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EX-14.1 - B-Scada, Inc. | v172639_ex14-1.htm |
EX-31.1 - B-Scada, Inc. | v172639_ex31-1.htm |
EX-32.1 - B-Scada, Inc. | v172639_ex32-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
Mark
One
þ
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the fiscal year ended October 31, 2009
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from ____________ to ____________
Commission
File Number 000-51717
MOBIFORM
SOFTWARE, INC.
(Exact
name of registrant as specified in its charter)
DELAWARE
|
94-3399360
|
|
State or other jurisdiction of
incorporation or organization
|
(I.R.S. Employer
Identification No.)
|
1255
N. Vantage Pt. Dr., Suite A, Crystal River, Florida 34429
(Address
of principal executive offices) (Zip Code)
Registrant’s
telephone number, including area code (352) 564-9610
Securities
registered under Section 12(b) of the Exchange Act: None
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, $0.0001 Par Value
(Title
of class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. o
Yes x No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. o
Yes x No
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. x
Yes o No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).Yes o No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act:
o Large accelerated filer
|
|
o Accelerated filer
|
|
o Non-accelerated filer
|
|
x Smaller reporting company
|
(Do not check if
a small reporting company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). o Yes
x No
The
aggregate market value of the common stock held by non-affiliates of the
registrant, computed based upon prices at which it was last sold, as of the last
business day of the registrant’s second fiscal quarter, April 30, 2009, was
approximately $14,305,294.
According
to the records of the registrant's registrar and transfer agent, the number of
shares of the registrant's common stock outstanding as of January 19,
2010 was 24,410,656.
TABLE
OF CONTENTS
Page
No.
|
||
Part
I
|
||
Item
1.
|
Business
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4
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Item
1A.
|
Risk
Factors
|
7
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Item
2.
|
Properties
|
12
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Item
3.
|
Legal
Proceedings
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12
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Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
12
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Part
II
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||
Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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12
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Item
6.
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Selected
Financial Data
|
14
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
14
|
Item
7A.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
20
|
Item
8.
|
Financial
Statements and Supplementary Data.
|
23
|
Item
9.
|
Changes
In and Disagreements With Accountants on Accounting and Financial
Disclosure.
|
23
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Item
9A.(T)
|
Controls
and Procedures.
|
24
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Item
9B.
|
Other
Information.
|
25
|
Part
III
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||
Item
10.
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Directors,
Executive Officers and Corporate Governance.
|
25
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Item
11.
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Executive
Compensation.
|
26
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Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
28
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Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
29
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Item
14.
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Principal
Accountant Fees and Services
|
29
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Part
IV
|
||
Item
15.
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Exhibits,
Financial Statement Schedules
|
30
|
2
NOTE
REGARDING FORWARD-LOOKING STATEMENTS
This
report and the documents incorporated in it by reference contain forward-looking
statements that involve known and unknown risks and uncertainties. Examples of
forward-looking statements include: projections of capital expenditures,
competitive pressures, revenues, growth prospects, product development,
financial resources and other financial matters. You can identify these and
other forward-looking statements by the use of words such as “may,” “will,”
“should,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,”
“intends,” “potential” or the negative of such terms, or other comparable
terminology.
Our
ability to predict the results of our operations or the effects of various
events on our operating results is inherently uncertain. Therefore, we caution
you to consider carefully the matters described in this report, the documents
incorporated by reference in this report, and other publicly available sources.
These factors and many other factors beyond the control of our management could
cause our actual results, performance or achievements to be materially different
from any future results, performance or achievements that may be expressed or
implied by the forward-looking statements.
3
PART
I
Item
1.
|
Description
of Business
|
We are in
the business of developing graphics and visualization software products for
viewing of real time data from either the desktop or the Internet. Our products
are based on graphics technologies developed by Microsoft. Our products enable
software developers and designers to visually build documents (web and
applications user interfaces) and have them automatically connect to real time
data. We have created a powerful graphical designer that allows Internet and
software developers to quickly design 2D and, in time 3D
documents. This software application is named “Aurora” and serves as
the core of our intellectual property. Leveraging Aurora and other
software visualization components developed by our company, we are poised to
deliver software solutions to a number of vertical markets, with the first being
industrial monitoring and control and digital signage. During the
fiscal year ended October 31, 2009, we focused on presenting and demonstrating
the industrial applications of our Aurora software, resulting in our entry into
two significant multi-year licenses in November 2009.
History
We were
originally formed under the name Firefly Learning, Inc. on May 31, 2001. In
October, 2005, pursuant to an exchange agreement we acquired all of the issued
and outstanding shares of capital stock of Mobiform Software, Ltd., a Canadian
corporation, (“Mobiform Canada”) in exchange for shares of our Common
Stock. After the Acquisition, Mobiform Canada became a wholly-owned
subsidiary of Mobiform. Mobiform and Mobiform Canada are collectively
referred to herein as “Mobiform.”
Our
business is to develop graphics design and real-time data monitoring technology.
Our design technology enables end users and designers to visually build
documents (web and applications user interfaces) and have them automatically
connect to real time data, such as factory equipment, subway trains or chemical
plants.
Our
technology team is comprised of seasoned veterans of software design and
development who have extensive experience in designing, building and delivering
world-class software solutions. For the past four years we have focused our
efforts on Microsoft’s new document type, XAML (Extensible Application Markup
Language).
XAML has
all of the capabilities of HTML, Flash and PDF and should revolutionize
application and web experiences while allowing developers and designers to speak
the same programming language thereby giving them the ability to quickly create
unique end-user 3D experiences and converged software applications. This
technology was bundled in the launch of Microsoft’s “Windows Vista.” Our Aurora
authoring technology is our core intellectual property, and is an integral piece
that is required for delivering our solutions.
We
identified the trend towards document convergence in 2004, and aligned ourselves
closely with Microsoft and have steadily developed an expertise in their most
recent graphics technologies. We have licensed or provided training and/or
consulting services to such major companies as Microsoft Corporation, Intel
Corporation, Siemens AG, and InvestorForce, Inc.
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, including manufacturing,
petrochemicals, facilities management, energy, transportation, healthcare and
waste water.
4
Product
Description
We
develop and sell software designed for use by graphic designers, computer
programmers, and ordinary users of computers and the Internet. Our
primary line of products, the Aurora software line, is a set of programs that
allows users to generate “user interfaces” in the relatively new and highly
functional format known as “XAML” from Microsoft. User interfaces
include internet web sites and computer applications of all kinds, including
computer models of simple and complex systems (for example, a functioning power
plant, the flow of inventory of a large business, the genetic code of a species
or individual, or a simple lever) and computer video games. Given the
great and increasing pervasiveness of user interfaces in the world economy, the
demand for products that allow for the simple and flexible creation of user
interfaces is enormous.
Our
products can be utilized by many vertical markets. We have already entered
into agreements with companies to use our technology in the fields of Industrial
Automation, Medical Software, and Energy Monitoring.
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 WPF (Windows
Presentation Foundation) and XAML training and graphic design
services.
We have
been involved in WPF (Windows Presentation Foundation) and XAML since it was
first released in November 2003 at the Microsoft PDC Conference. We were
one of the earliest adopters of WPF, displaying its first public alpha product
related to this technology in January of 2004.
We assist
consulting clients with their WPF applications. From initial consulting
services and custom development, to embedding our Aurora software into their
solution, we have the expertise and personnel to assist.
Licenses
and Joint Ventures
We have
licensed our technology to other companies for use in their solutions, including
two significant licenses entered in November 2009 with Johnson Controls and
General Electric. Our software is being utilized by the Seoul, Korea Rapid
Transit authority in monitoring train traffic and separately by a major
pharmaceutical development foundation. We are also focusing on
additional companies that might want to license or joint venture some of our
software applications on an exclusive or nonexclusive basis. There is
no assurance that any additional licenses or joint ventures will result from
these discussions.
Although
we are a small early stage business, we have very high goals, which may or may
not ever be achieved.
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
Mobiform is well on its 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.
5
Once
equipped with the technology infrastructure developed during Stage 1, we believe
that developing highly interactive and powerful software will be
simplified. Our goal for Stage 2 is to move our business focus from
technology development to product development. During this stage, we
hope to be in an ideal position to develop software products for industry
verticals in sectors such as Industrial Automation, Digital Signage, Healthcare
and Geographic Information Systems. With a powerful set of software
components in our tool belt, we believe we will be able to build software
products more rapidly and at a lower total cost of ownership to the
consumer. Products will be 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 licensed sales
of our technologies and products.
The third
part of the strategy is a feedback loop. By providing a limited amount of
consulting services, Mobiform will be able to identify potential software
products and components that are needed by industry, and can 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 original equipment manufacturers’ (OEM)
agreements to the company.
Revenue
Strategy
We are
currently generating revenues through the licensing of our technology to various
software companies, retailing portions of our technology as software development
components, and in the near future, intend retailing our software solutions
to specific vertical markets. 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.
Market
Information
Our
initial focus was to put in place a solid technology base. We believe this goal
has now been achieved and we will begin to execute the second stage
of our business plan to produce world class products for specific vertical
markets from that technology base. We believe that our recent multi-year
licenses indicate that we are on the path toward success.
Our
immediate industry focus relates to the following verticals:
Industrial Automation and Control
Systems — Our team has some experience with Rockwell Automation
and as such we have chosen Industrial and Process control as the first vertical
we will target. We released the new product in this
vertical in January 2009. We have already licensed some of our technology to
companies in this vertical.
Digital Signage — Our graphics
design and real time data connectivity makes our products suitable for digital
signage solutions.
We
believe that our XAML software and other XAML software developed by us and
others will also find applications in other markets, such as advertising,
education, e-learning, engineering, exploration, financial, gaming, healthcare,
media, mobility, oil and pharmaceutical.
Raw
Materials and Suppliers
Since our
products are principally intellectual property, raw material sources and
availability are not significant to us. We will, however, be in
competition with all other technology firms in attracting and retaining software
engineering talent for Microsoft Windows developers, particularly those involved
in .NET development. These resources are in extremely high demand and
competition for these resources is significant.
6
Limited
Customer Base
We
currently have only a few customers and limited revenue, but the two licenses
executed in November are expected to generate a minimum of 400% of
our average revenue in 2008 and 2009. We are endeavoring to retain
the customers we have while we seek to broaden our customer base. but, having
experienced large net losses in our early stage, the loss of these customers
would have a material effect on our business. There is no assurance that we will
succeed.
Protection
of Intellectual Property
We have
applied for trademarks for our logos and product names. We will consider patent
applications as they are warranted and our resources allow. Our future success
and our ability to compete may greatly depend on our proprietary technology. We
therefore rely on trade secret laws, together with non-disclosure agreements and
licensing agreements to establish and protect whatever proprietary rights that
we may have. We also used Microsoft’s technology to build our Aurora XAML
Designer. This, combined with Microsoft’s redistribution of shared information
through marketing and authoring, may put us at risk.
Government
Approval and Regulation
Our
products and services do not require government approval and are not regulated
by the government.
Cost
and Effects of Compliance with Environmental Laws
We do not
have any material costs or involvement with compliance with environmental
laws.
Employees
We have
eight full-time employees and one part-time employee, which includes four
programmer product developers, two graphic designers (one full-time, one
part-time), one sales and marketing representative and two administrative. We
are planning to expand, especially in sales and marketing, both through
additional personnel and developing external distribution channels. We also plan
to recruit a full-time Chief Financial Officer. We are discussing the
possibility that one or more of our customers may become a distribution channel
for our products.
Reports
to Security Holders
Since the
effectiveness of the S-1 registration statement we have been filing
reports under the Securities Exchange Act of 1934 and plan to continue to file
such reports. The public may read and copy any materials we file with the SEC at
the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
The public may obtain information on the operation of the Public Reference Room
by calling the SEC at 1–800–SEC–0330. The SEC maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The address of that
site is http://www.sec.gov). Although
it is not part of this report, you may find additional information about us at
our website, http://www.mobiform.com,
where our products are discussed in more detail.
Item
1A RISK
FACTORS
An investment in our shares is
speculative and involves a high degree of risk. Therefore, you should not invest
in our shares unless you are able to bear a loss of your entire
investment. You should carefully consider the following factors as well
as the other information contained herein before deciding to invest in our
shares. Factors that could cause actual results to differ from our expectations,
statements or projections include the risks and uncertainties relating to our
business described above. This report and statements that we may make from time
to time may contain forward-looking information. There can be no assurance that
actual results will not differ materially from our expectations, statements or
projections.
7
Risk
Factors Relating to Our Business
Our
limited cash balance will only permit us to operate for a limited time, unless
our revenues rise substantially or we obtain additional financing
soon.
As of
January 25, 2010 we had a cash balance of $143,404, accounts receivable of
$149,914 and accounts payable or $17,000, for a total of $276,318
in current assets. Unless we obtain cash from revenues and/or
a financing, our current assets would be exhausted in three and
one-half months at our cash “burn” rate of $78,596 experienced during our last
fiscal year.
Our
independent auditors have qualified their opinion on our financial statements,
expressing substantial doubt whether we can continue as a going concern, in
light of the uncertainty of our obtaining additional financing on a timely basis
and other factors described in Note 2 to the financial statements in this
report.
We
have a limited operating history and limited historical financial information
upon which you may evaluate our performance.
You
should consider, among other factors, our prospects for success in light of the
risks and uncertainties encountered by companies that, like us, are in their
early stages of development. We may not successfully address these risks and
uncertainties or successfully implement our existing and new products and
services. If we fail to do so, it could materially harm our business and impair
the value of our Common Stock. Even if we accomplish these objectives, we may
not generate positive cash flows or profits that we anticipate in the
future.
Unanticipated
problems, expenses and delays are frequently encountered in establishing a new
business and developing new products and services. These include, but are not
limited to, inadequate funding, lack of consumer acceptance, competition,
product development, and inadequate sales and marketing. Our failure to meet any
of these conditions would have a materially adverse effect upon us and may force
us to reduce or curtail operations. No assurance can be given that we can or
will ever operate profitably.
We
have incurred losses since inception and we may be unable to achieve
profitability or generate positive cash flow.
We have
incurred substantial net losses since our inception, and we may be unable to
achieve profitability in the future. If we continue to incur losses, we may be
unable to implement our business plan described herein, including the
following:
•
|
increase
the number of products we sell
|
•
|
increase
our sales and marketing activities, including the number of our sales
personnel
|
•
|
acquire
additional businesses.
|
As of
October 31, 2009 we had an accumulated deficit of $7,175,311. We may not achieve
profitability if our revenues increase more slowly than we expect, and/or if
operating expenses exceed our expectations or cannot be adjusted to compensate
for lower than expected revenues. If we do achieve profitability, we may be
unable to sustain or increase profitability on a quarterly or annual basis. Any
of the factors discussed above may adversely affect our stock
price.
We
may not accurately anticipate the timing of the market needs for our products
and develop such products at the appropriate times, which could harm our
operating results and financial condition.
Accurately
forecasting and meeting our customers’ requirements is critical to the success
of our business. Forecasting to meet customers’ needs is particularly difficult
in connection with newer products and products under development. Our ability to
meet customer demand depends in part on our ability to configure our product
applications to the complex architecture that our customers have developed and
the availability of skilled labor to address our customers’ needs. If we fail to
meet customers’ supply expectations, our net revenues will be adversely
affected, and we will likely lose business.
8
The
failure to develop additional distribution channels to market and sell our
products will impact the viability of our company.
The
majority of our sales to date have been direct sales to a relative few
companies. Although we have begun to seek additional distribution channels, we
have not yet generated significant revenues. Although we intend to attempt to
obtain distributors and resellers, we may not succeed in marketing our products
to their customers.
Our
future operations may depend on our ability to obtain additional
financing.
We have
historically financed our operations through equity investments and/or the sale
of convertible promissory notes and from cash generated from sales. Since we
will need more cash to continue our operations, if we are unable to raise
additional funds, our ability to go forward with our business plan may be
severely hampered. We cannot assure you that if we are required to raise
additional debt or equity financing in the future that we will be able to obtain
such financing on satisfactory terms, if at all. If, in the future, we issue any
additional equity or convertible debt securities, we may substantially dilute
the interests of our current stockholders. If our future capital requirements
are greater than the cash we obtain from our business and/or available
financing, we may, among other things, be required to significantly reduce our
product development, commercialization, marketing or other activities or even
cease operations.
Our
future operating results are unpredictable.
In part
because of our limited operating history and our untested business model, it is
not possible to accurately forecast our future revenues, or results of
operations. We have no meaningful historical financial data upon which to base
planned operating and capital expenditures, and our sales and operating results
are difficult to forecast. A variety of factors may cause our future operating
results to fluctuate significantly. Many of these factors are outside of our
control. They include: (i) the effectiveness of our sales and marketing efforts;
(ii) market acceptance of our services and products; (iii) the amount and timing
of our operating costs and capital expenditures; (iv) introductions by our
competitors of new or enhanced services or products; (v) availability of
sufficient financing on terms acceptable to us; (vi) changes in our management
team and key personnel; and (vii) fluctuations in general economic conditions
and economic conditions specific to the areas in which we intend to market our
technology. One or more of these factors could materially and adversely affect
gross margins and operating results in future periods.
We
depend on a small number of customers for revenue.
Most of
our incremental revenue has been contributed through a small number of our
employees working directly with relatively few companies on product
customizations to meet their needs. Some of those active relationships may end
shortly. We are actively seeking new clients to either consult with on this new
technology or embed Aurora and other product components into their solutions or
seek new clients who are willing to pay us to customize Aurora and other
products to meet their needs. Although we have entered two of these license
agreements recently, we cannot give you any assurance that we will be successful
in developing a profitable customer base.
Between
the initial introduction of XAML and now, a number of companies have started
developing similar technologies, creating competition for us.
The
number of competitors is bound to grow as time goes on. We cannot guarantee that
we will remain a leader in our field. Our competitors also have strong product
offerings and are actively marketing their technology. Most of the entities with
which we compete or will compete with in the future have substantially greater
financial resources, sales and personnel than we have. Moreover, there can be no
assurance that other companies will not enter the marketplace or that other
companies will not produce products superior to ours.
9
Microsoft
may lose market share because it typically offers closed standards relative to
its technology, which could adversely affect us.
Open
Operating System (OS) standards are gaining momentum in Europe which could
negatively impact our growth potential. XAML is currently not open standards
based and therefore, many European companies are investing in Open Standard
technologies such as SVG. While we believe we can capitalize on these
opportunities, we also believe that we should devote our efforts and financial
resources in XAML, based upon what we perceive to be its anticipated demand and
global deployment. While we believe Microsoft will remain the dominant leader in
the sectors it works in, no assurance can be given that similar or better
technologies will not be developed which, if developed, would have a material
adverse effect on our business, financial condition and results of
operations.
We
may accidentally infringe on the intellectual property rights of third
parties.
We have
trademarked “Real time-real easy,” “Software development isn’t what we do. It’s
who we are.” “Vantage Point WPF Controls” and “Status.” We have not othersise
patented or trademarked any of our technology, logos or trademarks. Our future
success and our ability to compete may greatly depend on our proprietary
technology. We therefore rely on trade secret laws, together with non-disclosure
agreements and licensing agreements to establish and protect whatever
proprietary rights that we may have. We also used Microsoft’s technology to
build our Aurora XAML Designer. This, combined with its redistribution of shared
information through marketing and authoring, may put us at risk. In the future,
and to the extent we are successful in raising additional capital, we may
allocate a portion of those proceeds to intellectual property protection. To
date, retaining patent counsel has been too costly and establishing trade
patents would have been too time consuming. Therefore, we cannot assure you that
our efforts will successfully protect our technology because: (i) the laws of
some foreign countries may not protect our proprietary rights as fully as do the
laws of the United States and Canada; (ii) if a competitor were to infringe on
our proprietary rights, enforcing those rights may be time consuming and costly,
diverting management’s attention and its resources; (iii) measures like entering
into non-disclosure agreements afford only limited protection; (iv) unauthorized
parties may attempt to copy aspects of our products and develop similar products
or obtain and use information that we regard as proprietary; and (v) our
competitors may independently develop or patent technologies that are
substantially equivalent or superior to our technology, duplicate our
technologies or design around our intellectual property rights. In addition,
others may assert infringement claims against us. The cost of defending
infringement claims could be significant, regardless of whether the claims are
valid and no assurance can be given that we will have the financial ability to
defend any such claims.
Our
products may contain defects that may be costly to correct, delay market
acceptance of our products and expose us to litigation.
Despite
testing by us, errors may be found in our software products. If defects are
discovered, we may not be able to successfully correct them in a timely manner
or at all. Defects and failures in our products could result in a loss of, or
delay in, market acceptance of our products and could damage our reputation.
Although our standard license agreement with our customers contains provisions
designed to limit our exposure to potential product liability claims, it is
possible that these provisions may not be effective or enforceable under the
laws of some jurisdictions, and we could fail to realize revenues and suffer
damage to our reputation as a result of, or in defense of, a substantial claim.
We currently do not carry product liability insurance for our
products.
We
are vulnerable to software failures, which could harm our reputation and cause
our customers to seek reimbursement from us and take their business to another
provider.
The
software products that we distribute must be able to perform on customer/client
servers and be properly managed around the clock without interruption. Our
support operations depend upon our ability to supply our customers with
telephone and e-mail assistance and our support center may suffer damages
emanating from human error, force majeure, power loss, telecommunications
failures, sabotage, intentional acts of vandalism and similar events. Future
interruptions could:
10
•
|
cause
customers or end users to seek damages for losses
incurred;
|
•
|
require
us to replace existing equipment or add redundant
facilities;
|
•
|
damage
our reputation for reliable
service;
|
•
|
cause
existing customers to cancel their contracts;
or
|
•
|
make
it more difficult for us to attract new
customers.
|
We
have not voluntarily implemented various corporate governance measures, in the
absence of which, stockholders may have more limited protections against
interested director transactions, conflicts of interest and similar
matters.
Federal
legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the
adoption of various corporate governance measures designed to promote the
integrity of the corporate management and the securities markets. Some of these
measures have been adopted in response to legal requirements. Others have been
adopted by companies in response to the requirements of national securities
exchanges, such as the New York Stock Exchange or The Nasdaq Stock Market, on
which their securities are listed. Among the corporate governance measures that
are required under the rules of national securities exchanges are those that
address board of directors’ independence and audit committee oversight. We have
not yet adopted any of these corporate governance measures, and since our
securities are not yet listed on a national securities exchange, we are not
required to do so. We have not adopted corporate governance measures such as an
audit or other independent committees of our board of directors. It is possible
that if we were to adopt some or all of these corporate governance measures,
stockholders would benefit from somewhat greater assurances that internal
corporate decisions were being made by disinterested directors and that policies
had been implemented to define responsible conduct. For example, in the absence
of audit, nominating and compensation committees comprised of at least a
majority of independent directors, decisions concerning matters such as
compensation packages to our senior officers and recommendations for director
nominees may be made by a majority of directors who have an interest in the
outcome of the matters being decided. Prospective investors should bear in mind
our current lack of corporate governance measures in formulating their
investment decisions.
We
may be exposed to potential risks relating to our internal control over
financial reporting and our ability to have those controls attested to by our
independent registered public accounting firm.
Section
404 of the Sarbanes-Oxley Act of 2002 requires public companies to include a
report of management on the company’s internal control over financial reporting
in their annual reports, including Form 10-K. In addition, the independent
registered public accounting firm auditing a company’s financial statements must
also attest to and report on management’s assessment of the effectiveness of the
company’s internal control over financial reporting as well as the operating
effectiveness of the company’s internal controls. We are not yet subject to this
attestation requirement. Our independent registered public accounting firm has
not yet begun evaluating and attesting to our internal control
systems.
While we
expect to expend significant resources over the next few months in developing
the necessary documentation and testing procedures required by Section 404 of
Sarbanes-Oxley Act of 2002, there is a risk that we will not be able to comply
with all of the requirements imposed by this rule. In the event we identify
significant deficiencies or material weaknesses in our internal controls that we
cannot remediate in a timely manner or we are unable to receive an unqualified
attestation from our independent registered public accounting firm with respect
to our internal controls, investors and others may lose confidence in the
reliability of our financial statements and our stock price and ability to
obtain equity or debt financing as needed could suffer.
11
In
addition, in the event that our independent registered public accounting firm is
unable to rely on our internal controls in connection with their audit of our
financial statements, and in the further event that they are unable to devise
alternative procedures in order to satisfy themselves as to the material
accuracy of our financial statements and related disclosures, it is possible
that we would receive a qualified or an adverse audit opinion on those financial
statements which could also adversely affect the market price of our Common
Stock and our ability to secure additional financing as needed.
If
we lose key employees or are unable to attract and retain qualified personnel,
our business could suffer.
Our
future success will depend on the continued contributions of Ron DeSerranno, our
CEO, President and Director, who is responsible for programming decisions,
design changes, enhancements and strategies. We have “key person” life insurance
in the amount of $500,000 on Mr. DeSerranno. Nevertheless the loss of Mr.
DeSerranno would likely have a material adverse effect on our business,
financial condition and results of operations. We also rely on a very small
complement of highly skilled employees. If one or more of them cease to work for
us, it would have serious negative consequences. Our future success and plans
for growth also depend upon our ability to expand our Board of Directors and to
attract, train and retain personnel in all areas of our business.
Item
2.
|
Description
of Properties
|
Our
executive offices and research and development facilities are located in Crystal
River, Florida. We rent a 2,000 square foot office and research facility at a
variable monthly rent capped at $4,000. The lease on this facility expires June
1, 2010. This facility is sufficient for our current needs, but we
may obtain bigger facilities as we carry out our business strategy.
Item
3.
|
Legal
Proceedings
|
The
Company is not a party to, and its property is not the subject of, any material
pending legal proceedings.
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
None
PART
II
Item
5.
|
Market
For Registrant’s Common Equity, Related Stockholder Matters and Small
Business Issuer Purchases of Equity
Securities
|
Market
Information
Currently our Common Stock is quoted on
the Over the Counter Bulletin Board (OTCBB) under the symbol MOBS. The
reported high and low sales prices for the common stock as reported on the OTCBB
are shown below for the periods indicated. The quotations reflect inter-dealer
prices, without retail mark-up, markdown or commission, and may not represent
actual transactions.
12
High
|
Low
|
|||||||
2009
|
||||||||
Fourth
quarter ended October 31, 2009
|
0.70
|
0.18
|
||||||
2010
|
||||||||
First
quarter ended January 31, 2010 (through January 19, 2010)
|
0.22
|
0.09
|
On
January 19, 2010, the last sale price of our common stock as reported on the
OTCBB was $.09. As of January 19, 2010, there were approximately 210 record
owners of our common stock.
Dividends
and Dividend Policy
We have
never paid dividends on our Common Stock and our present policy is to retain
anticipated future earnings for use in our business.
Purchases
of Equity Securities by the Issuer and Affiliated Purchasers
None.
Securities
Authorized for Issuance under Equity Compensation Plans
The
following table sets forth securities authorized for issuance under any equity
compensation plans, none of which has been approved by our stockholders, as of
October 31, 2009.
Equity
Compensation Plan Information
Plan category
|
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
Number of securities remaining
available for future issuance
under equity compensation plans
(excluding securities reflected in
column (a))
|
||||||
|
(a)
|
(b)
|
(c)
|
||||||
Equity
compensation plans not approved by security holders
|
4,424,000
|
$
|
0.21
|
|
*
|
*There is
no formal equity compensation plan, so there is no specific number of shares
available for future issuance. Our authorized, but unissued and unreserved
shares of Common Stock total 63,802,260 shares.
Recent
Sales of Unregistered Securities
We issued
200,000 shares of our common stock, 100,000 on August 15, 2009 and 100,000 on
October 15, 2009, for services by an individual pursuant to an employment
agreement dated as of August 1, 2009. This offering and sale was
deemed to be exempt under Rule 506 of Regulation D and/or Section 4(2) of the
Securities Act of 1933, as amended, and was made solely to an “accredited
investor,” as defined in Rule 215 under the Securities Act. No
advertising or general solicitation was employed in offering any of the
securities. All certificates evidencing the securities issued in such
transactions bear restrictive legends as securities issued in non-registered
transactions that may only be resold in compliance with applicable federal and
state securities laws. The purchaser of such securities acknowledged that the
securities being acquired had not been registered, were restricted securities,
could only be resold in compliance with applicable federal and state securities
laws and the certificates evidencing such securities would bear restrictive
legends.
13
Item
6 Selected Financial Data.
(Not
applicable)
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
The
following discussion of our results of operations should be read together with
our consolidated 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
prospectus.
Executive
Summary
Since
2003, Mobiform’s experience in Microsoft .NET graphics technology has given us a
unique perspective and insight into new data visualization possibilities with
emerging technologies.
Mobiform
specializes 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. Recognizing that data visualization can be used in multiple vertical
markets, Mobiform will be leveraging its technology to expand into other lines
of business like digital signage, financial, healthcare and touch-screen
solutions.
Mobiform’s
in-house expertise and experience has provided it the opportunity to partner
with companies from various vertical markets, and assist them to develop 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, our company also
derives income from consulting services and contract development.
Overall Strategic
Goals
Mobiform’s
intent since inception has been to use this model as a foundation for growing
its 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. Mobiform calls 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.
14
Product
Description
With the
Technology Toolbox in place, we can quickly assemble data visualization software
products for monitoring real time data. Our initial target market is monitoring
and control for heavy industry since this is an area in which the Mobiform team
already has expertise. Over time, the company can expand into financial,
drafting, digital signage and eLearning markets all leveraging the same set of
core technologies.
Mobiform
has assembled its first vertical market application. ‘Status Vision Designer®’
was released in January 2009 as an industrial control and monitoring application
for heavy industry and manufacturing.
Status
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.
Status
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 is its ability to connect to a variety of OPC servers and display
real-time data from hundreds of data sources.
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 WPF (Windows
Presentation Foundation) and XAML (Extensible Application Markup Language)
training and graphic design services.
We have
been involved in WPF and XAML since it was first released in November 2003 at
the Microsoft PDC Conference. We were one of the earliest adopters of WPF,
displaying its first public alpha product related to this technology in January
of 2004.
We assist
consulting clients with their WPF applications. From initial consulting
services and custom development, to embedding our Aurora software into their
solution, we have the expertise and personnel to assist.
Licenses
and Joint Ventures
We have licensed our technology to
other companies for use in their solutions, and we are in initial discussions
with additional companies that may want to license or joint venture some of our
software applications on an exclusive or nonexclusive basis. In
addition to several other executed mutual nondisclosure agreements, on October
26, 2007 we entered into an agreement with Capstone Technology for licensing of
Aurora and VantagePoint into one of their HMI products and entered into an
additional similar agreement with Matrikon Asia Pacific in November 2008. There
is no assurance that any additional licenses or joint ventures will result from
these discussions.
On
November 20, 2009, we entered into a three year licensing agreement with GE
Fanuc Intelligent Platforms, Inc. (“GE”) to utilize a portion of our proprietary
technology. GE has agreed to pay us a per unit royalty, with a minimum of
$270,000 per year for the duration of the agreement. In addition we will perform
consulting services, on an as needed basis, for which we will be compensated
separately based upon services provided.
15
On
November 24, 2009, we entered into a three year non-exclusive licensing
agreement with Johnson Controls, Inc. (“JCI”) to utilize a portion of our
proprietary software. JCI has agreed to pay us $240,000, 50% due upon
each invoice dated November 16, 2009 and April, 1, 2010. JCI has the
option to extend the agreement in one year increments upon payment of $120,000
per additional year. In addition we will perform consulting services, on an as
needed basis, for which we will be compensated separately based upon services
provided.
Revenue
Strategy
We are
currently generating revenues through 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. 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
consolidated 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 collectibility 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.
Equity-Based
Compensation - We account for equity based compensation transactions with
employees under the provisions of FASB ASC Topic 718, “Compensation, Stock
Compensation” (“Topic 718”). Topic 718 requires the recognition of the fair
value of equity-based compensation in net income. The fair value of the
Company’s equity instruments are estimated using a Black-Scholes option
valuation model. This model requires the input of highly subjective assumptions
and elections including expected stock price volatility and the estimated life
of each award. In addition, the calculation of equity-based compensation costs
requires that we estimate the number of awards that will be forfeited during the
vesting period. The fair value of equity-based awards granted to employees is
amortized over the vesting period of the award and we elected to use the
straight-line method for awards granted after the adoption of Topic No.
718.
16
We
account for equity based transactions with non-employees under the provisions of
FASB ASC Topic 505-50, “Equity-Based Payments to Non-Employees” (“Topic
505-50”). Topic 505-50 establishes that equity-based payment transactions with
non-employees shall be measured at the fair value of the consideration received
or the fair value of the equity instruments issued, whichever is more reliably
measurable. When the equity instrument is utilized for measurement the fair
value of the equity instrument is estimated using the Black-Scholes option
valuation model. In general, we recognize an asset or expense in the same manner
as if we were to receive cash for the goods or services instead of paying with
or using the equity instrument.
Results
of Operations
The
following table sets forth, for the periods indicated, certain items from the
consolidated statements of operations. Comparative analysis of ratios of costs
and expenses to revenues is not shown in the following narrative discussion as
management believes such ratios to be uninformative due to the insignificant
levels of revenues in each period.
For
The Years Ended October 31,
|
||||||||
2009
|
2008
|
|||||||
Revenues
|
$ | 86,510 | $ | 81,770 | ||||
Operating
expenses:
|
||||||||
Compensation
costs
|
658,804 | 1,380,719 | ||||||
Consulting
fees
|
341,474 | 100,262 | ||||||
Advertising
|
41,295 | 265,625 | ||||||
Professional
fees
|
224,585 | 407,910 | ||||||
Interest
and debt costs
|
4,625 | 22,882 | ||||||
Income
tax provision ( benefit)
|
— | — | ||||||
Net
loss
|
$ | (929,694 | ) | $ | (2,205,411 | ) | ||
Net
loss per share – basic and diluted
|
$ | (0.04 | ) | $ | (0.09 | ) |
Comparison
of the Fiscal Years Ended October 31, 2009 and 2008
Revenues
Our
revenues for the years ended October 31, 2009 and 2008, of $86,510 and $81,770,
respectively, remain primarily from services. Service revenues
include revenues from fees charged for the implementation of our software
products and training of customers in the use of such products. Revenues for the
year increased by approximately $5,000 or 6%. We are currently selling our
software over the internet and are in initial discussions with companies which
may want to license or joint venture some of our software applications.
Subsequent to year end we signed contracts with two of these companies, as
described above.
17
Operating
Expenses
Our
operating expenses consist primarily of compensation costs, advertising and
professional services.
Compensation
costs consist of payroll and share based compensation, primarily through the
issuance of warrants, to employees. Payroll and share based compensation
amounted to $595,468 and $63,336, respectively, in the year ended October 31,
2009 compared to $757,399 and $623,320, respectively, in the year ended October
31, 2008. Payroll decreased $161,931 (22%) as we decreased the number of
employees from 11 to 8. We continue to try to preserve capital as we implement
our strategic plan to generate revenues. Share based compensation costs
decreased $559,984 (90%) as we now issue warrants to employees on a more
selective basis, determined by their qualifications and
performance.
Advertising
costs have decreased to $41,295 in the year ended October 31, 2009 from $265,625
in the year ended October 31, 2008, a decrease of $224,330 (85%). In 2008 and
throughout fiscal 2009 we decreased the marketing of our products and services
in trade publications and at trade shows.
Professional
fees decreased from $407,910 in the year ended October 31, 2008 to $224,585 in
the year ended October 31, 2009. The decrease of $183,325 (45%) is primarily a
result of investment banking, accounting, audit and legal fees incurred in
preparation of our filing as a registered public company. We expect these fees
to decrease again in fiscal 2010, but not as significantly as the percentage
decline from fiscal 2008 to fiscal 2009. We also incurred $284,174 in share
based consulting fees in fiscal 2009, an increase of $217,507 (327%) from the
$66,667 incurred in fiscal 2008. We utilized equity-based payments for
consulting fees, when possible, in fiscal 2009 as a means of preserving working
capital for other operating costs.
Interest
and Debt Costs
Interest
expense, the amortization of the convertible debentures’ debt discount and
deferred financing costs decreased from $22,882 in fiscal 2008 to $4,625 in
fiscal 2009. The decrease of $18,257 was primarily due to the debt discount
($8,534 decrease) and deferred financing costs ($5,258 decrease) becoming fully
amortized in the first quarter of fiscal 2008. Interest expense decreased from
$9,090 to $4,625 since $225,000 of the convertible debentures were converted
into shares of our common stock in the last quarter of fiscal 2007, $100,000 was
paid back in cash in the second quarter of fiscal 2008 and $25,000 was converted
into shares of common stock in the first quarter of fiscal 2009. The remaining
$50,000 in convertible debentures is outstanding as of October 31,
2009.
Income
Taxes
The
expected tax benefits of $320,000 (2009) and $750,000 (2008) resulting from
pre-tax losses of $929,694 in fiscal 2009 and $2,205,411 in fiscal 2008 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. The tax
benefit of $10,960 in fiscal 2007 resulted in a change in the estimated Canadian
tax credit refund applied for in prior years.
Net
Loss
Net loss in
the year ended October 31, 2009 totaled $929,694 compared to $2,205,411 in the
year ended October 31, 2008, a decrease of $1,275,717 (58%).
Comparison
of the Fiscal Years Ended October 31, 2008 and 2007
Revenues
Our
revenues for the years ended October 31, 2008 and 2007, of $81,770 and $57,141,
respectively, are primarily from services. Service revenues include
revenues from fees charged for the implementation of our software products and
training of customers in the use of such products. Revenues for the year
increased by approximately $25,000 or 43%. We are currently selling our software
over the internet and we are in initial discussions with companies that may want
to license or joint venture some of our software applications.
18
Operating
Expenses
Our
operating expenses consist primarily of compensation costs, advertising and
professional services.
Compensation
costs consist of payroll and share based compensation, primarily through the
issuance of warrants to employees. Payroll and share based compensation amounted
to $757,399 and $623,320 in the year ended October 31, 2008 compared to $547,050
and $943,214, respectively, in the year ended October 31,
2007. Payroll increased $210,349 (38%) as we increased the number of
employees from 11 to 13 so as to continue the process of implementing our
strategic plan to increase revenues. Share based compensation costs decreased
$319,894 (34%) as we now issue warrants to employees on a more selective basis,
determined by their qualifications and performance.
Advertising
costs have increased to $265,625 in the year ended October 31, 2008 from $69,130
in the year ended October 31, 2007, an increase of $196,495 (284%). In the last
quarter of fiscal 2007 and throughout fiscal 2008 we increased the marketing of
our products and services in trade publications and at trade shows.
Professional
fees increased from $71,370 in the year ended October 31, 2007 to $407,910 in
the year ended October 31, 2008. The increase of $336,540 (472%) is primarily a
result of investment banking, accounting, audit and legal fees incurred in
preparation of the filing of our registration statement. We expect these fees to
decrease during fiscal 2009. We also incurred $66,667 in share based consulting
fees in fiscal 2008, a decrease of $496,666 (88%) from the $563,333 incurred in
2007.
Interest
and Debt Costs
Interest
expense, the amortization of the convertible notes’ debt discount and deferred
financing costs decreased from $262,072 in fiscal 2007 to $22,882 in fiscal
2008. The decrease of $239,190 was primarily due to the debt discount ($153,057
decrease) and deferred financing costs ($64,724 decrease) becoming fully
amortized in the first quarter of 2008. Interest expense decreased from $30,490
to $9,090, since $225,000 of the convertible debentures were converted into
shares of our common stock in the last quarter of fiscal 2007 and $100,000 was
paid back in cash in the second quarter of fiscal 2008. The remaining $75,000 in
convertible debentures is outstanding as of October 31, 2008.
Income
Taxes
The
expected tax benefits of $750,000 (2008) and $871,000 (2007) resulting form the
pre tax losses of $2,205,411 in 2008 and $2,562,509 in 2007 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 these tax benefits in the future. The tax
benefit of $10,960 in fiscal 2007 resulted from a change in the estimated
Canadian tax credit refund applied for in prior periods.
Net
Loss
Net loss
in the year ended October 31, 2008 totaled $2,205,411 compared to $2,551,549 in
the year ended October 31, 2007, a decrease of $346,138 (14%).
Liquidity
and Capital Resources
We
continue to fund our operations through private placement offering and
financings.
In August
2009, we initiated a private placement offering of equity securities to a
limited number of accredited investors. The offering is through the
sale of units, with each unit consisting of a warrant to purchase 60,000 shares
of our common stock at $0.25 per share. The offering price per unit
is $4,800 with a total of 100 units ($480,000) being offered. We sold 9 units in
September and October 2009 and received proceeds of $43,200.
19
On October 16, 2009, we executed a
promissory note in the amount of $50,000 with our Chief Executive Officer
(“CEO”). The note, which is due on demand, accrues interest at 8% per
annum. On November 10,
2009, we executed a promissory note in the amount of $50,000 payable to our
CEO. The note, which is due on demand, accrues interest at 8% per
annum. The proceeds are being used for working capital
purposes.
At
October 31, 2009 we had cash and cash equivalents and certificates of deposit of
$15,000 compared to $780,000 at October 31, 2008. The decrease of $765,000 is
attributable to our operating losses.
Cash
Flows
Net cash
used for operating activities amounted to $943,000 and $1,333,000 in the fiscal
years ended October 31, 2009 and 2008, respectively. Operating costs for
compensation, advertising and professional fees were incurred as we implemented
our overall strategic business plan.
We
generated cash from financing activities of $93,200 in fiscal 2009. This
represented $43,200 from the sale of units in our August 2009 private placement
offering and our promissory note with our CEO in the amount of $50,000. In
fiscal 2008, we used $100,000 to pay outstanding convertible debt.
In fiscal
2009, we redeemed $583,000 of our certificate of deposits and we received
$85,000 from the sale of property, both of which were used for working capital.
In fiscal 2008, we redeemed $1,450,000 of our certificate of deposit to use for
operating cash.
We do not
believe that our cash on hand at October 31, 2009 will be sufficient to fund our
operations for at least the next 12 months. Subsequent to October 31, 2009, we
have signed significant licensing agreements and continue to implement our
strategic business plan. 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. We may need to
seek new sources of capital, however, there is no assurance that we will be able
to obtain additional capital in the amount or on terms acceptable to us at the
required time.
Contractual
Obligations
N/A
Off-Balance
Sheet Arrangements
As of
October 31, 2009, we had no off-balance sheet arrangements as defined in Item
303(a)(4) of Regulation S-K.
Item
7A.
|
Quantitative
and Qualitative Disclosure about Market
Risk
|
Interest
Rate Risk
N/A
20
Recent
Accounting Pronouncements
On
July 1, 2009, the Accounting Standards Codification (“ASC”) became FASB’s
officially recognized source of authoritative U.S. generally accepted accounting
principles applicable to all public and non-public non-governmental entities,
superseding existing FASB, AICPA, EITF and related literature. Rules and
interpretive releases of the SEC under the authority of federal securities laws
are also sources of authoritative GAAP for SEC registrants. All other accounting
literature is considered non-authoritative. The switch to the ASC affects the
way companies refer to U.S. GAAP in financial statements and accounting
policies. Citing particular content in the ASC involves specifying the unique
numeric path to the content through the Topic, Subtopic, Section and Paragraph
structure.
FASB ASC Topic 260, “Earnings Per
Share.” New authoritative accounting guidance under FASB ASC Topic 260,
“Earnings Per Share,” provides that unvested share-based payment awards that
contain nonforfeitable rights to dividends or dividend equivalents (whether paid
or unpaid) are participating securities and shall be included in the computation
of earnings per share pursuant to the two-class method. The new
authoritative accounting guidance will be effective for the Company’s
consolidated financial statements beginning November 1, 2009 and is not
expected to have a significant impact on the Company’s consolidated financial
statements.
FASB ASC Topic 320, “Investments -
Debt and Equity Securities.” New authoritative accounting guidance under
ASC Topic 320, “Investments - Debt and Equity Securities,” (i) changes
existing guidance for determining whether an impairment is other than temporary
to debt securities and (ii) replaces the existing requirement that the
entity’s management assert it has both the intent and ability to hold an
impaired security until recovery with a requirement that management assert:
(a) it does not have the intent to sell the security; and (b) it is
more likely than not it will not have to sell the security before recovery of
its cost basis. Under ASC Topic 320, declines in the fair value of
held-to-maturity and available-for-sale securities below their cost that are
deemed to be other than temporary are reflected in earnings as realized losses
to the extent the impairment is related to credit losses. The amount of the
impairment related to other factors is recognized in other comprehensive income.
The new authoritative accounting guidance will be effective for the Company’s
consolidated financial statements beginning November 1, 2009 and is not
expected to have a significant impact on the Company’s consolidated financial
statements.
FASB ASC Topic 805, “Business
Combinations.” New authoritative accounting guidance under ASC Topic 805,
“Business Combinations,” applies to all transactions and other events in which
one entity obtains control over one or more other businesses. ASC Topic 805
requires an acquirer, upon initially obtaining control of another entity, to
recognize the assets, liabilities and any non-controlling interest in the
acquiree at fair value as of the acquisition date. Contingent consideration is
required to be recognized and measured at fair value on the date of acquisition
rather than at a later date when the amount of that consideration may be
determinable beyond a reasonable doubt. This fair value approach replaces the
cost-allocation process required under previous accounting guidance whereby the
cost of an acquisition was allocated to the individual assets acquired and
liabilities assumed based on their estimated fair value. ASC Topic 805 requires
acquirers to expense acquisition-related costs as incurred rather than
allocating such costs to the assets acquired and liabilities assumed, as was
previously the case under prior accounting guidance. Assets acquired and
liabilities assumed in a business combination that arise from contingencies are
to be recognized at fair value if fair value can be reasonably estimated. If
fair value of such an asset or liability cannot be reasonably estimated, the
asset or liability would generally be recognized in accordance with ASC Topic
450, “Contingencies.” Under ASC Topic 805, the requirements of ASC Topic 420,
“Exit or Disposal Cost Obligations,” would have to be met in order to accrue for
a restructuring plan in purchase accounting. Pre-acquisition contingencies are
to be recognized at fair value, unless it is a non-contractual contingency that
is not likely to materialize, in which case, nothing should be recognized in
purchase accounting and, instead, that contingency would be subject to the
probable and estimable recognition criteria of ASC Topic 450,
“Contingencies.” The
new authoritative accounting guidance will be effective for the Company’s
consolidated financial statements beginning November 1, 2009 and is not
expected to have a significant impact on the Company’s consolidated financial
statements.
21
FASB ASC Topic 810,
“Consolidation.” New authoritative accounting guidance under ASC Topic
810, “Consolidation,” amended prior guidance to establish accounting and
reporting standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. Under ASC Topic 810, a non-controlling interest
in a subsidiary, which is sometimes referred to as minority interest, is an
ownership interest in the consolidated entity that should be reported as a
component of equity in the consolidated financial statements. Among other
requirements, ASC Topic 810 requires consolidated net income to be reported
at amounts that include the amounts attributable to both the parent and the
non-controlling interest. It also requires disclosure, on the face of the
consolidated income statement, of the amounts of consolidated net income
attributable to the parent and to the non-controlling interest.
Further
new authoritative accounting guidance under ASC Topic 810 amends prior guidance
to change how a company determines when an entity that is insufficiently
capitalized or is not controlled through voting (or similar rights) should be
consolidated. The determination of whether a company is required to consolidate
an entity is based on, among other things, an entity’s purpose and design and a
company’s ability to direct the activities of the entity that most significantly
impact the entity’s economic performance. The new authoritative accounting
guidance requires additional disclosures about the reporting entity’s
involvement with variable-interest entities and any significant changes in risk
exposure due to that involvement as well as its affect on the entity’s financial
statements.
The new
authoritative accounting guidance under ASC Topic 810 will be effective for the
Company on November 1, 2009 and is not expected to have a significant
impact on the Company’s consolidated financial statements.
FASB ASC Topic 815, “Derivatives and
Hedging.” New authoritative accounting guidance under ASC Topic 815,
“Derivatives and Hedging,” amends prior guidance to amend and expand the
disclosure requirements for derivatives and hedging activities to provide
greater transparency about (i) how and why an entity uses derivative
instruments, (ii) how derivative instruments and related hedge items are
accounted for under ASC Topic 815, and (iii) how derivative instruments and
related hedged items affect an entity’s financial position, results of
operations and cash flows. To meet those objectives, the new authoritative
accounting guidance requires qualitative disclosures about objectives and
strategies for using derivatives, quantitative disclosures about fair value
amounts of gains and losses on derivative instruments and disclosures about
credit-risk-related contingent features in derivative agreements. The new
authoritative accounting guidance under ASC Topic 815 will be effective for the
Company on November 1, 2009 and is not expected to have a significant
impact on the Company’s consolidated financial statements.
FASB ASC Topic 820, “Fair Value
Measurements and Disclosures.” New authoritative accounting guidance
under ASC Topic 820,”Fair Value Measurements and Disclosures,” affirms that the
objective of fair value when the market for an asset is not active is the price
that would be received to sell the asset in an orderly transaction, and
clarifies and includes additional factors for determining whether there has been
a significant decrease in market activity for an asset when the market for that
asset is not active. ASC Topic 820 requires an entity to base its conclusion
about whether a transaction was not orderly on the weight of the evidence. The
new accounting guidance amended prior guidance to expand certain disclosure
requirements. The Company adopted the new authoritative accounting guidance
under ASC Topic 820. Adoption of the new guidance did not
significantly impact the Company’s consolidated financial
statements.
22
Further
new authoritative accounting guidance (Accounting Standards Update
No. 2009-5) under ASC Topic 820 provides guidance for measuring the fair
value of a liability in circumstances in which a quoted price in an active
market for the identical liability is not available. In such instances, a
reporting entity is required to measure fair value utilizing a valuation
technique that uses (i) the quoted price of the identical liability when
traded as an asset, (ii) quoted prices for similar liabilities or similar
liabilities when traded as assets, or (iii) another valuation technique
that is consistent with the existing principles of ASC Topic 820, such as an
income approach or market approach. The new authoritative accounting guidance
also clarifies that when estimating the fair value of a liability, a reporting
entity is not required to include a separate input or adjustment to other inputs
relating to the existence of a restriction that prevents the transfer of the
liability. The forgoing new authoritative accounting guidance under ASC Topic
820 will be effective for the Company’s consolidated financial statements
beginning November 1, 2009 and is not expected to have a significant impact
on the Company’s consolidated financial statements.
FASB ASC Topic 825 “Financial
Instruments.” New authoritative accounting guidance under ASC Topic
825,”Financial Instruments,” requires an entity to provide disclosures about the
fair value of financial instruments in interim financial information and amends
prior guidance to require those disclosures in summarized financial information
at interim reporting periods. The new authoritative accounting guidance will be
effective for the Company’s consolidated financial statements beginning
November 1, 2009 and is not expected to have a significant impact on the
Company’s consolidated financial statements.
FASB ASC
Topic 855, “Subsequent Events.” New authoritative accounting guidance under ASC
Topic 855, “Subsequent Events,” establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or available to be issued. ASC Topic 855 defines
(i) the period after the balance sheet date during which a reporting
entity’s management should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, (ii) the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and
(iii) the disclosures an entity should make about events or transactions
that occurred after the balance sheet date. The new authoritative accounting
guidance under ASC Topic 855 became effective for the Company’s financial
statements for periods ending after June 15, 2009 and did not have a
significant impact on the Company’s consolidated financial
statements. The company evaluated events between the end of the
fiscal year, October 31, 2009 and January 29, 2010, the date the consolidated
financial statements were issued.
Management
does not believe that any other recently issued but not yet effective accounting
pronouncements, if adopted, would have an effect on the accompanying
consolidated financial statements.
Item
8.
|
Financial
Statements and Supplementary Data.
|
Our
financial statements are contained in the pages beginning F-1, which
appear at the end of this annual report.
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure.
|
As
reported in our 8-K report filed with the SEC on September 10, 2008, on
September 8 2008, pursuant to our Board of Directors’ resolution, we dismissed
Raich Ende Malter & Co. LLP, (“REM”), as our independent registered public
accounting firm.
23
Concurrent
with this action, our Board of Directors appointed Meyler & Company, LLC.
(“Meyler”), as our new independent certified public accounting firm. Meyler is
located at One Arin Park, 1715 Highway 35, Middletown, NJ 07748.
Our
consolidated financial statements for the years ended October 31, 2007 and 2006
were audited by REM. REM’s reports on our financial statements for those
two fiscal years, respectively, did not contain an adverse opinion or a
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles.
During
the years ended October 31, 2007 and 2006 and through September 8, 2008, there
were no disagreements with REM on any matter of accounting principles or
practices, financial statement disclosure, auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of REM, would have caused it
to make reference to the subject matter of the disagreement in connection with
its report.
The
Company has provided REM with a copy of the Form 8-K referred to above prior to
its filing with the SEC and requested them to furnish a letter addressed to the
SEC stating whether it agrees with the statements made above. Attached as
Exhibit 16.1 to that 8-K report is a copy of REM’s letter to the SEC, dated
September 10, 2008, confirming no disagreement.
During
the period the Company engaged REM, neither the Company nor anyone on the
Company's behalf consulted with Meyler regarding either (i) the application of
accounting principles to a specified transaction, either contemplated or
proposed, or the type of audit opinion that might be rendered on the Company's
financial statements or (ii) any matter that was either the subject of a
disagreement or a reportable event.
The
Company has authorized REM to respond fully to all inquiries of
Meyler.
Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in company reports filed or
submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission’s rules and forms. Disclosure controls
and procedures include without limitation, controls and procedures designed to
ensure that information required to be disclosed in company reports filed or
submitted under the Exchange Act is accumulated and communicated to management,
including our chief executive officer and treasurer, as appropriate to allow
timely decisions regarding required disclosure.
As
required by Rules 13a-15 and 15d-15 under the Exchange Act, our chief executive
officer and chief financial officer carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures as of October 31, 2009. Based on his evaluation, he concluded that
our disclosure controls and procedures were effective.
Management
is responsible for establishing and maintaining adequate internal control over
our financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the
Exchange Act). Our internal control over financial reporting is a process
designed by, or under the supervision of, our chief executive officer and chief
financial officer and effected by our board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of our
financial reporting and the preparation of our financial statements for external
purposes in accordance with generally accepted accounting principles. Internal
control over financial reporting includes policies and procedures that pertain
to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of our assets; provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
our financial statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being made only in
accordance with the authorization of our board of directors and management; and
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a
material effect on our financial statements.
24
Under the
supervision and with the participation of our management, including our chief
executive officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the criteria established in
Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”). Based on this evaluation
under the criteria established in Internal Control – Integrated Framework, our
management concluded that our internal control over financial reporting was
effective as of October 31, 2009.
This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this annual
report.
During
the most recently completed fiscal quarter, there has been no change in our
internal control over financial reporting that has materially affected or is
reasonably likely to materially affect, our internal control over financial
reporting.
Item
9B.
|
Other
Information.
|
None.
PART
III
Item
10.
|
Directors,
Executive Officers and Corporate
Governance.
|
Management
The
Company’s management and key employee is the following:
Name
|
|
Age
|
|
Position
with Company
|
Allen Ronald DeSerranno
|
|
43
|
CEO,
President, CFO, Director
|
|
The
profile of our officer and director is set forth below:
25
Ron
DeSerranno
Mr.
DeSerranno is a founder and CEO of Mobiform Canada, which was organized in
March, 2003. Since Mobiform’s October, 2005 acquisition of Mobiform Canada, he
has been Chief Executive Officer, President and a Director of Mobiform. His
software development career first began at the Space and Atmospheric Research
Group, Physics Department, at the University of Western Ontario. He was a
Microsoft Certified Trainer and Consultant and taught courses in both New York
and Toronto. From August, 1997 to November, 2000, he was a Senior Software
Engineer for Rockwell Software, Inc./Dynapro Inc. where he was the development
lead and architect for Rockwell’s flagship industrial automation product RSView,
an invaluable tool to globally scaled companies like Kraft and General Motors.
In 2002 he served as Vice President of Software Development for Motivus Software
Ltd. which was acquired by Citrex Corp. Other ventures include the establishment
of BoardMaster Software. Mr. DeSerranno is considered one of the
leading authorities on XML based graphics technologies and has been designing
and developing world class software products for many years. Mr. DeSerranno
received diplomas in Environmental Technology and Computer Support Technician in
1991 from Fanshawe College of Applied Arts and Technology and a degree in
Physical Geography in 1993 from the University of Western Ontario and attended,
in 1994, CDI College for Program Analysis. He is not a director of any other
reporting company.
Our
Director and executive officer has not been involved in legal proceedings in the
last five years.
Indemnification
of Directors and Officers
Our
Certificate of Incorporation provides that the Company shall, to the fullest
extent permitted by the law of the State of Delaware, indemnify any and all
persons whom it shall have power to indemnify from and against any and all of
the expenses, liabilities or other matters referred to in or covered by the
applicable provisions of Delaware law, and the indemnification provided for will
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any By-Law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in their official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee, or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person. We are required to indemnify each officer and director to the fullest
extent permitted by law and to advance certain expenses incurred by such
persons. Our Certificate of Incorporation and Delaware law provide limitations
on the directors’ rights to indemnification in certain
circumstances.
Code of Business Conduct and
Ethics
We have
adopted a Code of Business Conduct and Ethics, which is attached as an exhibit
to this report.
Item
11.
|
Executive
Compensation.
|
The
following table sets forth, for the fiscal years ended October 31, 2008 and
October 31, 2009, all compensation paid, distributed or accrued, including
salary and bonus amounts, for services rendered to us by our Principal Executive
Officer, during the fiscal years ended October 31, 2008 and October 31, 2009. No
other executive officer who was serving as an executive officer at October 31,
2009, had total compensation for fiscal 2009 exceeding $100,000:
Name and Principal Position
|
Year Ended
October 31
|
Salary ($)
|
Option Awards(1)/
|
Total
|
||||||||||
Allen Ronald DeSerranno
|
2008
|
155,769
|
$
|
209,091
|
$
|
364,860
|
||||||||
Chief
Executive Officer
|
2009
|
150,000
|
0
|
$ |
150,000
|
(1)
|
On
April 1, 2006 the Company issued 2,000,000 five year warrants, exercisable
at $.20, to Mr. DeSerranno. They vested 25% each six months through March
31, 2008. On April 1, 2007 the Company issued 3,500,000 five year
warrants, exercisable at $.75, to Mr. DeSerranno. These vested 25% each
six months from September 30, 2007 to March 31, 2009. On June 10, 2009 Mr.
DeSerranno surrendered all 3,500,000 of the $.75 warrants and they were
canceled. The value of the options compensation was determined
using the Black-Scholes model.
|
26
The
following table sets forth certain information regarding the options held and
value of each such officer’s unexercised options as of October 31,
2009.
Outstanding
Equity Awards at Fiscal Year-End
Number of Securities
Underlying Unexercised
Warrants
|
Warrant
Exercise
|
Warrant
Expiration
|
Number of
Securities
Underlying
Unexercised
Unearned
|
|||||||||||||||||
Name
|
Exercisable
|
Unexercisable
|
Price ($)
|
Date
|
Warrants
|
|||||||||||||||
Allen
Ronald DeSerranno(1)
|
2,000,000 | .20 |
3/31/2011
|
|||||||||||||||||
Chief
Executive Officer
|
(1)
|
On
April 1, 2006 the Company issued 2,000,000 five year warrants, exercisable
at $.20, to Mr. DeSerranno. They vested 25% each six months through March
31, 2008. On April 1, 2007 the Company issued 3,500,000 five year
warrants, exercisable at $.75, to Mr. DeSerranno. These vested 25% each
six months from September 30, 2007 to March 31, 2009. On June
10, 2009 Mr. DeSerranno surrendered all 3,500,000 of the $.75 warrants and
they were canceled.
|
Director
Compensation
We do not
compensate our directors for serving on our Board of Directors, other than any
compensation which a director may earn as an employee of the Company. We
reimburse our directors for any travel related expenses incurred in performing
their duties as directors.
Employment
Agreements with Executive Management and Directors
Mr.
DeSerranno had an employment agreement with the Company, which provided for an
annual salary of $150,000, which expired on March 31, 2009. Effective
April 1, 2009 Mr. DeSerranno’s salary has continued at the same rate and will
remain in effect until a new agreement is executed.
Pursuant
to his previous employment agreement on April 1, 2006 Mr. DeSerranno received a
five-year warrant to purchase 2,000,000 shares of Common Stock exercisable at
$0.20 per share on a cashless basis and pursuant to the amendments to his
employment agreement effective April 1, 2007, Mr. DeSerranno received a
five-year warrant to purchase 3,500,000 shares exercisable at $0.75 per share on
a cashless basis. The warrants vested over a two-year period beginning on the
date of the respective agreements at the rate of 25% every six
months. On June 10, 2009 Mr. DeSerranno surrendered all 3,500,000 of
the $.75 warrants and they were canceled.
27
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
The
following table sets forth the number of shares of Common Stock beneficially
owned as of January 19, 2010 by (i) those persons or groups known to us who
beneficially own more than 5% of our Common Stock; (ii) each director; (iii)
each executive officer whose compensation exceeded $100,000 in the fiscal year
ended October 31, 2009; and, (iv) all directors and executive officers as a
group. Beneficial ownership is determined in accordance with Rule 13d-3 under
the Exchange Act based upon information furnished by persons listed or contained
in filings made by them with the SEC and by information provided by such persons
directly to us. Except as indicated, the stockholders listed below possess sole
voting and investment power with respect to their shares.
Name(1)
|
|
Number of
Shares of
Common Stock
Beneficially
Owned(2)
|
|
Percentage of
Outstanding
Shares of
Common Stock(3)
|
||||
Allen
Ronald DeSerranno(4)
|
11,404,955
|
43.18
|
%
|
|||||
Francis
V. Lorenzo(5)
|
2,160,000
|
8.18
|
%
|
|||||
Gary
Fuhr(6)
|
1,561,085
|
6.33
|
%
|
|||||
All
officers and directors as a group
(One person)(5) |
11,404,955
|
43.18
|
%
|
|
(1)
|
The
address of Mr. DeSerranno is c/o Mobiform Software, Inc., 1255 N Vantage
Pt. Dr., Suite A, Crystal River, Florida 34429. Mr. Lorenzo, a former
officer and director of the Company, has an address at 7129 Cenrose
Circle, Westwood, NJ 07675. Mr. Fuhr, a former employee of the
Company, has an address at 7204 Stride Avenue, Burnaby, BC V3N 1T9
Canada.
|
|
(2)
|
Beneficial
ownership is determined in accordance with the rules of the SEC and
generally includes voting or investment power with respect to securities.
Shares of Common Stock relating to options currently exercisable or
exercisable within 60 days of the date of this table, are deemed
outstanding for computing the percentage of the person holding such
securities, but are not deemed outstanding for computing the percentage of
any other person. Except as indicated by footnote, and subject to
community property laws where applicable, the persons named in the table
above have sole voting and investment power with respect to all shares
shown as beneficially owned by
them.
|
(3)
|
Based
upon 24,410,656 shares of Common Stock outstanding plus in each case the
shares which the person or group has a right to acquire within 60 days
through the exercise of warrants.
|
(4)
|
Includes
2,000,000 shares of Common Stock issuable upon the exercise of warrants
and 1,721,979 held by a corporation wholly-owned by Mr. DeSerranno.
Excludes 316,373 shares of Common Stock held by Mr. DeSerranno’s wife,
Rita Honurata DeSerranno, as to which he disclaims beneficial
ownership.
|
(5)
|
Includes
2,000,000 shares of Common Stock issuable upon the exercise of
warrants.
|
(6)
|
Includes
250,000 shares of Common Stock issuable upon the exercise of
warrants.
|
28
Change
in Control
We are
unaware of any arrangement or understanding that may, at a subsequent date,
result in a change of control of our Company.
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
Since the
beginning of the last fiscal year we have had no reportable transactions with
related parties and none is currently proposed.
Item
14.
|
Principal
Accountant Fees and Services.
|
Meyler
& Company, LLC served as our independent registered public accounting firm
for the fiscal years ended October 31, 2009 and 2008. The
following table shows the fees that were billed for the audit and other services
provided by such firm for 2009 and 2008.
2009
|
2008
|
|||||||
Meyler
& Company, LLC:
|
||||||||
Audit
Fees
|
$
|
61,805
|
$
|
68,000
|
||||
Audit-Related
Fees
|
0
|
0
|
||||||
Tax
Fees
|
0
|
0
|
||||||
All
Other Fees
|
0
|
0
|
||||||
Total
|
$
|
61,805
|
$
|
68,000
|
Audit Fees — This category
includes the audit of our annual financial statements, review of financial
statements included in our Form 10-Q Quarterly Reports and services that are
normally provided by the independent auditors in connection with engagements for
those fiscal years. This category also includes advice on audit and accounting
matters that arose during, or as a result of, the audit or the review of interim
financial statements.
Audit-Related Fees — This
category consists of assurance and related services by the independent auditors
that are reasonably related to the performance of the audit or review of our
financial statements and are not reported above under “Audit Fees.” The services
for the fees disclosed under this category include consultation regarding our
correspondence with the SEC and other accounting consulting.
Tax Fees — This category
consists of professional services rendered by our independent auditors for tax
compliance and tax advice. The services for the fees disclosed under this
category include tax return preparation and technical tax advice.
All Other Fees — This
category consists of fees for other miscellaneous items.
Our Board
of Directors acting as our Audit Committee preapproved the engagement of each of
our independent registered public accounting firms.
29
PART
IV
Item
15. Exhibits, Financial Statement
Schedules.
Number
|
Description
|
|
3.1
|
Certificate
of Incorporation *
|
|
3.2
|
By-laws
*
|
|
4.1
|
Form
of Specimen Stock Certificate *
|
|
10.3
|
Form
of Warrant — $1.50 *
|
|
10.3.1
|
Form
of Warrant — $.75 *
|
|
10.3.2
|
Form
of Warrant — $.20 *
|
|
10.4
|
Employment
Agreement dated April 1, 2006 with Allen Ronald DeSerranno
*
|
|
10.5
|
Employment
Agreement dated April 1, 2006 with Francis V. Lorenzo *
|
|
10.6
|
Assignment
and Amendment of Employment Agreement — Allen Ronald
DeSerranno*
|
|
10.7
|
Assignment
and Amendment of Employment Agreement — Francis V.
Lorenzo*
|
|
10.8
|
Termination
Agreement — Francis V. Lorenzo*
|
|
10.9
|
Form
of 8% Convertible Note*
|
|
10.10
14.1
|
Exchange
Agreement dated August 31, 2005*
Code
of Ethics***
|
|
16.1
|
Letter
dated September 10, 2008 from Raich Ende Malter & Co. LLP, to the
Securities and Exchange Commission**
|
|
23.1
|
Consent
of Meyler & Company, LLC, independent registered public accounting
firm**
|
|
23.2
|
Consent
of Raich Ende Malter & Co. LLP, independent registered public
accounting firm**
|
31.1 Certification
by the Principal Executive Officer and Principal Financial Officer of Mobiform
Software, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule
13a-14(a) or Rule 15d-14(a))***.
32.1 Certification
by the Principal Executive Officer and Principal Financial Officer of Mobiform
Software, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.***
*
|
Incorporated
by reference to the correspondingly numbered exhibit to the Company's
Registration Statement on Form S-1 filed on April 9,
2008.
|
30
**
|
Incorporated
by reference to the correspondingly numbered exhibit to the Company's
Report on Form 8-k filed on September 10,
2008.
|
***
|
Filed
herewith.
|
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, in Crystal River, Florida on January 29 , 2010.
MOBIFORM
SOFTWARE, INC.
|
||
By:
|
/s/
Allen Ronald DeSerranno
|
|
Allen
Ronald DeSerranno
Chief
Executive Officer
and
Chief Financial Officer
|
Pursuant
to the requirements of the Securities Act of 1933, this report has
been signed by the following persons in the capacities and on the dates
indicated:
Name
|
Title
|
Date
|
||
/s/
Allen Ronald DeSerranno
|
Chief
Executive Officer, Chief Financial Officer
and Director
(Principal
Executive, Financial and Accounting Officer)
|
January
29 , 2010
|
||
Allen
Ronald DeSerranno
|
31
Item 7. Financial
Statements
Index to Financial
Statements
|
||
Report
of Independent Registered Public Accounting Firm
|
F-
1
|
|
Consolidated
Balance Sheets
|
F-
2
|
|
Consolidated
Statements of Operations
|
F-
3
|
|
Consolidated
Statements of Stockholders’ Equity (Deficit)
|
F-
4
|
|
Consolidated
Statements of Cash Flows
|
F-
5
|
|
Notes
to Consolidated Financial Statements
|
F-
6
|
32
MEYLER
& COMPANY, LLC
CERTIFIED
PUBLIC ACCOUNTANTS
ONE ARIN
PARK
1715
HIGHWAY 35
MIDDLETOWN,
NJ 07748
Report of
Independent Registered Public Accounting Firm
To the
Board of Directors of
Mobiform
Software, Inc.
Crystal
River, Florida
We have
audited the accompanying consolidated balance sheets of Mobiform Software, Inc.
as of October 31, 2009 and 2008, and the related consolidated statements of
operations, stockholders equity (deficit) and cash flows for each of the
years in the two-year period ended October 31, 2009. Mobiform
Software, Inc.’s management is responsible for these financial statements. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Mobiform Software, Inc. as
of October 31, 2009 and 2008, and the results of its operations and its cash
flows for each of the years in the two-year period ended October 31, 2009, in
conformity with accounting principles generally accepted in the United States of
America.
The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 2 to
the consolidated financial statements, the Company has a net loss of $929,694
for the year ended October 31, 2009, has an accumulated deficit of $7,175,311 at
October 31, 2009, has negative cash flows from operations, and there are
existing uncertain conditions which the Company faces relative to its obtaining
financing, and capital in the equity markets. These conditions raise
substantial doubt about its ability to continue as a going
concern. Management’s plans regarding these matters are also
described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Meyler & Company,
LLC
|
January 29,
2010
Middletown,
NJ
F-1
MOBIFORM SOFTWARE,
INC.
CONSOLIDATED BALANCE
SHEETS
October 31,
|
||||||||
2009
|
2008
|
|||||||
Assets
|
||||||||
Current
Assets
|
||||||||
Cash
and Cash Equivalents
|
$ | 14,966 | $ | 196,512 | ||||
Certificate
of Deposit
|
— | 583,283 | ||||||
Accounts
Receivable – Net
|
9,920 | 30,380 | ||||||
Prepaid
Expenses
|
47,801 | 5,805 | ||||||
Total
Current Assets
|
72,687 | 815,980 | ||||||
Property
and Equipment – Net
|
32,768 | 164,538 | ||||||
Other
Assets
|
||||||||
Security
Deposits
|
3,650 | 3,650 | ||||||
Total
Assets
|
$ | 109,105 | $ | 984,168 | ||||
Liabilities
and Stockholders’ Equity(Deficit)
|
||||||||
Current
Liabilities
|
||||||||
Convertible
Notes Payable
|
$ | 50,000 | $ | 75,000 | ||||
Note
Payable – Related Party
|
50,000 | — | ||||||
Accounts
Payable and Accrued Liabilities
|
110,479 | 139,696 | ||||||
Common
Share Liability
|
29,250 | 400,000 | ||||||
Deferred
Revenue
|
5,833 | 5,833 | ||||||
Total
Current Liabilities
|
245,562 | 620,529 | ||||||
Commitments
and Contingencies
|
— | — | ||||||
Stockholders’
Equity (Deficit)
|
||||||||
Preferred
Stock, $0.0001 Par Value, 5,000,000 Shares Authorized and
Unissued
|
— | — | ||||||
Common
Stock, $0.0001 Par Value; 100,000,000 Shares Authorized; Shares Issued and
Outstanding, 24,410,656 at October 31, 2009 and 23,652,125 at October 31,
2008
|
2,441 | 2,365 | ||||||
Additional
Paid in Capital
|
7,036,413 | 6,606,891 | ||||||
Accumulated
Deficit
|
(7,175,311 | ) | (6,245,617 | ) | ||||
Total
Stockholders’ Equity (Deficit)
|
(136,457 | ) | 363,639 | |||||
Total
Liabilities and Stockholders’ Equity (Deficit)
|
$ | 109,105 | $ | 984,168 |
See
accompanying notes to consolidated financial statements.
F-2
MOBIFORM SOFTWARE,
INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
For the Years Ended
|
||||||||
October 31,
|
||||||||
2009
|
2008
|
|||||||
Revenue
|
$ | 86,510 | $ | 81,770 | ||||
Operating
Expenses
|
||||||||
Payroll
Expenses
|
595,468 | 757,399 | ||||||
Compensation
– Share Based
|
63,336 | 623,320 | ||||||
Consulting
Fees – Share Based
|
284,174 | 66,667 | ||||||
Professional
Fees
|
224,585 | 407,910 | ||||||
Advertising
|
41,295 | 265,625 | ||||||
Depreciation
and Amortization
|
19,288 | 24,522 | ||||||
Consulting
Fees
|
57,300 | 33,595 | ||||||
Office
|
15,450 | 18,939 | ||||||
Rent
|
40,606 | 51,232 | ||||||
Telephone
and Communication
|
11,565 | 12,661 | ||||||
Travel
and Conferences
|
14,117 | 16,883 | ||||||
Auto
|
1,586 | 2,442 | ||||||
Other
|
21,481 | 23,347 | ||||||
Total
Operating Expenses
|
1,390,251 | 2,304,542 | ||||||
Operating
Loss
|
(1,303,741 | ) | (2,222,772 | ) | ||||
Other
Income (Expenses)
|
||||||||
Interest
Income
|
6,035 | 50,392 | ||||||
Interest
Expense
|
(4,625 | ) | (9,090 | ) | ||||
Loss
on Sale of Asset
|
(27,363 | ) | — | |||||
Gain
from Derecognition of Common Share Liability
|
400,000 | — | ||||||
Impairment
Adjustment on Property
|
— | (10,149 | ) | |||||
Amortization
– Debt Discount
|
— | (8,534 | ) | |||||
Amortization
– Deferred Financing Costs
|
— | (5,258 | ) | |||||
Total
Other Income (Expenses)
|
374,047 | 17,361 | ||||||
Loss
Before Income Taxes
|
(929,694 | ) | (2,205,411 | ) | ||||
Provision
for Income Taxes
|
— | — | ||||||
Net
Loss
|
$ | (929,694 | ) | $ | (2,205,411 | ) | ||
Net
Loss Per Common Share – Basic and Diluted
|
$ | (0.04 | ) | $ | (0.09 | ) | ||
Weighted-Average
Common Shares Outstanding – Basic and Diluted
|
23,861,668 | 23,652,125 |
See
accompanying notes to consolidated financial statements.
F-3
MOBIFORM SOFTWARE,
INC.
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY (DEFICIT)
Additional
|
||||||||||||||||||||
Common Stock
|
Paid
|
Accumulated
|
||||||||||||||||||
Shares
|
Amount
|
Capital
|
Deficit
|
Total
|
||||||||||||||||
Balance
– November 1, 2007
|
23,652,125 | $ | 2,365 | $ | 5,983,571 | $ | (4,040,206 | ) | $ | 1,945,730 | ||||||||||
Stock
based compensation
|
— | — | 623,320 | — | 623,320 | |||||||||||||||
Net
loss for the year ended October 31, 2008
|
— | — | — | (2,205,411 | ) | (2,205,411 | ) | |||||||||||||
Balance
– October 31, 2008
|
23,652,125 | 2,365 | 6,606,891 | (6,245,617 | ) | 363,639 | ||||||||||||||
Stock
based compensation
|
— | — | 63,336 | — | 63,336 | |||||||||||||||
Issuance
of common stock upon the conversion of debt and accrued
interest
|
58,124 | 6 | 29,056 | — | 29,062 | |||||||||||||||
Issuance
of common stock for services per consulting contracts
|
500,000 | 50 | 215,950 | — | 216,000 | |||||||||||||||
Issuance
of common stock for compensation per employment agreement
|
200,000 | 20 | 77,980 | — | 78,000 | |||||||||||||||
Issuance
of warrants for cash
|
— | — | 43,200 | — | 43,200 | |||||||||||||||
Issuance
of common stock for correction of merger shares
|
407 | — | — | — | — | |||||||||||||||
Net
loss for the year ended October 31, 2009
|
— | — | — | (929,694 | ) | (929,694 | ) | |||||||||||||
Balance
– October 31, 2009
|
24,410,656 | $ | 2,441 | $ | 7,036,413 | $ | (7,175,311 | ) | $ | (136,457 | ) |
See
accompanying notes to consolidated financial statements.
F-4
MOBIFORM SOFTWARE,
INC.
CONSOLIDATED STATEMENTS OF
CASH FLOWS
For the Years Ended
|
||||||||
October 31,
|
||||||||
2009
|
2008
|
|||||||
Operating
Activities
|
||||||||
Net
Loss
|
$ | (929,694 | ) | $ | (2,205,411 | ) | ||
Adjustments
to Reconcile Net Loss to Net Cash
|
||||||||
Used
for Operating Activities:
|
||||||||
Depreciation
and Amortization
|
19,288 | 24,522 | ||||||
Consulting
Fees – Share Based
|
284,174 | 66,667 | ||||||
Compensation
– Share Based
|
63,336 | 623,320 | ||||||
Gain
from Derecognition of Common Share Liability
|
(400,000 | ) | — | |||||
Loss
on Sale of Asset
|
27,363 | — | ||||||
Amortization
– Debt Discount
|
— | 8,534 | ||||||
Amortization
– Deferred Financing Costs
|
— | 5,258 | ||||||
Bad
Debt
|
— | 5,440 | ||||||
Impairment
Adjustment on Property
|
— | 10,149 | ||||||
Changes
in Assets and Liabilities:
|
||||||||
(Increase)
Decrease in:
|
||||||||
Accounts
Receivable
|
20,460 | (35,820 | ) | |||||
Prepaid
Expenses
|
(2,920 | ) | 106,892 | |||||
Security
Deposit
|
— | 1,000 | ||||||
Increase
(Decrease) in:
|
||||||||
Accounts
Payable and Accrued Liabilities
|
(25,155 | ) | 56,052 | |||||
Net
Cash Used for Operating Activities
|
(943,148 | ) | (1,333,397 | ) | ||||
Investing
Activities
|
||||||||
Redemption
of Certificate of Deposit
|
583,283 | 1,449,607 | ||||||
Proceeds
from Sale of Asset
|
85,119 | — | ||||||
Acquisition
of Property & Equipment
|
— | (7,081 | ) | |||||
Net
Cash Provided by Investing Activities
|
668,402 | 1,442,526 | ||||||
Financing
Activities
|
||||||||
Proceeds
from sale of warrants
|
43,200 | — | ||||||
Proceeds
from note payable – related party
|
50,000 | — | ||||||
Payment
of convertible debt
|
— | (100,000 | ) | |||||
Net
Cash Provided by (Used for) Financing Activities
|
93,200 | (100,000 | ) | |||||
Change
in Cash and Cash Equivalents
|
(181,546 | ) | 9,129 | |||||
Cash
and Cash Equivalents – Beginning of Year
|
196,512 | 187,383 | ||||||
Cash
and Cash Equivalents – End of Year
|
$ | 14,966 | $ | 196,512 | ||||
Supplemental
Disclosures of Cash Flow Information
|
||||||||
Cash
paid during the year for:
|
||||||||
Interest
|
$ | — | $ | 10,163 | ||||
Income
Taxes
|
$ | — | $ | — | ||||
Supplemental
Disclosures of Non-Cash Investing and Financing
Activities:
|
||||||||
Debt
and Accrued Interest Converted into Common Stock
|
$ | 29,062 | $ | — | ||||
Common
Stock Issued for Prepaid Consulting Expense
|
$ | 216,000 | $ | — |
See
accompanying notes to consolidated financial statements.
F-5
MOBIFORM SOFTWARE,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31,
2009
(1) Nature of Business and Basis
of Presentation
Mobiform
Software, Inc, (“Mobiform US”), a Delaware corporation, was originally formed
under the name Firefly Learning, Inc. in May 2001. In October, 2005, pursuant to
an exchange agreement, we acquired all of the issued and outstanding shares of
capital stock of Mobiform Software, Ltd. (“Mobiform Canada”), a Canadian
corporation, in exchange for 14,299,593 shares of our common
stock. The closing date of the exchange agreement was October 27,
2005. However, for accounting purposes the transaction is treated as being
effective October 31, 2005. In connection with the agreement, Mobiform US issued
14,299,593 shares of common stock to the shareholders of Mobiform Canada in
exchange for 100% of the outstanding shares of Mobiform Canada. As a result,
Mobiform Canada became a 100% owned subsidiary of Mobiform US with the former
shareholders of Mobiform Canada owning approximately 89% of the then outstanding
shares of Mobiform US. For accounting purposes, the transaction is being
recorded as a recapitalization with the shareholders of Mobiform Canada as the
acquirers. The 14,299,593 shares of common stock issued in the transaction are
shown as outstanding for all periods presented in the same manner as a stock
split. The accompanying financial statements reflect the consolidated operations
of the company from November 1, 2005.
Mobiform
US and Mobiform Canada (collectively “Mobiform”, the “Company”, “we” or “us”)
are in the business of developing graphics authoring products that enable
software developers and designers to visually build documents and have them
automatically converted into XAML (Extensible Application Markup Language) the
new language in recently released Microsoft Windows Vista. We license and
maintain these software products throughout the United States, Canada, and
Europe.
(2) Going
Concern
The
accompanying consolidated financial statements have been prepared assuming that
we will continue as a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business. We have incurred substantial net operating losses and used
substantial amounts of cash in our operating activities. Since our
inception, we have incurred losses, have an accumulated deficit of $7,175,311 at
October 31, 2009, and have experienced negative cash flows from
operations. The expansion and development of our business will likely
require additional capital. This condition raises substantial doubt
about our ability to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments that might be
necessary should we be unable to continue as a going concern.
We are
presently working to raise additional capital to meet our working capital needs
and are restructuring operating costs as we continue to market our products in
line with our business plan. There are no assurances, however, that
we will be successful in our efforts to raise capital or generate sufficient
revenues through our marketing efforts or to reduce operating costs to a level
where we will attain profitability.
F-6
MOBIFORM SOFTWARE,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31,
2009
(3)
|
Summary of Significant
Accounting Policies
|
Principles of
Consolidation - The consolidated financial statements include the
accounts of Mobiform Software, Inc. and its wholly-owned Canadian subsidiary,
Mobiform Software, Ltd. All material intercompany balances and
transactions have been eliminated in consolidation.
Use of Estimates -
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Accounting Standards
Codification -The Financial Accounting Standards Board’s (FASB)
Accounting Standards Codification (ASC) became effective on July 1, 2009.
At that date, the ASC became FASB’s officially recognized source of
authoritative U.S. generally accepted accounting principles (GAAP) applicable to
all public and non-public non-governmental entities, superseding existing FASB,
American Institute of Certified Public Accountants (AICPA), Emerging Issues Task
Force (EITF) and related literature. Rules and interpretive releases of the SEC
under the authority of federal securities laws are also sources of authoritative
GAAP for SEC registrants. All other accounting literature is considered
non-authoritative. The switch to the ASC affects the away companies refer to
U.S. GAAP in financial statements and accounting policies. Citing particular
content in the ASC involves specifying the unique numeric path to the content
through the Topic, Subtopic, Section and Paragraph structure.
Cash and Cash
Equivalents - We consider all highly liquid investments, with a maturity
of three months or less when purchased, to be cash equivalents.
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 collectibility 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.
F-7
MOBIFORM SOFTWARE,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31,
2009
(3) Summary of Significant
Accounting Policies (Continued)
Fair Value of Financial
Statements – FASB ASC Topic 825 “Financial
Instruments” requires the disclosure of fair values for all financial
statements, both on-and off-balance-sheet, for which it is practicable to
estimate fair value. We estimate that there are no material variations between
fair value and book value of our financial assets and liabilities as of October
31, 2009 and 2008. We generally do not require collateral related to
our financial instruments.
Concentration of Credit
Risk - Financial instruments that potentially subject us to significant
concentrations of credit risk consist principally of cash, cash equivalents,
certificates of deposit, and accounts receivable.
We
maintain our cash and cash equivalents and certificates of deposit in accounts
with a major financial institution in the United States in the form of demand
deposits and certificates of deposit. Deposits in these banks may
exceed the amounts of insurance provided on such deposits. No such
amounts were at risk as of October 31, 2009. As of October 31, 2008,
we had approximately $540,000 in deposits subjected to such risk. We
have not experienced any losses on our deposits of cash, cash equivalents, and
certificates of deposit.
Concentrations
of credit risk with respect to trade accounts receivable are
limited. We routinely assess the financial strength of customers and,
based upon factors concerning credit risk, we establish an allowance for
doubtful accounts. As of October 31, 2009 and 2008, based on this
assessment, management established an allowance for doubtful accounts of
$5,440. Management believes that accounts receivable credit risk
exposure beyond such allowance is limited.
Impairment of Long-Lived
Assets - We review our long-lived assets and identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. When such factors
and circumstances exist, we compare the projected undiscounted future cash flows
associated with the future use and disposal of the related assets or group of
assets to their respective carrying amounts. Impairment, if any, is
measured as the excess of the carrying amount over the fair value based on
market value (when available) or discounted expected cash flows of those assets,
and is recorded in the period in which the determination is made.
Equity-Based
Compensation - We account for equity based compensation transactions with
employees under the provisions of FASB ASC Topic 718, “Compensation, Stock
Compensation” (“Topic 718”). Topic 718 requires the recognition of the fair
value of equity-based compensation in net income. The fair value of the
Company’s equity instruments are estimated using a Black-Scholes option
valuation model. This model requires the input of highly subjective assumptions
and elections including expected stock price volatility and the estimated life
of each award. In addition, the calculation of equity-based compensation costs
requires that we estimate the number of awards that will be forfeited during the
vesting period. The fair value of equity-based awards granted to employees is
amortized over the vesting period of the award and we elected to use the
straight-line method for awards granted after the adoption of Topic No.
718.
We
account for equity based transactions with non-employees under the provisions of
FASB ASC Topic 505-50, “Equity-Based Payments to Non-Employees” (“Topic
505-50”). Topic 505-50 establishes that equity-based payment transactions with
non-employees shall be measured at the fair value of the consideration received
or the fair value of the equity instruments issued, whichever is more reliably
measurable. When the equity instrument is utilized for measurement the fair
value of the equity instrument is estimated using the Black-Scholes option
valuation model. In general, we recognize an asset or expense in the same manner
as if we were to receive cash for the goods or services instead of paying with
or using the equity instrument.
F-8
MOBIFORM SOFTWARE,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31,
2009
(3)
|
Summary of Significant
Accounting Policies
(Continued)
|
Advertising Expense -
We expense advertising costs as incurred.
Property and
Equipment - Property and equipment are carried at cost less accumulated
depreciation. Depreciation and amortization is recorded on the
straight-line method over three to fifteen years, which approximates the
estimated useful lives of the assets. Routine maintenance and repair
costs are charged to expense as incurred and renewals and improvements that
extend the useful life of the assets are capitalized. Upon sale or
retirement, the cost and related accumulated depreciation and amortization are
eliminated from the respective accounts and any resulting gain or loss is
reported in the statement of operations.
Income Taxes – We
account for income taxes under the provisions of FASB ASC Topic 740 “Income
Taxes” (“Topic 740”) which requires the use of the liability method of
accounting for income taxes. The liability method measures deferred income taxes
by applying enacted statutory rates in effect at the balance sheet date to the
differences between the tax basis of assets and liabilities and their reported
amounts on the financial statements. The resulting deferred tax assets or
liabilities are adjusted to reflect changes in tax laws as they occur. A
valuation allowance is provided when it is more likely than not that a deferred
tax asset will not be realized. At October 31, 2009 and 2008, the entire
deferred tax asset, which arises primarily from our capitalized pre-operating
costs, has been fully reserved because management has determined that it is not
more likely than not that the net operating loss carry forwards will be realized
in the future.
On
November 1, 2007, the Company adopted the provisions of Topic 740 as they relate
to uncertainty in income tax positions. There was no impact on the Company's
consolidated financial position, results of operations or cash flows at October
31, 2007 and for the year then ended, as a result of implementing these
provisions. At the adoption date of November 1, 2007 and October 31, 2009 and
2008, the Company did not have any unrecognized tax benefits. The Company's
practice is to recognize interest and/or penalties related to income tax matters
in income tax expense. As of November 1, 2007 and October 31, 2009 and 2008, the
Company had no accrued interest or penalties. The Company currently has no
federal or state tax examinations in progress nor has it had any federal or
state tax examinations since its inception. All of the Company's tax years are
subject to federal and state tax examination.
F-9
MOBIFORM SOFTWARE,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31,
2009
(3)
|
Summary of Significant
Accounting Policies
(Continued)
|
Deferred Financing
Costs – Deferred financing costs are amortized to interest expense over
the life of the notes. The unamortized pro rata portion of the
deferred costs is charged to operations upon the conversion of the notes or any
portion thereof. As of October 31, 2009, these costs have been fully
amortized.
Earnings (Loss) Per
Share - Basic earnings (loss) per share is computed
by dividing net income (loss) by the weighted average number of common shares
outstanding during the period. Diluted earnings per share reflects the amount of
earnings for the period available to each share of common stock outstanding
during the reporting period, while giving effect to all dilutive potential
common shares that were outstanding during the period, such as common shares
that could result from the potential exercise or conversion of securities into
common stock. The assumed exercise of common stock equivalents was
not utilized in the years ended October 31, 2009 and 2008 since the effect would
be anti-dilutive.
Years ended
|
||||||||
October 31,
|
||||||||
2009
|
2008
|
|||||||
Basic
|
$ | (0.04 | ) | $ | (0.09 | ) | ||
Diluted
|
$ | (0.04 | ) | $ | (0.09 | ) |
Equity
instruments that may dilute earnings per share in the future are listed in Notes
6, 7 and 10.
Research and Development
Costs - Research and development costs are expensed as incurred. There
were no research and development costs in 2009 and 2008.
F-10
MOBIFORM SOFTWARE,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31,
2009
4.
|
New Authoritative
Accounting Guidance
|
As
discussed in Note 3 - Significant Accounting Policies, on July 1, 2009, the
Accounting Standards Codification (“ASC”) became FASB’s officially recognized
source of authoritative U.S. generally accepted accounting principles applicable
to all public and non-public non-governmental entities, superseding existing
FASB, AICPA, EITF and related literature. Rules and interpretive releases of the
SEC under the authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. All other accounting literature is
considered non-authoritative. The switch to the ASC affects the way companies
refer to U.S. GAAP in financial statements and accounting policies. Citing
particular content in the ASC involves specifying the unique numeric path to the
content through the Topic, Subtopic, Section and Paragraph
structure.
FASB ASC Topic 260, “Earnings Per
Share.” New authoritative accounting guidance under FASB ASC Topic 260,
“Earnings Per Share,” provides that unvested share-based payment awards that
contain nonforfeitable rights to dividends or dividend equivalents (whether paid
or unpaid) are participating securities and shall be included in the computation
of earnings per share pursuant to the two-class method. The new
authoritative accounting guidance will be effective for the Company’s
consolidated financial statements beginning November 1, 2009 and is not
expected to have a significant impact on the Company’s consolidated financial
statements.
FASB ASC Topic 320, “Investments -
Debt and Equity Securities.” New authoritative accounting guidance under
ASC Topic 320, “Investments - Debt and Equity Securities,” (i) changes
existing guidance for determining whether an impairment is other than temporary
to debt securities and (ii) replaces the existing requirement that the
entity’s management assert it has both the intent and ability to hold an
impaired security until recovery with a requirement that management assert:
(a) it does not have the intent to sell the security; and (b) it is
more likely than not it will not have to sell the security before recovery of
its cost basis. Under ASC Topic 320, declines in the fair value of
held-to-maturity and available-for-sale securities below their cost that are
deemed to be other than temporary are reflected in earnings as realized losses
to the extent the impairment is related to credit losses. The amount of the
impairment related to other factors is recognized in other comprehensive income.
The new authoritative accounting guidance will be effective for the Company’s
consolidated financial statements beginning November 1, 2009 and is not
expected to have a significant impact on the Company’s consolidated financial
statements.
FASB ASC Topic 805, “Business
Combinations.” New authoritative accounting guidance under ASC Topic 805,
“Business Combinations,” applies to all transactions and other events in which
one entity obtains control over one or more other businesses. ASC Topic 805
requires an acquirer, upon initially obtaining control of another entity, to
recognize the assets, liabilities and any non-controlling interest in the
acquiree at fair value as of the acquisition date. Contingent consideration is
required to be recognized and measured at fair value on the date of acquisition
rather than at a later date when the amount of that consideration may be
determinable beyond a reasonable doubt. This fair value approach replaces the
cost-allocation process required under previous accounting guidance whereby the
cost of an acquisition was allocated to the individual assets acquired and
liabilities assumed based on their estimated fair value. ASC Topic 805 requires
acquirers to expense acquisition-related costs as incurred rather than
allocating such costs to the assets acquired and liabilities assumed, as was
previously the case under prior accounting guidance. Assets acquired and
liabilities assumed in a business combination that arise from contingencies are
to be recognized at fair value if fair value can be reasonably estimated. If
fair value of such an asset or liability cannot be reasonably estimated, the
asset or liability would generally be recognized in accordance with ASC Topic
450, “Contingencies.” Under ASC Topic 805, the requirements of ASC Topic 420,
“Exit or Disposal Cost Obligations,” would have to be met in order to accrue for
a restructuring plan in purchase accounting. Pre-acquisition contingencies are
to be recognized at fair value, unless it is a non-contractual contingency that
is not likely to materialize, in which case, nothing should be recognized in
purchase accounting and, instead, that contingency would be subject to the
probable and estimable recognition criteria of ASC Topic 450,
“Contingencies.” The
new authoritative accounting guidance will be effective for the Company’s
consolidated financial statements beginning November 1, 2009 and is not
expected to have a significant impact on the Company’s consolidated financial
statements.
F-11
MOBIFORM SOFTWARE,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31,
2009
4.
|
New Authoritative
Accounting Guidance
(Continued)
|
FASB ASC Topic 810,
“Consolidation.” New authoritative accounting guidance under ASC Topic
810, “Consolidation,” amended prior guidance to establish accounting and
reporting standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. Under ASC Topic 810, a non-controlling interest
in a subsidiary, which is sometimes referred to as minority interest, is an
ownership interest in the consolidated entity that should be reported as a
component of equity in the consolidated financial statements. Among other
requirements, ASC Topic 810 requires consolidated net income to be reported
at amounts that include the amounts attributable to both the parent and the
non-controlling interest. It also requires disclosure, on the face of the
consolidated income statement, of the amounts of consolidated net income
attributable to the parent and to the non-controlling interest.
Further
new authoritative accounting guidance under ASC Topic 810 amends prior guidance
to change how a company determines when an entity that is insufficiently
capitalized or is not controlled through voting (or similar rights) should be
consolidated. The determination of whether a company is required to consolidate
an entity is based on, among other things, an entity’s purpose and design and a
company’s ability to direct the activities of the entity that most significantly
impact the entity’s economic performance. The new authoritative accounting
guidance requires additional disclosures about the reporting entity’s
involvement with variable-interest entities and any significant changes in risk
exposure due to that involvement as well as its affect on the entity’s financial
statements.
The new
authoritative accounting guidance under ASC Topic 810 will be effective for the
Company on November 1, 2009 and is not expected to have a significant
impact on the Company’s consolidated financial statements.
FASB ASC Topic 815, “Derivatives and
Hedging.” New authoritative accounting guidance under ASC Topic 815,
“Derivatives and Hedging,” amends prior guidance to amend and expand the
disclosure requirements for derivatives and hedging activities to provide
greater transparency about (i) how and why an entity uses derivative
instruments, (ii) how derivative instruments and related hedge items are
accounted for under ASC Topic 815, and (iii) how derivative instruments and
related hedged items affect an entity’s financial position, results of
operations and cash flows. To meet those objectives, the new authoritative
accounting guidance requires qualitative disclosures about objectives and
strategies for using derivatives, quantitative disclosures about fair value
amounts of gains and losses on derivative instruments and disclosures about
credit-risk-related contingent features in derivative agreements. The new
authoritative accounting guidance under ASC Topic 815 will be effective for the
Company on November 1, 2009 and is not expected to have a significant
impact on the Company’s consolidated financial statements.
FASB ASC Topic 820, “Fair Value
Measurements and Disclosures.” New authoritative accounting guidance
under ASC Topic 820,”Fair Value Measurements and Disclosures,” affirms that the
objective of fair value when the market for an asset is not active is the price
that would be received to sell the asset in an orderly transaction, and
clarifies and includes additional factors for determining whether there has been
a significant decrease in market activity for an asset when the market for that
asset is not active. ASC Topic 820 requires an entity to base its conclusion
about whether a transaction was not orderly on the weight of the evidence. The
new accounting guidance amended prior guidance to expand certain disclosure
requirements. The Company adopted the new authoritative accounting guidance
under ASC Topic 820. Adoption of the new guidance did not
significantly impact the Company’s consolidated financial
statements.
F-12
MOBIFORM SOFTWARE,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31,
2009
4.
|
New Authoritative
Accounting Guidance
(Continued)
|
Further
new authoritative accounting guidance (Accounting Standards Update
No. 2009-5) under ASC Topic 820 provides guidance for measuring the fair
value of a liability in circumstances in which a quoted price in an active
market for the identical liability is not available. In such instances, a
reporting entity is required to measure fair value utilizing a valuation
technique that uses (i) the quoted price of the identical liability when
traded as an asset, (ii) quoted prices for similar liabilities or similar
liabilities when traded as assets, or (iii) another valuation technique
that is consistent with the existing principles of ASC Topic 820, such as an
income approach or market approach. The new authoritative accounting guidance
also clarifies that when estimating the fair value of a liability, a reporting
entity is not required to include a separate input or adjustment to other inputs
relating to the existence of a restriction that prevents the transfer of the
liability. The forgoing new authoritative accounting guidance under ASC Topic
820 will be effective for the Company’s consolidated financial statements
beginning November 1, 2009 and is not expected to have a significant impact
on the Company’s consolidated financial statements.
FASB ASC Topic 825 “Financial
Instruments.” New authoritative accounting guidance under ASC Topic
825,”Financial Instruments,” requires an entity to provide disclosures about the
fair value of financial instruments in interim financial information and amends
prior guidance to require those disclosures in summarized financial information
at interim reporting periods. The new authoritative accounting guidance will be
effective for the Company’s consolidated financial statements beginning
November 1, 2009 and is not expected to have a significant impact on the
Company’s consolidated financial statements.
FASB ASC Topic 855, “Subsequent
Events.” New authoritative accounting guidance under ASC Topic 855,
“Subsequent Events,” establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or available to be issued. ASC Topic 855 defines
(i) the period after the balance sheet date during which a reporting
entity’s management should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, (ii) the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and
(iii) the disclosures an entity should make about events or transactions
that occurred after the balance sheet date. The new authoritative accounting
guidance under ASC Topic 855 became effective for the Company’s financial
statements for periods ending after June 15, 2009 and did not have a
significant impact on the Company’s consolidated financial statements. The company
evaluated events between the end of the fiscal year, October 31, 2009 and
January 29, 2010, the date the consolidated financial statements were
issued.
Management
does not believe that any other recently issued but not yet effective accounting
pronouncements, if adopted, would have an effect on the accompanying
consolidated financial statements.
F-13
MOBIFORM SOFTWARE,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31,
2009
(5) Property and
Equipment
Property
and equipment consists of the following:
October 31,
|
October 31,
|
Estimated
|
|||||||
2009
|
2008
|
Useful Lives
|
|||||||
Condominium
(1)
|
$ | — | $ | 129,664 |
15
years
|
||||
Computer
Equipment
|
30,023 | 30,023 |
5
years
|
||||||
Office
Equipment
|
24,432 | 24,432 |
5-7
years
|
||||||
Software
|
16,935 | 16,935 |
3
years
|
||||||
Total
|
71,390 | 201,054 | |||||||
Less:
Accumulated Depreciation and Amortization
|
(38,622 | ) | (36,516 | ) | |||||
$ | 32,768 | $ | 164,538 |
(1)
|
The
decline in the United States (“U.S.”) economy and its effect on the U.S.
real estate market, the State of Florida in particular, were factors which
management felt were significant in relation to the carrying amount of the
condominium owned by the Company. Management determined that
based on available market value data as of October 31, 2008, the carrying
amount of such asset had become impaired. As a result we
recorded a charge of $10,149 to adjust the carrying amount of the
condominium to fair value as of October 31, 2008. In June 2009, the
Company sold the condominium.
|
(6) Convertible
Debt
In
October 2006, we issued one (1) unit and through February 2007 we issued an
additional fifteen (15) units of the Company’s $25,000 promissory convertible
notes for an aggregate of $400,000. Each unit consisted of an 8%
interest bearing convertible promissory note and warrants to acquire 12,500
shares of the Company’s common stock at $0.75 per share through December 31,
2011. The notes are convertible into shares of our common stock at
$0.50 per share at any time prior to maturity. Interest on the notes
at 8% per annum is payable at such time the notes are converted and/or at such
time the notes are due and payable in cash and/or in shares of our common stock
at the option of the noteholder.
In
accordance with FASB ASC Topic 470-20 “Debt with Conversion and Other Options”,
we first allocated the proceeds received from the placement to the notes of
$16,587 in 2006 and $253,233 in 2007. The balance of proceeds
received was allocated to the warrants in the amount of $8,413 in 2006 and
$121,767 in 2007 as additional paid-in-capital, based on their relative fair
values. Then we recognized an imbedded beneficial conversion feature
present in the convertible notes resulting in the recognition of $2,497 and
$37,448 in 2006 and 2007 as debt discount and additional paid-in-capital, which
is equal to the intrinsic value of the imbedded beneficial conversion
feature. The debt discount was amortized over the 1 year maturity
period of the notes as interest expense. At October 31, 2009 and
2008, the convertible notes outstanding aggregated $50,000 and $75,000,
respectively.
F-14
MOBIFORM SOFTWARE,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31,
2009
(6) Convertible Debt
(Continued)
The
warrants and the beneficial conversion feature were valued using the
Black-Scholes pricing model. The following assumptions were made in
estimating their fair value:
Expected
Life
|
5
Years
|
Expected
Volatility
|
285.6%-
316.4%
|
Risk-Free
Interest Rate
|
4.50%
- 5.25%
|
Dividend
Yield
|
0%
|
In August
2007, the noteholders converted $225,000 in promissory notes and $11,519 of
accrued interest into 473,198 shares of our common stock. In March 2008, we paid
$110,163 in cash (including $10,163 in accrued interest) to one of the
noteholders in full settlement of our obligation to him. In January
2009, one of our promissory convertible noteholders converted $25,000 in notes
and $4,062 of accrued interest into 58,124 shares of our common
stock.
We
employed the services of a placement agent to assist in the convertible debt
offering for which we paid cash commissions of $50,000 and warrants to acquire
110,000 shares of our common stock at $0.20 per share. The fair
market value of the warrants, using the Black-Scholes pricing model, was
$21,992. The commissions and the fair value of the warrants were
amortized over the life of the debt. Upon the conversion of the
$225,000 of debt into our common shares, the pro rata unamortized portion of the
deferred finance costs was charged to operations.
(7) Stockholders’
Equity
We are
authorized to issue 100,000,000 shares of common stock, par value $.0001 per
share and 5,000,000 shares of preferred stock, par value $0.0001 per share. In
February 2008, we increased the number of authorized shares of common stock from
45,000,000 to 100,000,000 to allow for potential future issuances of our common
stock. At October 31, 2009 there were 24,410,656 common shares issued and
outstanding. An additional 11,787,084 common shares were reserved for
issuance as of October 31, 2009 for outstanding purchase warrants and
convertible debt. There are no shares of preferred stock issued and
outstanding.
In
January 2009, one of our promissory convertible noteholders converted $25,000 in
notes and $4,062 of accrued interest into 58,124 shares of our common
stock.
F-15
MOBIFORM SOFTWARE,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31,
2009
(7) Stockholders’ Equity
(Continued)
In June
2009, we issued 100,000 shares of our common stock to a consultant for services
to be performed as defined in the consulting agreement. The shares
were valued at $60,000 which was the cash value, as defined in the agreement, if
the shares were not issued. The amount is accounted for as a prepaid asset and
is to be expensed over the life of the agreement which term ends June of 2010.
In the year ended October 31, 2009, approximately $21,000 has been
expensed.
In June
2009, we issued 407 shares of our common stock to one of the previous
shareholders of Mobiform Canada which were required to be issued per the
original exchange agreement (See Note 1).
On July
29, 2009, we issued 400,000 shares of our common stock to a consultant for
services to be rendered per a consulting agreement effective August 1,
2009. The shares, which were deemed earned upon the signing of the
agreement, were valued at $156,000 ($0.39 per share) and expensed in the year
ended October 31, 2009. Additionally, the consultant is to be issued 25,000
fully vested common shares each month over the six month term of the agreement
(total of 150,000 shares). As of October 31, 2009, a total of 75,000 common
shares have been earned but have not been issued (See Note 10).
In August
2009, we issued 200,000 shares of our common stock to our Vice-President per his
consultant agreement (see Note 10).
In August
2009, we initiated a private placement offering of equity securities to a
limited number of accredited investors. The offering is through the sale of
units, with each unit consisting of a warrant to purchase 60,000 shares of our
common stock at $0.25 per share. The offering price per unit is $4,800 with a
total of 100 units ($480,000) being offered. We sold 9 units in September and
October 2009 and received proceeds of $43,200.
We
entered into a consulting agreement on January 1, 2007 that either party could
cancel upon 10 days notice. As part of the compensation for services, the
consultant was to receive an aggregate of 750,000 shares of the Company’s common
stock. The consultant earned and was issued 350,000 shares. The issuance of the
remaining 400,000 common shares was contingent upon certain actions by us. Since
it was and remains our intent that such actions would be fulfilled, we charged
operations in 2007 and 2008 for the value of such common shares and had an
accrued common share liability at October 31, 2008 of $400,000 for the fair
value of the 400,000 shares. During the first quarter of fiscal 2009 we mutually
agreed with the consultant to cancel the obligation to issue the 400,000 common
shares. As a result, we reduced the accrued common share liability and recorded
a gain from derecognition of common share liability for $400,000 in the year
ended October 31, 2009.
On
September 24, 2009, our Board of Directors authorized the extension of the
expiration date of the common stock purchase warrants issued in our 2007 equity
private placement. The warrants, exercisable at $1.50 per share, were set to
expire on December 31, 2009. The expiration date has now been extended to
December 31, 2011. There has been no modification to the exercise price. An
aggregate of 3,471,000 warrants have been extended. The fair value of the
warrants, estimated at approximately $15,000 as of the modification date using
the Black-Scholes pricing model, is accounted for in equity as a capital raise
cost which is offset by an identical amount in additional paid in
capital.
F-16
MOBIFORM SOFTWARE,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31,
2009
(7) Stockholders’ Equity
(Continued)
In
January 2008, we issued warrants to employees to purchase 140,000 common shares
at $1.50 per share. During the years ended October 31, 2009 and 2008, warrants
issued to employees to acquire 190,000 and 250,000 common shares, respectively,
at $1.50 per share were forfeited due to separation of services. In
addition, our CEO and former Secretary voluntarily cancelled warrants to
purchase 6,000,000 common shares at $0.75 per share.
At
October 31, 2009, we have 4,424,000 outstanding warrants to
employees. The fair value of all the warrants issued for services is
being charged to operations over the periods the warrants
vest. Amortization of the fair values charged to operations as
determined by the Black-Scholes pricing model was $63,336 and $623,320 for the
years ended October 31, 2009 and 2008, respectively. All the warrants
have cashless exercise provisions as defined in the warrants.
The fair
value of each warrant is estimated on the date of grant using the Black-Scholes
pricing model. The following assumptions were made in estimating fair
value:
October 31, 2009
|
October 31, 2008
|
|||||||
Dividend
Yield
|
— | % | — | % | ||||
Risk-Free
Interest Rate
|
.93 | % | 5.25 | % | ||||
Expected
Life
|
2
Years
|
5
Years
|
||||||
Expected
Volatility
|
44.42 | % | 280.2 | % |
F-17
MOBIFORM SOFTWARE,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31,
2009
(7) Stockholders’ Equity
(Continued)
The
following table summarizes the warrants and options.
For
the Year Ended
|
For
the Year Ended
|
|||||||||||||||
October 31, 2009
|
October 31, 2008
|
|||||||||||||||
Shares
|
Weighted
Average
Exercise
Price
|
Shares
|
Weighted
Average
Exercise
Price
|
|||||||||||||
Outstanding
at beginning
|
||||||||||||||||
of period
|
17,313,750 | $ | 0.73 | 17,423,750 | $ | 0.74 | ||||||||||
Granted/Sold
|
540,000 | $ | 0.25 | 140,000 | $ | 1.50 | ||||||||||
Expired/Cancelled
|
(6,000,000 | ) | $ | 0.75 | — | — | ||||||||||
Forfeited
|
(190,000 | ) | $ | 1.50 | (250,000 | ) | $ | 1.50 | ||||||||
Exercised
|
— | — | — | — | ||||||||||||
Outstanding
at end of period
|
11,663,750 | $ | 0.68 | 17,313,750 | $ | 0.73 |
The
following table summarizes information about stock warrants and options
outstanding as of October 31, 2009:
Warrants and Options
|
||||||||||||||||||||||
Outstanding
|
Exercisable
|
|||||||||||||||||||||
Weighted-
|
||||||||||||||||||||||
Average
|
||||||||||||||||||||||
Remaining
|
Weighted-
|
Weighted
|
||||||||||||||||||||
Contractual
|
Average
|
Average
|
||||||||||||||||||||
Number
|
Life
|
Exercise
|
Number
|
Exercise
|
||||||||||||||||||
Exercise Price
|
Outstanding
|
(in Years)
|
Price
|
Exercisable
|
Price
|
|||||||||||||||||
$ | 0.20 | 5,630,000 | 1.42 | $ | 0.20 | 5,630,000 | $ | 0.20 | ||||||||||||||
$ | 0.25 | 540,000 | 1.83 | $ | 0.25 | 540,000 | $ | 0.25 | ||||||||||||||
$ | 0.75 | 2,022,750 | 2.63 | $ | 0.75 | 2,022,750 | $ | 0.75 | ||||||||||||||
$ | 1.50 | 3,471,000 | 2.17 | $ | 1.50 | 3,471,000 | $ | 1.50 |
F-18
MOBIFORM SOFTWARE,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31,
2009
(7) Stockholders’ Equity
(Continued)
The
following table summarizes information about stock warrants and options
outstanding as of October 31, 2008:
Warrants and Options
|
||||||||||||||||||||
Outstanding
|
Exercisable
|
|||||||||||||||||||
Weighted-
|
||||||||||||||||||||
Average
|
||||||||||||||||||||
Remaining
|
Weighted-
|
Weighted
|
||||||||||||||||||
Contractual
|
Average
|
Average
|
||||||||||||||||||
Number
|
Life
|
Exercise
|
Number
|
Exercise
|
||||||||||||||||
Exercise Price
|
Outstanding
|
(in Years)
|
Price
|
Exercisable
|
Price
|
|||||||||||||||
$0.20
|
5,630,000 | 2.35 | $ | 0.20 | 5,630,000 | $ | 0.20 | |||||||||||||
$0.75
|
8,022,750 | 3.10 | $ | 0.75 | 6,496,750 | $ | 0.75 | |||||||||||||
$1.50
|
3,661,000 | 1.32 | $ | 1.50 | 3,531,000 | $ | 1.50 |
At
October 31, 2009 and 2008, the weighted-average exercise price of all warrants
and options was $ $0.68 and $0.73, respectively, and the weighted-average
remaining contractual life was 1.87 and 2.48 years, respectively.
(8) Income
Taxes
The
income tax expense (benefit) differs from the amount computed by applying the
United States statutory corporate income tax rate as follows:
For
the Years Ended
|
||||||||
October
31,
|
||||||||
2009
|
2008
|
|||||||
United
States Statutory Corporate
|
||||||||
Income
Tax Rate
|
(34.0 | )% | (34.0 | )% | ||||
Permanent
Differences
|
— | % | — | % | ||||
Change
in Valuation Allowance on
|
||||||||
Deferred
Tax Assets
|
34.0 | % | 34.0 | % | ||||
Effect
of Foreign Earnings, Net of
|
||||||||
Allowable
Credits
|
— | % | — | % | ||||
Income Tax Provision
(Benefit)
|
— | % | — | % |
F-19
MOBIFORM SOFTWARE,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31,
2009
(8) Income Taxes
(Continued)
The
components of deferred tax assets (liabilities) at October 31, 2009 and 2008 are
as follows:
October
31,
|
October
31,
|
|||||||
2009
|
2008
|
|||||||
Deferred
Tax Assets – Current
|
||||||||
Accrued Vacation
Pay
|
$ | 6,400 | $ | 5,821 | ||||
Allowance for Doubtful
Accounts
|
1,850 | 1,850 | ||||||
Valuation
Allowance
|
(8,250 | ) | (7,671 | ) | ||||
— | — | |||||||
Deferred
Tax Assets (Liabilities) – Long Term
|
||||||||
Net Operating
Losses
|
$ | 1,230,675 | 874,531 | |||||
Property and
Equipment
|
2,470 | 493 | ||||||
Equity
Instruments
|
554,156 | 668,622 | ||||||
Valuation
Allowance
|
(1,787,301 | ) | (1,543,646 | ) | ||||
Net Deferred Tax
Asset
|
$ | — | $ | — |
We have
established a full valuation allowance on our deferred tax asset because of a
lack of sufficient positive evidence to support its realization. The
valuation allowance increased by approximately $244,000 and $747,000 in the
years ended October 31, 2009 and 2008, respectively.
F-20
(9) Related Party
Transactions
On
October 16, 2009, we executed a promissory note in the amount of $50,000 with
our Chief Executive Officer (“CEO”). The note, which is due on demand, accrues
interest at 8% per annum. The proceeds are to be used for working
capital purposes. Interest expense in the amount of $164 has been accrued in the
year ended October 31, 2009.
F-21
MOBIFORM SOFTWARE,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31,
2009
(10) Commitments and
Contingencies
Employment
Agreements
Effective
April 1, 2006, we entered into an employment agreement with our Chief Executive
Officer (“CEO”). The agreement was for a two year period and included
annual compensation of $115,000. The agreement included, among other
provisions, the issuance of a 5 year warrant to purchase 2,000,000 shares of our
common stock at $0.20 per share. On April 1, 2007, the agreement was
extended through March 31, 2009. Annual compensation was increased to $150,000
and an additional 5 year warrant to purchase 3,500,000 shares of our common
stock at $0.75 per share was issued. Commencing with the date of the
agreement, 25% of the warrants vest every six months over a two year period.
Effective April 1, 2009, the CEO’s compensation has continued at the same annual
salary as per the terms of the April 1, 2007 extension and will remain in effect
until a new agreement is executed. In June 2009, our CEO voluntarily surrendered
the warrant to purchase 3,500,000 shares of our common stock at $0.75 per share
and it was cancelled.
In June
2009, our former Secretary voluntarily surrendered a warrant to purchase
2,500,000 shares of our common stock at $0.75 per share and it was cancelled. A
warrant to purchase 2,000,000 shares of our common stock exercisable at $0.20
per share was retained by the former Secretary.
We have
agreements with a number of other employees that are renewed on an annual
basis. Warrants to purchase 140,000 shares of our common stock were
issued in connection with these agreements in the year ended October 31, 2008.
There were no warrant issuances in the year ended October 31,
2009. Although the warrants generally vest over the two year period
at a rate of 25% every six months, the employees are required to be employed for
a two year period in order to exercise the warrant. During the years
ended October 31, 2009 and 2008, 190,000 and 250,000, respectively, of these
warrants were forfeited upon employee termination.
Consultants
In August
2009, we entered into an agreement with a consultant for services through
January 2010. The agreement provides for monthly compensation of
$2,000, the issuance of 400,000 shares of our common stock which are deemed
earned upon the signing of the agreement (see Note 7), and the issuance of
150,000 shares of our common stock which will vest 25,000 shares per month over
the six month term of the agreement. As of October 31, 2009, 75,000
shares of common stock valued at $29,250 were vested under the agreement. The
value of such shares has been expensed and an accrued common share liability has
been recorded as of October 31, 2009. We intend to issue the common shares in
fiscal 2010.
In August
2009, we entered into an agreement with an outside consultant to perform the
services of our Vice President (“VP”). The agreement provides for, among other
provisions, a monthly fee of $2,000 and the issuance of 200,000 restricted
shares of our common stock. The shares, which have been issued and are valued at
$78,000, are defined as a non-refundable retainer per the contract and have been
fully expensed as share based consulting expense in the year ended October 31,
2009.
F-22
MOBIFORM SOFTWARE,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
OCTOBER 31,
2009
(10) Commitments and
Contingencies
Leases
We
presently lease office space in the United States, generally on an annual
basis. Rental expense for the years ended October 31, 2009 and 2008
amounted to approximately $41,000 and $51,000, respectively. In May
2008, our office lease agreement was extended for a one year period through May
2009 at approximately $4,000 per month. Effective June 1, 2009, the agreement
was extended for a one year period through May 2010. The terms were revised to a
fixed monthly payment of $2,000 plus our share of certain allocated utilities
(not to exceed $2,000 per month) as defined in the agreement.
Significant
Customers
In fiscal
2009, four customers generated 26%, 17%, 12% and 11% of our
revenues. One such customer accounted for 55% of our accounts
receivable at October 31, 2009.
In fiscal
2008, four customers generated 23%, 21%, 20% and 12% of our
revenues. One such customer accounted for 47% of our accounts
receivable at October 31, 2008.
(11) Subsequent
Events
On
November 10, 2009, we executed a promissory note in the amount of $50,000
payable to our CEO. The note, which is due on demand, accrues
interest at 8% per annum. The proceeds are to be used for working
capital purposes.
On
November 20, 2009, we entered into a three year licensing agreement with GE
Fanuc Intelligent Platforms, Inc. (“GE”) to utilize a portion of our proprietary
technology. GE has agreed to pay us a per unit royalty, with a minimum of
$270,000 per year for the duration of the agreement. In addition we will perform
consulting services, on an as needed basis, for which we will be compensated
separately based upon services provided.
On
November 24, 2009, we entered into a three year non-exclusive licensing
agreement with Johnson Controls, Inc. (“JCI”) to utilize a portion of our
proprietary software. JCI has agreed to pay us $240,000, 50% due upon
each invoice dated November 16, 2009 & April, 1, 2010. JCI has
the option to extend the agreement in one year increments upon payment of
$120,000 per additional year. In addition we will perform consulting services,
on an as needed basis, for which we will be compensated separately based upon
services provided.
F-23