the SafeText and DriveAlert modules. With CompliantWireless, administrators are offered an effective and robust solution to deter, prevent and monitor for inappropriate mobile activities such as sexting, distracted driving, and bullying while importantly maintaining the integrity of data and content being sent via employer supplied devices. 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-based 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. 17 Results of Operations Comparison of the Results for the Three Months Ended March 31, 2013 and 2012 Revenue for the three months ended March 31, 2013 and 2012 was approximately $300 and $5,000, respectively, a decrease of approximately $4,700. Gross profit increased to approximately $300 from a gross loss of $22,000 due to the amortization of capitalized software costs in the period ended March 31, 2012 of $27,168 compared to $0 in the same period in the current year. Selling costs decreased to approximately $300 from approximately $9,000 for the three months ended March 31, 2013 and 2012, respectively. Website costs decreased by approximately $15,000 for the three months ended March 31, 2013 compared to the same prior period. General and administrative expenses decreased to approximately $168,000 from approximately $318,000 for the three months ended March 31, 2013 and 2012, respectively. The decrease of approximately $150,000 consists of the following changes: · Compensation costs (which include stock compensation, salaries, taxes and benefits) decreased approximately $7,000 for the current period ended March 31, 2013 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) decreased approximately $103,000 for the three months ended March 31, 2013 compared to the same period in 2012. This is primarily a result of the decrease in consulting expense of approximately $69,000, a decrease of approximately $34,000 in legal, accounting and other professional services. · Decrease in marketing expense of approximately $5,900, and a decrease in insurance expense of approximately $11,000 compared to the same period in 2012. Interest expense for the three months ended March 31, 2013 and 2012 was approximately $39,000 and $93,000 respectively, a decrease of approximately $53,000. The decrease in interest expense is due to the fact that an adjustment was made in the prior period to record $32,000 in interest not previously recorded as well as a lower balance in interest bearing notes in the current period. Loss on change in derivative expense totaled approximately $40,000 and $0 for the three months ended March 31, 2013 and 2012, respectively and was due to derivative liability recorded related to three convertible notes. Amortization expense from deferred note discounts for the three months ended March 31, 2013 and 2012 was approximately $48,000 and $70,000, respectively. The decrease in amortization was due to the full amortization of existing notes 18 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 March 31, 2013, the Company had cash and cash equivalents of approximately $1,600 and a working capital deficiency of approximately $3,600,000. 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 three months ended March 31, 2013 and 2012 was approximately $36,000 and $275,000, respectively. The current period net cash used in operating activities relates to the net loss of approximately $338,000 offset by adjustments totaling approximately $302,000, which primarily relates to approximately $67,000 of non cash stock compensation expense, $48,000 of amortization of debt discount, debt modification expense of approximately $16,000, loss on change in derivative liability of $40,000 and an increase of accounts payable and accrued expenses of approximately $132,000. The prior comparative period's net cash used in operating was due to a net loss of approximately $555,000 offset by non cash stock compensation expense of approximately $85,000, approximately $99,000 of amortization of debt discount and software and website costs and an increase of accounts payable and accrued expenses of approximately $89,000. Net cash provided by financing activities was approximately $37,000 and $314,000 for the three months ended March 31, 2013 and 2012, respectively. The decrease of approximately $277,000 was the result of lower proceeds from the sale of common stock and issuance 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 three months ended March 31, 2013 and 2012 the Company capitalized $0 software and website development costs. 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 March 31, 2013 and 2012. Since 2012, the Company fully impaired software capitalization and website development expense. 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. 19 Critical Accounting Policies: Refer to the Annual Report on Form 10-K/A for the year ended December 31, 2012 filed with SEC for a listing of all such accounting principles. |