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EX-32.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER - MobileBits Holdings Corpf10q0711ex32i_mobilebits.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
 
FORM 10-Q
_______________

(Mark One)
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended July 31, 2011

or
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______to______.
 
MobileBits Holdings Corporation
 (Exact name of registrant as specified in its charter)
 
Nevada
 
000-156062
 
26-3033276
(State or other jurisdiction of incorporation or organization)
 
(Commission File Number)
 
(I.R.S. Employee Identification No.)
 
1990 Main Street, Suite 750
Sarasota, Florida 34236
 (Address of principal executive offices)
  _______________
 
(941) 309-5356
 (Registrant’s telephone number, including area code)
_______________
 
Not applicable
(Former name, former address and former fiscal year, if changed since last report)

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.  Yes x   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  x  No  o
 
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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large Accelerated Filer   
o
Accelerated Filer  
o
Non-Accelerated Filer  
o
Smaller Reporting Company
x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o    No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock. As of September 14, 2011, the Company had 27,184,416 shares of common stock issued and outstanding.
 
 
 

 
 
MobileBits Holdings Corporation
FORM 10-Q
July 31, 2011
INDEX
 
PART I-- FINANCIAL INFORMATION
 
Item 1.
Financial Statements
 3
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 12
Item 3
Quantitative and Qualitative Disclosures About Market Risk
 15
Item 4.
Controls and Procedures
 15
 
PART II-- OTHER INFORMATION
 
Item 1
Legal Proceedings
 16
Item 1A.
Risk Factors
 16
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 16
Item 3.
Defaults Upon Senior Securities
 16
Item 4.
(Removed and Reserved )
 16
Item 5.
Other Information
 16
Item 6.
Exhibits
 16
 
SIGNATURES                                                                                                                                               
 
 
2

 
 
PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements
MobileBits Holdings Corporation
(A Development Stage Company)
Consolidated Financial Statements
July 31, 2011
(Unaudited)

 
CONTENTS
 
 
  Page(s)
Consolidated Financial Statements:
 
   
Consolidated Balance Sheets - As of July 31, 2011 and October 31, 2010  (Unaudited)
4
   
Consolidated Statements of Operations - For the three and nine months ended July 31, 2011 and 2010, and for the period from July 22, 2008 (Inception) to July 31, 2011 (Unaudited)
5
   
Consolidated Statements of Cash Flows - For the nine months ended July 31, 2011 and 2010, and for the period from July 22, 2008 (Inception) to July 31, 2011 (Unaudited)
6
   
Notes to Consolidated Financial Statements (Unaudited)
7-11

 
3

 
 
MobileBits Holdings Corporation
 
(A Development Stage Company)
 
Consolidated Balance Sheets
 
(Unaudited)
 
             
   
July 31,
2011
   
October 31,
2010
 
             
ASSETS
 
             
Current assets:
           
  Cash
 
$
966,661
   
$
64,295
 
  Prepaid expenses
   
3,484
     
1,100
 
                 
    Total current assets
   
970,145
     
65,395
 
                 
Website, net of accumulated depreciation of $7,284 and $3,921, respectively
   
11,795
     
15,158
 
                 
TOTAL ASSETS
 
$
981,940
   
$
80,553
 
                 
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
 
                 
Current liabilities:
               
  Accounts payable and accrued expenses
 
$
81,646
   
$
250,097
 
  Accounts payable and accrued expenses - related party
   
126,521
     
260,066
 
  Stock payable
   
-
     
171,000
 
                 
    Total current liabilities
   
208,167
     
681,163
 
                 
Commitments and contingencies
   
-
     
-
 
                 
Stockholders' equity (deficit):
               
Preferred stock, $0.001 par value; 10,000,000 shares authorized;
               
none issued and outstanding
   
-
     
-
 
Common stock, $0.001 par value, 100,000,000 shares authorized;
               
27,184,416 and 21,559,041 shares issued and outstanding, respectively
   
27,184
     
21,559
 
Additional paid-in capital
   
4,468,285
     
1,487,618
 
Deficit accumulated during the development stage
   
(3,721,696
)
   
(2,109,787
)
                 
Total stockholders' equity (deficit)
   
773,773
     
(600,610
)
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
 
$
981,940
   
$
80,553
 

See accompanying  notes to unaudited consolidated financial statements.
 
 
4

 
 
MobileBits Holdings Corporation
 
(A Development Stage Company)
 
Consolidated Statements of Operations
 
(Unaudited)
 
   
For the Three Months Ended
   
For the Nine Months Ended
   
For the Period from
July 22, 2008 (Inception) to
 
 
July 31,
   
July 31,
   
July 31,
 
   
2011
   
2010
   
2011
   
2010
   
2011
 
                               
Revenues
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
                                         
Operating Expenses:
                                       
General and administrative
   
582,230
     
439,594
     
1,608,546
     
1,306,641
     
3,714,412
 
Depreciation
   
1,121
     
1,121
     
3,363
     
2,526
     
7,284
 
Total Operating Expenses
   
583,351
     
440,715
     
1,611,909
     
1,309,167
     
3,721,696
 
                                         
Net loss
 
$
(583,351
)
 
$
(440,715
)
 
$
(1,611,909
)
 
$
(1,309,167
)
 
$
(3,721,696
)
                                         
Net loss per common share - basic and diluted
 
$
(0.02
)
 
$
(0.02
)
 
$
(0.06
)
 
$
(0.05
)
       
                                         
Weighted average number of common shares outstanding
                                       
 - basic and diluted
   
26,123,159
     
21,034,057
     
25,007,258
     
27,696,590
         
 
See accompanying notes to unaudited consolidated financial statements.
 
 
5

 
 
MobileBits Holdings Corporation
 
(A Development Stage Company)
 
Consolidated Statements of Cash Flows
 
(Unaudited)
 
               
For the Period from
 
   
For the Nine Months Ended
July 31,
   
July 22, 2008 (Inception) to
 
               
July 31,
 
   
2011
   
2010
   
2011
 
CASH FLOWS FROM OPERATING ACTIVITIES 
                 
   Net loss 
 
$
(1,611,909
)
 
$
(1,309,167
)
 
$
(3,721,696
)
   Adjustments to reconcile net loss to net cash 
                       
         used in operating activities: 
                       
         Stock-based compensation
   
437,772
     
266,587
     
774,648
 
         Depreciation
   
3,363
     
2,526
     
7,284
 
   Changes in operating assets and liabilities: 
                       
         Prepaid expenses
   
(2,384
)
   
24,977
     
(3,484
)
         Accounts payable and accrued                                  liabilities
   
(168,451
)
   
209,201
     
152,646
 
         Accounts payable and accrued liabilities       related party
   
(198,934
)
   
78,510
     
7,591
 
   Net cash used in operating activities 
   
(1,540,543
)
   
(727,366
)
   
(2,798,193
)
                         
CASH FLOWS FROM INVESTING ACTIVITIES 
                       
Payment for Website and database
   
-
     
(9,200
)
   
(19,079
)
   Net cash used in investing activities 
   
-
     
(9,200
)
   
(19,079
)
                         
CASH FLOWS FROM FINANCING ACTIVITIES 
                       
        Repayment of loans - related party
   
-
     
(701
)
   
-
 
 Proceeds from advances - related party
   
-
     
-
     
41,500
 
        Proceeds from issuance of common stock
   
2,641,688
     
225,000
     
3,988,835
 
        Commissions paid on common stock sales – related party
   
(198,779
)
   
-
     
(246,402
)
        Proceeds received from stock payable
   
-
 
   
122,500
     
-
 
   Net cash provided by financing activities 
   
2,422,909
     
346,799
     
3,783,933
 
                         
   Net increase (decrease) in cash 
   
902,366
     
(389,767
)
   
966,661
 
   Cash at beginning of period 
   
64,295
     
398,324
     
-
 
   Cash at end of period
 
$
966,661
   
$
8,557
   
$
966,661
 
                         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
                 
Cash paid for: 
                       
        Interest 
 
$
-
   
$
-
   
$
-
 
        Income taxes 
 
$
-
   
$
-
   
$
-
 
                         
NON CASH INVESTING AND
                 
FINANCING ACTIVITIES
                       
Common shares issued for stock payable
 
$
171,000
   
$
-
   
$
171,000
 
Commissions due on common stock sales - related party
 
$
105,489
   
$
-
   
$
105,489
 
Debt forgiveness - related party
 
$
-
   
$
43,777
   
$
43,777
 
Cancellation of shares
 
$
-
   
$
14,000
   
$
14,000
 

  See accompanying notes to unaudited consolidated financial statements.
 
 
6

 
MobileBits Holdings Corporation
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)

NOTE 1 – BASIS OF PRESENTATION AND NATURE OF OPERATIONS

The accompanying unaudited interim consolidated financial statements of MobileBits Holdings Corporation (the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. In management's opinion, all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation.  The interim results for the period ended July 31, 2011 are not necessarily indicative of results for the full fiscal year.

The unaudited interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and footnotes, which are included as part of the Company’s Form 10-K for the year ended October 31, 2010.

The Company intends to become a global technology company focused on providing answers and highly targeted advertising through an automated answer engine via web and mobile smart-phone applications.  The Company will offer a wide range of answers on a broad scope of web-based content.


NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Development Stage

The Company's financial statements are presented as those of a development stage enterprise. Activities during the development stage primarily include equity-based financing and further implementation of the business plan. The Company has not generated any revenues since inception.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the 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.

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates.

Significant estimates include a 100% valuation allowance for deferred taxes due to the Company’s continuing and expected future losses and assumptions and estimates for the valuation for share-based compensation arrangements.

 
7

 
 
Principles of Consolidation

The consolidated financial statements include the Company’s accounts and those of the Company’s wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated.

Reclassifications

Certain amounts for prior periods have been reclassified to conform to the current period presentation.

Fair Value of Financial Instruments

The carrying amounts of the Company’s short-term financial instruments, including the Company’s current assets and current liabilities, approximate fair value due to the relatively short period to maturity for these instruments.

Website and Database

Website development and the purchase of database information tools are recorded at cost and amortized on the straight-line method over their estimated useful lives.  Expenditures for normal maintenance are charged to expense as incurred.

Income Taxes

The Company is a taxable entity and recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect when the temporary differences reverse. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the enactment date of the rate change. A valuation allowance is used to reduce deferred tax assets to the amount that is more likely than not to be realized. Interest and penalties associated with income taxes are included in selling, general and administrative expense.
 
The Company follows ASC Topic 740 “Accounting for Uncertainty in Income Taxes” which prescribes a comprehensive model of how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return.  ASC 740 states that a tax benefit from an uncertain position may be recognized if it is "more likely than not" that the position is sustainable, based upon its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. As of July 31, 2011, the Company had not recorded any tax benefits from uncertain tax positions.

Earnings per Share

Basic earnings per share (“EPS”) is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all dilutive potential of shares of common stock outstanding during the period including stock options or warrants, using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of stock options or warrants), and convertible debt or convertible preferred stock, using the if-converted method. EPS excludes all potential dilutive shares of common stock if their effect is anti-dilutive.  For the nine months ended July 31, 2011 and 2010, the Company excluded common stock warrants of 2,379,016 and 1,416,667, respectively, since they have anti-dilutive effect on the earnings per share.

 
8

 
 
Share-Based Payments

The Company follows the Accounting Standards Codification ASC 718 - Compensation - Stock Compensation. In accordance with ASC 718, the Company estimates the fair value of each stock option award at the grant date by using the Black-Scholes option pricing model and common shares based on the last quoted market price of the Company’s common stock on the date of the share grant. The fair value determined represents the cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange for the award. As share-based compensation expense is recognized based on awards ultimately expected to vest, the Company reduces the expense for estimated forfeitures based on historical forfeiture rates. Previously recognized compensation costs may be adjusted to reflect the actual forfeiture rate for the entire award at the end of the vesting period. Excess tax benefits, as defined in ASC 718, if any, are recognized as an addition to paid-in capital.

Subsequent Events

The Company has evaluated all transactions through the financial statement issuance date for subsequent event disclosure consideration and no material subsequent events were noted.

Recent Accounting Pronouncements

MobileBits does not expect that any recently issued accounting pronouncements will have a significant impact on the results of operations, financial position, or cash flows of the Company.


NOTE 3 – GOING CONCERN

As reflected in the accompanying financial statements, the Company has a net loss of $1,611,909 and net cash used in operations of $1,540,543 for the nine months ended July 31, 2011; and an accumulated deficit of $3,721,696 at July 31, 2011.  In addition, the Company is in the development stage and has not yet generated any revenues.  These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.

The ability of the Company to continue its operations is dependent on the successful execution of management's plans, which include the expectation of raising debt or equity based capital, with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements.  The Company may need to issue additional equity and incur additional liabilities with related parties to sustain the Company’s existence although no commitments for funding have been made and no assurance can be made that such commitments will be available.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  These financial statements do not include any adjustments relating to the recovery of assets or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

In response to these factors, management has taken, or plans to take, the following actions:

 
raised $2.6 million for the nine months ended July 31, 2011,
 
 
seeking additional third party debt and/or equity financing; and
 
 
continues with the implementation of the business plan, which may include merging with an operating entity.

 
9

 

NOTE 4 – RELATED PARTY TRANSACTIONS

As of May 1, 2010, the Company entered into an employment agreement with Walter Kostiuk. In conjunction with the agreement, Mr. Kostiuk was issued options that consist of the right to purchase 1,000,000 shares of the Company’s common stock.  The right to purchase such stock is nontransferable and vests in equal thirds on each one (1) year anniversary of the grant date over a three (3) year period commencing on the May 1, 2010.  The options shall have a term of ten (10) years and the exercise price of the options is $1.00 per common share.  The options had a fair value of $989,376, of which $164,896 was expensed during the fiscal year ended October 31, 2010 and $247,344 was expensed during the nine months ended July 31, 2011. The remaining unamortized balance of $577,136 will be expensed over the next 21 months.

The Company also expensed $180,000 in wages and $13,500 in automobile expense in connection with Mr. Kostiuk’s employment agreement for the nine months ended July 31, 2011 compared to $180,000 in consulting fees and $0 in automobile expense for the six months ended July 31, 2010.

Under the employment agreement with the Company, Mr. Kostiuk is entitled to compensation of 10% of all funds raised.  The Company incurred offering costs in the amount of $264,168 payable to Mr. Kostiuk for the nine months ended July 31, 2011 and recorded the offering costs as a reduction to additional paid in capital.  As of July 31, 2011, $105,489 of the $264,168 remained unpaid and recorded as accrued expenses – related party.  Total cash payments for offering costs during the nine months ended July 31, 2011 were $198,779 of which $40,100 was for offering costs accrued as of October 31, 2010 and the remaining $158,679 was for offering costs incurred during the nine months ended July 31,2011.  The costs are calculated as commissions for 10% of all funds raised via stock sales for the nine months ended July 31, 2011.

As of May 1, 2011, the Company entered into an employment agreement with Andrea Kostiuk.  In conjunction with the agreement, Ms. Kostiuk was issued options that consist of the right to purchase 250,000 shares of the Company’s common stock.  The right to purchase such stock is nontransferable and vests in equal thirds on each one (1) year anniversary of the grant date over a three (3) year period commencing on the May 1, 2011.  The options shall have a term of ten (10) years and the exercise price of the options is $1.02 per common share.  The options had a fair value of $254,601, of which $21,217 was expensed during the nine months ended July 31, 2011, the remaining unamortized balance of $233,384 will be expensed over the next 33 months.  The option was valued using the Black-Scholes option-pricing model and the following parameters: (1) 3.31% risk-free discount rate, (2) expected volatility of 190.11%, (3) $0 expected dividends, (4) an expected term of 10 years based on term of the option, and (5) a stock price on the measurement date of $1.02.  

On June 14, 2011, the Company also issued options that consist of the right to purchase 250,000 shares of the Company’s common stock to Andrea Kostiuk.  The right to purchase such stock is nontransferable and vests in equal thirds on each one (1) year anniversary of the grant date over a sixteen and a half month period commencing on the June 14, 2011.  The options shall have a term of 5.39 years and the exercise price of the options is $0.51 per common share.  The options had a fair value of $242,942, of which $22,086 was expensed during the nine months ended July 31, 2011. The remaining unamortized balance of $220,856 will be expensed over the next fifteen months.  The option was valued using the Black-Scholes option-pricing model and the following parameters: (1) 1.70% risk-free discount rate, (2) expected volatility of 215.68%, (3) $0 expected dividends, (4) an expected term of 5.39 years based on term of the option, and (5) a stock price on the measurement date of $0.98.  

 
10

 

NOTE 5 – STOCK OPTION ACTIVITIES

The following is a summary of stock option activities for the nine months ended July 31, 2011:
 
  
 
Shares
   
Weighted Average Exercise Price
   
Weighted Average Remaining Contractual Term (in years)
   
Aggregate Intrinsic Value
 
 Outstanding, October 31, 2010
   
1,416,668
   
 $
       0.85
                 
 Granted
   
1,170,681
     
-
                 
 Exercised
   
-
     
-
                 
 Forfeited
   
(208,333
)
   
-
                 
 Expired
   
-
     
-
                 
 Outstanding, July 31, 2011
   
2,379,016
   
$
0.76
     
7.75
   
$
5,334,866
 
 Exercisable, July 31, 2011
   
778,447
   
$
0.74
     
4.91
   
$
1,760,257
 
 
The above 1,170,681 options were valued using the Black-Scholes option-pricing model and the following parameters: (1) 0.38% to 3.69% risk-free discount rate, (2) expected volatility of 157.47% to 214.57%, (3) $0 expected dividends, and (4) an expected term of 1 to 10 years for each grant based on the term of the options.

The following is a summary of outstanding stock options at July 31, 2011:

Number of Common Stock Equivalents
 
 Expiration Date
 
Remaining Contracted Life (Years)
   
Exercise Price
   
Weighted Average Remaining Contracted Life (Years)
 
 
41,667
 
21-Jan-15
   
3.73
   
$
0.50
     
0.10
 
 
41,667
 
21-Jan-15
   
3.73
   
$
0.50
     
0.10
 
 
41,667
 
21-Jan-15
   
3.73
   
$
0.50
     
0.10
 
 
41,667
 
21-Jan-15
   
3.73
   
$
0.50
     
0.09
 
 
41,667
 
21-Jan-15
   
3.73
   
$
0.50
     
0.09
 
 
1,000,000
 
30-Apr-20
   
9.00
   
$
1.00
     
4.21
 
 
250,000
 
01-Nov-16
   
5.39
     
0.51
     
0.57
 
 
250,000
 
01-Nov-16
   
5.39
   
$
0.51
     
0.57
 
 
250,000
 
30-Apr-21
   
10.00
     
0.51
     
1.05
 
 
420,681
 
27-Jun-16
   
5.00
   
$
0.75
     
0.88
 
 
2,379,016
                           
 
All options issued and outstanding are being amortized over their respective vesting periods.  The unrecognized compensation expense at July 31, 2011 was $720,630.
 
NOTE 6 – STOCKHOLDERS’ EQUITY (DEFICIT)

The Company recorded amortization of share-based compensation of $437,772 for the nine months ended July 31, 2011 for the options granted during the nine months ended July 31, 2011 and prior to October 31, 2010.
 
During the nine months ended July 31, 2011, the Company received net proceeds of $2,641,688 from various investors for the sale of 5,283,375 shares of its common stock. In accordance with Mr. Kostiuk’s employment agreement, the Company incurred $264,168 of offering costs due to Mr. Kostiuk for 10% of all funds raised via stock sales from November 1, 2010 through July 31, 2011. The $264,168 was recorded as offering costs and as a reduction to additional paid in capital. As of July 31, 2011, there was a balance due of $105,489 payable to Mr. Kostiuk for commissions earned.
 
During the nine months ended July 31, 2010, the Company issued 596,667 shares of common stock for $225,000.
 
During the nine months ended July 31, 2010, the Company recorded amortization of share-based compensation of $266,587 relating to option grants.
 
During the nine months ended July 31, 2010, the Company received $122,500 from various investors for 245,000 shares of its common stock.  The stock has not been issued, and therefore, the funds received are recorded as a stock payable on the balance sheet.
     
 
11

 
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.
 
Plan of Operation

Bellmore Corporation (“BC”) was incorporated in the State of Nevada on July 22, 2008. On January 25, 2010, BC changed its name to MobileBits Holdings Corporation (“the Company” or “MB”).

The Company entered into a Share Exchange Agreement, dated March 12, 2010 (the “ Share Exchange Agreement”) between MB, MobileBits Corporation (“MBC”) and the shareholders of MobileBits Corporation (the “MBC Shareholders”) pursuant to which we acquired MB, an early stage software development firm targeting its software at the mobile search market. Walter Kostiuk owned a majority interest in both MB and MBC. The transaction closed on March 12, 2010 and we acquired 100% of the outstanding shares of common stock of MBC (the “MBC Stock”) from the MBC shareholders. In exchange for the MBC common stock and $275,000, MB issued 18,752,377 shares of common stock to the MBC shareholders, which represented approximately 87.9% of MB’s issued and outstanding common stock. Concurrently, pursuant to the terms of the Share Exchange Agreement, Walter Kostiuk, the principal shareholder of the Company, cancelled a total of 14,000,000 shares of common stock. Upon Closing, MBC became a 100% wholly-owned subsidiary of the Company. The $275,000 was recorded as merger costs as a component of general and administrative expense. Since the merger was between entities under common control, the merger was accounted for similar to a pooling of interests whereby the assets and liabilities of MBC were recorded at historical cost.
 
On March 16, 2010, concurrently with the merger, our Board of Directors authorized a 7-for-1 forward split of our common stock, par value $0.001 per share, in the form of a stock dividend which was paid on the same date, to holders of record on that date. All share and per share numbers have been adjusted to give effect to the stock split unless otherwise stated.
 
Over the next twelve months, we intend to build our business plan and enter into strategic partnership agreements to develop our technology and obtain users that will utilize our technology. We will require an additional $5,000,000 and plan to accomplish this goal by raising debt or equity based capital. If we acquire other companies with revenues, our dependency on new funding could be reduced.
 
Subsequent Events

On June 23, 2011, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with MB Pringo Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”), and Pringo, Inc., a Delaware corporation (“Pringo”), providing for the merger of Pringo with the Company.  Subject to the terms and conditions of the Merger Agreement, which has been approved by the boards of directors of the respective parties, Pringo will be merged with and into Merger Sub (the “Merger”), with Pringo surviving the Merger as a wholly owned subsidiary of the Company.

On August 12, 2011, the Company filed a Preliminary Information Statement on Schedule 14C with the Securities and Exchange Commission.  The purpose of the Schedule 14C was to notify the stockholders of the Company that on or about June 22, 2011, the Company received written consents in lieu of a meeting of stockholders from holders of 16,666,684 shares of voting securities representing approximately 63.27% of the 26,625,146 shares of the total issued and outstanding shares of voting stock of the Company to (i) authorize the Company’s Board of Directors to approve the Company entering into the Merger Agreement, and (ii)  amend the Company’s Articles of Incorporation in the State of Nevada to increase the maximum number of shares of stock that Parent shall be authorized to have outstanding at any time to two hundred fifty million (250,000,000) shares of par value $0.001 common stock. The Company expects to file a Definitive Schedule 14C with the SEC with respect to the Merger and share increase, and mail such document to all shareholders in September 2011.
 
Results of Operation
 
For the period from inception through July 31, 2011, we had no revenue. Expenses for the period from July 22, 2008 (inception) to July 31, 2011 totaled $3,721,696, resulting in an inception to date loss of $3,721,696.
 
 
12

 

Three Months Ended July 31, 2011 compared to the Three Months Ended July 31, 2010
 
General and Administration Expenses
 
Our total general and administration expenses were $582,230 for the three months ended July 31, 2011 compared to $439,594 for the three months ended July 31, 2010. The $142,636 increase is primarily due to an increase in consulting fees of which $248,549 was amortization of stock options.
   
Depreciation
 
Depreciation was $1,121 for the three months ended July 31, 2011 compared to $1,211 for the three months ended July 31, 2010.
 
Nine Months Ended July 31, 2011 compared to the Nine Months Ended July 31, 2010
 
General and Administration Expenses
 
Our total general and administration expenses were $1,608,546 for the nine months ended July 31, 2011 compared to $1,306,641 for the nine months ended July 31, 2010. The $301,905 increase is primarily due to an increase in consulting fees, of which $437,772 was amortization of stock options, partially offset by a decrease in merger costs in the amount of $275,000.
 
Depreciation

Depreciation was $3,363 for the nine months ended July 31, 2011 compared to $2,526 for the nine months ended July 31, 2010. The increase is due to the amortization of our website and database purchases and the timing of those purchases.

Liquidity and Capital Resources
 
As of July 31, 2011, we had $966,661 available in cash as compared to $64,295 as of October 31, 2010. The increase in cash is primarily due to the proceeds of $2,641,688 from the sale of common stock during the nine months ended July 31, 2011.
 
The Company is in the development stage and has not yet generated any revenues and has an accumulated deficit at July 31, 2011 of $3,721,696. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.
 
The ability of the Company to continue its operations is dependent on the successful execution of management's plans, which include the expectation of raising debt or equity based capital, with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. The Company may need to incur additional liabilities with related parties to sustain the Company’s existence.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
 
 
13

 
 
In response to these factors, management has taken, or plans to take, the following actions:

 
Raised $2.6 million for the nine months ended July 31, 2011
 
 
seek additional third party debt and/or equity financing; and
 
 
continues with the implementation of the business plan, which may include merging with an operating entity.

The use of proceeds from our unregistered common share sales that occurred for the fiscal years ending October 2009 and 2010 and the nine months ended July 31, 2011 has been used for, and will continue to be used for, offering expenses, professional fees, advertising/marketing, and working capital. We have raised approximately $3.4 million in net proceeds from inception to date from our offerings. We have expended the majority of our capital raised to date for merger costs and consulting fees for company management and product development.
 
We are currently seeking funding for our plan of operations. We intend to raise a minimum of $5,000,000 in order to continue our marketing plan, build a customer base and generate revenue. To achieve our goals, a large portion of the funds raised will be invested in advertising, marketing, and travel expenses. Our success is contingent upon having enough capital to build enough customers to support the business. We expect to raise additional funds within the next 6-8 months. A private placement is the most likely scenario for the Company to achieve success in raising additional funds for its operations.
 
Cash flows from operating activities

Cash used in operating activities for the nine months ended July 31, 2011 and 2010 was $1,540,543 and $727,366, respectively. The increase is due to our increased business expenses for general and administrative activities, which resulted in higher losses from operations.

Cash flows from investing activities

Cash used in investing activities for the nine months ended July 31, 2011 and 2010 was $0 and $9,200, respectively. We did not spend money on additional expenditures, such as the website and database, during the nine months ended July 31, 2011.

Cash flows from financing activities

Cash provided by financing activities for the nine months ended July 31, 2011 and 2010 was $2,422,909 and $346,799, respectively. The majority of cash provided by financing for both periods were due to us completing the private placements.

Critical Accounting Policies
 
Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the 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.
 
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates.

A significant estimate included a 100% valuation allowance for deferred taxes due to the Company’s continuing and expected future losses.  The Company also makes significant assumptions and estimates for the valuation for share-based compensation arrangements.

 
14

 
 
Share-Based Payments

The Company follows the Accounting Standards Codification ASC 718 - Compensation - Stock Compensation. In accordance with ASC 718, the Company estimates the fair value of each stock option award at the grant date by using the Black-Scholes option pricing model and common shares based on the last quoted market price of the Company’s common stock on the date of the share grant. The fair value determined represents the cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange for the award. As share-based compensation expense is recognized based on awards ultimately expected to vest, the Company reduces the expense for estimated forfeitures based on historical forfeiture rates. Previously recognized compensation costs may be adjusted to reflect the actual forfeiture rate for the entire award at the end of the vesting period. Excess tax benefits, as defined in ASC 718, if any, are recognized as an addition to paid-in capital.
   
Off-Balance Sheet Arrangements
 
We have no off-balance sheet arrangements.
   
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Smaller reporting companies are not required to provide this information.

ITEM 4.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

a) Disclosure controls and procedures. Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”)  and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are not effective such that the information required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our CEO, as appropriate to allow timely decisions regarding required disclosure. Our CEO concluded, based on the evaluation of the effectiveness of the disclosure controls and procedures, that as of July 31, 2011, our disclosure controls and procedures were not effective due to the material weaknesses described in Management's Report on Internal Control over Financial Reporting as reported in our Form 10-K for the year ended October 31, 2010.
 
Changes in Internal Controls over Financial Reporting

(b)    Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
   
 
15

 
 
PART II - OTHER INFORMATION
 
ITEM 1.  LEGAL PROCEEDINGS
 
Currently we are not aware of any litigation pending or threatened by or against the Company.

ITEM 1A.  RISK FACTORS

Not required for smaller reporting companies.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
During the current reporting period, the Company consummated a confidential private placement with certain investors for the issuance and sale of 1,000,000 shares of common stock of the Company. As result of the private placement, the Company received cash of $500,000. The proceeds of this offering were used for working capital. The issuance and sale of common stock was an unregistered sale of securities conducted pursuant to Regulation S of the Securities Act of 1933.
 
ITEM 3.   DEFAULTS UPON SENIOR SECURITIES
 
None .
 
ITEM 4.   REMOVED AND RESERVED
 
None.
 
ITEM 5.   OTHER INFORMATION
 
None. 

ITEM 6.   EXHIBITS
  
 31.1  Certification of Principal Executive Officer and Principal Financial of the Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
 32.1  Certification of Principal Executive Officer and Principal Financial of the Registrant pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
101.INS **
XBRL Instance Document
101.SCH **
XBRL Taxonomy Schema
101.CAL **
XBRL Taxonomy Calculation Linkbase
101.DEF **
XBRL Taxonomy Definition Linkbase
101.LAB **
XBRL Taxonomy Label Linkbase
101.PRE **
XBRL Taxonomy Presentation Linkbase
 
** Furnished herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

In accordance with SEC Release 33-8238, Exhibit 32.1 is being furnished and not filed.
 
 
16

 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
MOBILEBITS HOLDINGS CORPORATION
 
     
Date: September 14, 2011
By:  
/s/ Walter Kostiuk
 
   
Walter Kostiuk
 
   
Chief Executive Officer and Chief Financial Officer
(Duly Authorized  Officer, Principal Executive Officer and Principal Financial Officer)
 
 
17