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EX-32 - EXHIBIT 32 - ProText Mobility, Inc.exhibit32protextq3.htm
EX-31 - EXHIBIT 31 - ProText Mobility, Inc.exhibit31protextq3.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q Amendment 1

 

 

x

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

 

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2012

 

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 001-31590

 

ProText Mobility, Inc.

(Exact name of small business issuer as specified in its charter)

 

Delaware

11-3621755

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

 

60 Queens Street, Suite 106,

 

Syosset, New York

11791

(Address of principal executive offices)

(Zip Code)

 

Issuer's telephone number, including area code (516) 802-0223

 

N/A

(Former name or former address, 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  o  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. (Check one):

 

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company x

 

 

(Do not check if a smaller

 

 

 

reporting company)

 

                       

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchanges Act) Yes o No x

 

State the number of shares outstanding of each of the registrant's classes of common equity, as of the latest practicable date.

The outstanding number of the issuer's common stock, par value $.0001, as of November 16, 2012 is 260,683,206 shares.

 

Explanatory Note:

Registrant is filing this amended quarterly report on Form 10-Q/A  to update the original filing which was unintentionally submitted with a draft version and contained several blank items as well as highlighted sections that required updating.  These inlcude: (1) the number of shares outstanding on page 1; (2) corrections made to Note 10 Subsequent Events; and (3) in the MD&A the correct numbers for the three month comparison of results.

 

 

 

 

PROTEXT MOBILITY, INC. AND SUBSIDIARIES

 

INDEX

 

 

Page No.

 

 

Forward-Looking Statements

2

 

 

PART I FINANCIAL INFORMATION

 

 

 

ITEM 1 – Financial Statements:

 

 

 

Consolidated Balance Sheets as of September 30, 2012 (Unaudited) and December 31, 2011 (Audited)

3

 

 

Consolidated Statements of Operations For the Three Months and Nine Months ended September 30, 2012 (Unaudited) and 2011 (Unaudited)

4

 

 

Consolidated Statements of Cash Flows For the Nine Months ended September 30, 2012 (Unaudited) and 2011 (Unaudited )

5

 

 

Notes to Consolidated Financial Statements (Unaudited)

6 -13

 

 

ITEM 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

14-17

 

 

ITEM 3 – Quantitative and Qualitative Disclosure about Market Risk

17

 

 

ITEM 4T –Controls and Procedures

18

 

 

PART II:

 

 

 

Item 1 – Legal Proceedings

19

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

19

Item 3 – Defaults upon Senior Securities

19

Item 4 – Mine Safety Disclosures

19

Item 5 - Other Information

19

Item 6 – Exhibits

20

Signature Page

21

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward Looking Statements

 

This quarterly report on Form 10-Q contains forward-looking statements.  These statements relate to future events or our future financial performance. We have attempted to identify forward-looking statements by terminology including “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “should” or “will” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels or activity, performance or achievements expressed or implied by these forward-looking statements.

 

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We do not undertake any duty to update any of the forward-looking statements after the date of this quarterly report on Form 10-Q to conform these statements to actual results, unless required by law.

 

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PROTEXT MOBILITY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September 30,

December 31,

2012

2011

(Unaudited)

(Audited)

ASSETS

Current assets:

  Cash

$             1,022

 $           3,956

  Prepaid expenses

4,997

4,997

        Total current assets

6,019

8,953

Other assets:

  Capitalized software costs, less accumulated amortization of $292,656 and $112,250, respectively

100,659

181,887

  Website development costs, less accumulated amortization

       of $15,422 and $21,250, respectively

14,578

22,084

  Security deposit

2,700

9,454

        Total other assets

117,937

213,425

        Total assets

 $        123,956

$       222,378

LIABILITIES

Current liabilities:

  Current portion of 10% convertible notes payable 

 $        114,034

 $       114,034

  Convertible short term bridge notes payable, net of discount of $174,419 and $40,385 respectively

1,246,223

885,756

  Accounts payable

573,728

607,522

  Accrued expenses

1,141,036

729,174

        Total current liabilities

3,075,021

2,336,486

Other liabilities:

  Dividends payable

914,923

562,298

        Total liabilities

3,989,944

2,898,784

Stockholders' deficit

  Preferred stock - $.0001 par value, authorized - 25,000,000 shares;

    Series A Preferred stock - $.0001 par value, $2.62 liquidation value, 1,526,718 designated; issued and outstanding - 28,968 and 269,862 respectively

3

3

    Series B Preferred stock - $.0001 par value, $9.09 liquidation value, 1,000,000 designated; issued and outstanding -511,551

51

51

    Common stock - $.0001 par value, authorized - 400,000,000 shares; issued and outstanding - 252,692,508 and 184,403,757 shares respectively

25,271

18,440

  Additional paid-in capital

44,842,945

44,092,616

  Accumulated deficit

(48,734,258)

 (46,787,516)

        Total stockholders' deficit

(3,865,988)

 (2,676,406)

        Total liabilities and stockholders' deficit

 $   123,956

 $     222,378

See notes to consolidated unaudited financial statements

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PROTEXT MOBILITY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 For the Nine Months Ending

September 30,

 For the Three Months Ended September 30,

2012

2011

2012

2011

Revenues

 $             9,525

 $          18,975

 $               1,689

 $            6,285

Cost of Sales

   Amortization of Software Costs

81,228

69,661

26,892

25,556

Cost of Sales

81,228

69,661

26,892

25,556

Gross Loss

 (71,703)

 (50,686)

 (25,203)

 (19,271)

Operating expenses:

  Selling

14,682

16,762

1,941

1,529

  Web site costs

105,600

89,942

26,805

35,739

  General and administrative

905,777

1,775,074

271,577

532,517

  Depreciation and amortization

7,506

20,599

2,502

4,434

Total operating expenses

1,033,565

1,902,377

302,825

574,219

Loss from operations

 (1,105,268)

 (1,953,063)

 (328,028)

 (593,490)

Other (income) expenses:

  Interest

194,102

79,828

38,914

30,305

  Gain on extinguishment of liabilities

-  

 (22,314)

-  

1,667

  Other income

-  

 (4,000)

-  

-  

  Write-off of website costs

-  

38,750

-  

-  

  Debt Conversion Expense

-  

966

-  

-  

  Amortization of note discounts

294,746

566,140

81,617

31,086

Total other expenses

488,848

659,370

120,531

63,058

Net loss

 (1,594,116)

 (2,612,433)

 (448,559)

 (656,548)

   Common stock dividends to be issued for Series B Preferred Stock

 (352,625)

 (352,625)

 (117,542)

 (118,833)

  Net loss applicable to common stock holders

 $  (1,946,741)

 $  (2,965,058)

 $        (566,101)

 $     (775,381)

Per share data

  Net Loss per share - basic and diluted

 $             (0.01)

 $           (0.02)

 $               (0.00)

 $             (0.00)

Weighted average number of  shares outstanding- basic and diluted

227,267,670

147,671,409

242,450,134

166,930,777

See notes to consolidated unaudited financial statements

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PROTEXT MOBILITY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the Nine Months Ended September 30,

2012

2011

Cash flows from operating activities:

Net loss

$            (1,594,116)

$         (2,612,433)

Adjustments to reconcile net loss to net cash

 used in operating activities:

Gain on extinguishment of debt

-  

 (22,314)

Debt modification expense

-  

966

Write off of website development costs

-  

38,750

Warrants/options issued for consulting services

-  

61,954

Common stock issued for services

82,782

235,383

Common stock issued for compensation

120,000

165,500

Stock issued for interest

10,415

10,339

Compensatory element of stock options

16,182

268,504

Depreciation

-  

14,350

Amortization of software and website development costs

88,734

75,910

Amortization of discount related to debt

294,746

566,140

Increase (decrease) in cash flows as a result of

          changes in asset and liability account balances:

Prepaid expenses and other assets

-  

8,143

Deferred rent

-  

 (2,769)

Deposit

6,754

-  

Accounts payable and accrued expenses

378,069

603,680

Due to stockholders

-  

 (4,314)

Total adjustments

997,682

2,020,222

Net cash used in operating activities

 (596,434)

 (592,211)

Cash flows from investing activities:

Capitalized software costs

-  

 (140,551)

Net cash used in investing activities

-  

 (140,551)

Cash flows from financing activities:

  Proceeds from sale of common stock

48,000

347,500

  Proceeds from exercise of stock options

-  

26,970

  Proceeds from bridge notes payable

623,000

373,500

  Payments of bridge notes payable

 (77,500)

 (30,000)

  Payments of note payable - equipment

-  

 (2,773)

  Payments under capital lease

-  

 (3,229)

Net cash provided by financing activities

593,500

711,968

Net decrease in cash

 (2,934)

 (20,794)

Cash at beginning of period

3,956

60,209

Cash at end of period

$                    1,022

$              39,415

Supplemental disclosures of cash flow information:

Interest paid in cash

 $                 33,570

$                        -  

Taxes paid in cash

 $                         -  

$                        -  

Supplemental Schedules of Noncash Investing and Financing Activities:

Common stock issued in connection with settlement agreement

$                         -  

 $                         -

Common stock issued in connection with extinguishment of payable

$                         -  

 $             248,700

Common stock issued as a result of debt conversion

$                 51,000

 $          1,116,126

Common stock issued in lieu of accrued interest

$                         -  

 $             125,012

Beneficial conversion feature in relation to convertible loans

$               428,780

 $             131,833

Common stock dividends payable for Series B Preferred Stock

$               352,625

 $            352,625

See notes to consolidated unaudited financial statements

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PROTEXT MOBILITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

 

NOTE 1 - DESCRIPTION OF BUSINESS

 

The Company and Nature of Business

 

ProText Mobility Inc. (formerly known as EchoMetrix Inc. and SearchHelp, Inc) was incorporated in the State of Delaware on September 5, 2001 and completed its initial public offering on July 23, 2003. During the fiscal year ended December 31, 2008, the Company acquired 100% of the stock of EchoMetrix, Inc, a wholly owned subsidiary, and in May of 2009 the Company filed a Certificate of Ownership and Merger with the state of Delaware pursuant to which EchoMetrix was merged into the Company, and the Company's corporate name was changed from SearchHelp, Inc. to EchoMetrix, Inc. In December of 2010, the Company formed a new Corporation (ProText Mobility, Inc) and filed a Certificate of Ownership and Merger with the state of Delaware pursuant to which the Company’s wholly owned subsidiary, ProText Mobility, Inc., was merged into the Company, and the Company’s name changed from Echo Metrix, Inc. to ProText Mobility, Inc.

 

Protext Mobility develops, markets and sells software products and solutions for the mobile communications market primarily aimed at protecting children from dangers derived from mobile communications and mobile device use. The Company has evolved its business plan from developing software solely for personal computers (“PCs”) to developing software for products designed for the mobile industry. The Company offers two products for mobile communications devices, SafeText and DriveAlert.   SafeText is a service for mobile devices that provides parents a tool to help manage their children’s mobile communication activities.  DriveAlert is a virtual "lock-box" designed to help mitigate the risk of driving while distracted.

 

Presentation of Interim Statements

 

The accompanying unaudited consolidated financial statements have been prepared, in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany transactions have been eliminated in consolidation. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company's Annual Report, as amended on Form 10-K/A filed on April 20, 2012. The results of the three months and nine months ended September 30, 2012 are not necessarily indicative of the results to be expected for the full year ending December 31, 2012.

 

Going Concern

 

The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As reflected in the unaudited consolidated financial statements, the Company incurred net losses of approximately $1,594,000 and $2,612,000 for the nine months ended September 30, 2012 and 2011, respectively. In addition, the Company had negative working capital of approximately $3,069,000 and an accumulated deficit of approximately $48,734,000 at September 30, 2012. These matters raise substantial doubt about the Company's ability to continue as a going concern. On November 3, 2011 the SEC deemed the Company’s S-1 Equity Credit Agreement effective, which will permit the Company to draw funds to sustain operations as more fully described in the S-1 filed on October 21, 2011. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Management's efforts have been directed towards the development and implementation of a plan to generate sufficient revenues to cover all of its present and future costs and expenses. This plan is to address mobile messaging market opportunities with novel, comprehensive and robust solutions for the consumer and enterprise market. Overall, we see a unique opportunity to add value to the text messaging market.

 

If the Company does not generate sufficient revenues from the sales of its products in an amount necessary to meet its cash needs, the Company will need additional financing to continue to operate. There are no assurances that the Company can continue to successfully raise additional financing. As the Company increases sales from its products and services, the Company expects to have cash flows from operations. For the nine months ended September 30, 2012, the Company raised through private placements of common stock and warrants, issuance of debt and proceeds from exercise of options and warrants of approximately $671,000.

 

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The accompanying unaudited consolidated financial statements have been prepared, in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany transactions have been eliminated in consolidation. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company's Annual report, as amended on Form 10-K/A filed on April 20, 2012. The results of the nine months ended September 30, 2012 are not necessarily indicative of the results to be expected for the full year ending December 31, 2012.

 

NOTE 2 - SUMMARY OF SIGNIFICANT AND CRITICAL ACCOUNTING POLICIES

 

(a) Earnings Per Share:

 

The Company utilizes the guidance per FASB Codification “ASC 260 "Earnings Per Share". Basic earnings per share is calculated on the weighted effect of all common shares issued and outstanding, and is calculated by dividing net income available to common stockholders by the weighted average shares outstanding during the period. Diluted earnings per share, which is calculated by dividing net income available to common stockholders by the weighted average number of common shares used in the basic earnings per share calculation, plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities outstanding, is not presented separately as it is anti-dilutive. Such securities, shown below, presented on a common share equivalent basis and outstanding as of September 30, 2012 and 2011 have been excluded from the per share computations:

 

 

 

For the Nine Months
Ended

 

 

 

September 30,

 

 

 

2012

 

 

2011

 

2004 Stock Plan Options

 

 

 

 

 

230,000

 

Non ISO Stock Options

 

 

21,312,019

26,021,922

 

Convertible Preferred Stock

 

 

51,444,780

52,466,715

 

Convertible Notes Payable

 

 

51,393,933

15,132,104

 

Warrants

 

 

33,390,581

100,162,317

 

 

(b) Software Development Costs:

 

Research and development costs are expensed as incurred. No research and development costs were incurred during the nine months ended September 30, 2012 and 2011.

 

In accordance with the provisions of Accounting for the costs of computer software to be sold or otherwise marketed, software development costs are subject to capitalization beginning when a product's technological feasibility has been established and ending when a product is available for release to customers. For the six months ended September 30, 2012 and 2011, respectively, the Company capitalized approximately $0 and $141,000, respectively of software and website development costs.  The software costs are amortized on a straight line basis over the estimated useful life of three years. Amortization expense for the nine months ended September 30, 2012 and 2011 was approximately $81,000 and $70,000 respectively.

 

(c) Revenue Recognition:

 

The Company recognizes revenues in accordance with authoritative guidance when services have been rendered, the sales price is determinable and collectability is reasonably assured. Revenue from online Internet sales is recognized upon the settlement of credit card charges, typically within three days of the sale.

 

(d) Use of Estimates:

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

 


 

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(e) Recent Accounting Pronouncements:

 

The Company evaluates the new accounting provisions for guidance applicable to ProText Mobility, Inc. During the period, the Company does not believe there are any new pronouncements that will materially impact the Company.

 

(f) Long-Lived Assets

 

In accordance with FASB Codification Topic ASC 360-10-15, Impairment or Disposal of Long-Lived Assets, we review long-lived assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered.  In such circumstances, we will estimate the future cash flows expected to result from the use of the asset and its eventual disposition.  Future cash flows are the future cash inflows expected to be generated by an asset less the future outflows expected to be necessary to obtain those inflows.  If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, we will recognize an impairment loss to adjust to the fair value of the asset. For the nine months ended September 30, 2012 and 2011, the Company determined there was impairment to the software capitalization and website development expense and recorded write offs of approximately $0 and $39,000 which is included in the accompanying consolidated statement of operations.

 

NOTE 3 – STOCK COMPENSATION

 

The Company’s 2004 Stock Plan (the “ 2004 Plan”), which is shareholder approved, permits the grant of share options and shares to its employees for up to 1,500,000 shares of Common Stock as stock compensation. All stock options under the 2004 Stock Plan are granted at the fair market value of the Common Stock at the grant date. Employee stock options vest ratably over a three-year period and generally expire 5 years from the grant date.

 

The Company’s 2009 Incentive Stock Plan, (the “2009 Plan”), which is Board of Director approved, permits the grant of share options and shares to directors, executives and selected employees and consultants for up to 25,000,000 shares of Common Stock as stock compensation. During the nine months ended September 30, 2012, 6,511,647 shares of common stock have been issued to employees and consultants for services.

 

Accounting for Employee Awards:

 

The Company adheres to the provisions of Share Based Compensation as defined in the FASB codification, topic ASC 718. The codification focuses primarily on accounting for transactions in which an entity obtains employee services through share-based payment transactions. This guidance requires an entity to measure the cost of employee services received in exchange for the award of equity instruments based on the fair value of the award at the date of grant. The cost is recognized over the period during which an employee is required to provide services in exchange for the award.

 

As a result of the adoption of the provision of Share Based Compensation, the Company's results for the nine months ended September 30, 2012 and 2011 include share-based compensation expense for employees and board of directors totaled approximately $120,000 and $653,000, respectively, which have been included in the general and administrative expenses line item in the accompanying consolidated statement of operations. No income tax benefit has been recognized in the income statement for share-based compensation arrangements as the Company has provided a 100% valuation allowance on its’ net deferred tax asset. Stock option compensation expense is the estimated fair value of options granted amortized on a straight-line basis over the requisite service period for the entire portion of the award. The Company has not adjusted the expense by estimated forfeitures, as required for employee options, since the forfeiture rate based upon historical data was determined to be immaterial.

 

During the nine months ended September 30, 2012 and 2011 the Company granted 0 and 1,300,000 fully vested options, respectively, to employees with an exercise price ranging from $0.01 to $0.10 and a five year term.

 

 

 

 

 

 

 

 

 

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The fair value of options at the date of grant is estimated using the Black-Scholes option pricing model. During the nine months ended September 30, 2012 and 2011 the assumptions made in calculating the fair values of options are as follows:

 

 

 

For the Nine Months Ended

 

 

 

September 30,

 

 

 

2012

 

 

2011

 

Expected term (in years)

 

 

-

 

 

 

5

 

Expected volatility

 

 

-

 

 

 

105.96% – 108.94%

 

Expected dividend yield

 

 

-

 

 

 

0

 

Risk-free interest rate

 

 

-

 

 

 

1.72% – 3.75%

 

 

Accounting for Non-employee Awards:

 

The Company records its stock-based compensation expense in accordance with ASC 718-10, formerly SFAS 123R, “Share Based Payment” to its non-employee consultants for stock granted.

 

Stock compensation expense related to non-employee options was approximately $0 and $0 for the nine months ended September 30, 2012 and 2011, respectively. 

 

There were no options granted to non-employees during the nine months ended September 30, 2012. 

 

As of September 30, 2012 option expense amounted to $16,182 and there was approximately $0 of unrecognized compensation cost, related to nonvested stock options, which is expected to be recognized over a weighted average period of approximately less than 1 year.

 

NOTE 4 - 10% CONVERTIBLE NOTES PAYABLE

 

As of September 30, 2012 and December 31, 2011 the remaining 10% convertible notes outstanding were in default. The default provision requires an additional 2% interest per annum until the loans are repaid or converted. The 2% default penalty totaled approximately $10,000 and $14,000 for the periods ended September 30, 2012 and December 31, 2011, respectively and is included in interest expense on the consolidated statement of operations and in accrued expenses on the consolidated balance sheets as of September 30, 2012 and December 31, 2011, respectively.

  

As reflected on the balance sheets, the value of the 10% convertible notes at September 30, 2012 and December 31, 2011 amounted to approximately $114,000 and are classified as current due to the fact that they are in default for the non-payment by the maturity date.

 

NOTE 5 - CONVERTIBLE NOTES PAYABLE

 

2012

 

Convertible Bridge Notes Payable:

 

During the nine months ended September 30, 2012, the Company repaid two short-term convertible bridge notes totaling $77,500. In addition, the Company converted a $51,000 short-term convertible bridge note into 5,100,000 shares of common stock. During the nine months ended September 30, 2012, the Company received $222,000 in short term convertible bridge notes payable. The notes bear interest between 8% - 10% interest and are payable upon maturity, 9 months from the date of the loans.

 

Revenue Linked Convertible Notes Payable:

 

During the nine months ended September 30, 2012, the Company entered in to several short term convertible notes totaling $401,000. These notes mature in 9 months, are non interest bearing and convertible into $0.07 a share after 9 months. In addition, the noteholders received 1,000,000 shares for every $10,000 invested for a total of 40,100,000 shares and as a result recorded a debt discount of $424,770 of which $254,360 was amortized.

 

9

 

 

 

 

 

 

 

 

 

 

 

 

 

 


The Company anticipates it will generate revenue relating to third party managed carrier branded corporate websites, as well as through the sales of its products, and through the proposed test and launch of a national direct response marketing and distribution campaign for its products. The noteholders, upon repayment in full, will be entitled to 10%, on a pro rated basis, of the aforementioned gross revenue, as adjusted, over a 12 month period following the repayment.

  

2011

 

Convertible Bridge Notes Payable:

 

In 2011, bridge noteholders converted approximately $1,156,126 of principal and $80,000 in accrued interest into 12,385,728 shares of the Company’s common stock. During the year ended December 31, 2011 the Company received $476,016 in short term convertible bridge notes payable. The notes bear interest at 10% interest and are payable upon maturity, 90-180 days from the date of the loans. During the year ended December 31, 2011, the Company repaid $30,000 of notes payable.

 

During the year ended December 31, 2011, the Company recorded amortization expense of approximately $627,000 relating to current and prior year debt discount on bridge notes payable.

 

Non Convertible Bridge Notes Payable:

 

2011

 

In March of 2011, the principal balance of the note of approximately $125,000 and accrued interest of approximately $48,000 was converted into 1,424,028 shares of common stock of the Company.

 

NOTE 6 - DUE TO STOCKHOLDERS

 

In March of 2011, the Company settled all outstanding liabilities with Mr. Bozsnyak in exchange for 1,200,000 shares of common stock and recorded a gain on extinguishment of approximately $47,000, which is included in the accompanying consolidated statement of operations for the year ended December 31, 2011.

 

NOTE 7 -  EQUITY TRANSACTIONS

 

2012

 

Payment of Interest

 

For the nine months ended September 30, 2012, the Company issued 477,576 shares (valued at $6,918) of the Company’s common stock as payment for interest due on the Company’s 10% convertible notes.

 

Services Rendered

 

The Company issued 1,112,499 shares (valued at $25,542) for the nine months ended September 30, 2012 of the Company’s restricted common stock as payment for compensation to consultants and employees. The Company issued 8,755,606 shares (valued at $120,000) for the nine months ended September 30, 2012 of the Company’s restricted common stock as payment for services to the Board of Directors.

 

Common Stock Issued in Connection with Debt Issuance

 

In the nine months ended September 30, 2012, the Company issued 40,100,000 shares of its common stock as a result of the issuance of $401,000 of principal on the bridge notes.

 

Issuance of Common Stock as a Result of Sale of Securities

 

In the nine months ended September 30, 2012, the Company issued 6,921,086 shares of common stock for proceeds from the sale of the Company’s common stock of $48,000.

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Conversion

 

In the nine months ended September 30, 2012, the Company issued 5,100,000 shares of its common stock as a result of converting $51,000 of principal on the bridge note holders.

 

Reverse Stock Split 

 

In November 2012 the holders of more than a majority of the voting power of the shareholders of the Company, have approved an amendment to the certificate of incorporation to effect up to a 20-to-1 reverse split of the Company's common stock, par value $0.0001. 

 

2011

 

Payment of Interest

 

For the year ended December 31, 2011, the Company issued 237,960 shares (valued at $13,836) of the Company’s common stock as payment for interest due on the Company’s 10% convertible notes.

 

Services Rendered

 

The Company issued 7,535,702 shares (valued at $369,391) for the year ended December 31, 2011 of the Company’s restricted common stock as payment for compensation to consultants and employees. The Company issued 4,857,663 shares (valued at $225,500) for the year ended December 31, 2011 of the Company’s restricted common stock as payment for services to the Board of Directors.

 

Extinguishment of Accounts Payable

 

During the year ended December 31, 2011 the Company issued 2,462,421 shares (valued at $268,700) of its common stock in lieu accounts payable and the due to shareholder totaling approximately $287,500.  The resulting net gain of approximately $19,000 is included within the gain on extinguishment of liabilities line item in the accompanying consolidated statement of operations.

 

Option and Warrant Exercises

 

During the year ended December 31, 2011 the Company issued 714,869 shares of common stock as a result of option exercises (500,000 were cashless and the Company received proceeds totaling $26,970 for the non cashless exercise of 246,119 options).


During the year ended December 31, 2011, the Company issued 738,273 shares of common stock as a result of 787,099 warrants exercised on a cashless basis.

 

Debt Conversion of Interest

 

In the year ended December 31, 2011, the Company issued 1,253,961 shares of its common stock as a result of converting $125,012 of accrued interest on the bridge note holders.

 

Debt Conversion

 

In the year ended December 31, 2011, the Company issued 11,131,767 shares of its common stock as a result of converting $1,158,807 of principal on the bridge note holders.

 

Issuance of Common Stock as a Result of Sale of Securities

 

In the year ended December 31, 2011, the Company issued 7,924,009 shares of common stock for proceeds from the sale of the Company’s common stock of $427,938.

 

Conversion of Preferred A

 

In the year ended December 31, 2011, shareholders converted 240,894 shares of Preferred A into 2,408,940 shares of common stock.

 

11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOTE 8 - PREFERRED B

 

On July 29, 2009, the Company and Rock Island Capital, LLC (“Rock Island”) entered into a Series B Convertible Preferred Stock Purchase Agreement, as amended on September 9, 2009 (the “Agreement”).  Pursuant to the Agreement, the Company has sold to assignees of Rock Island an initial tranche of $2,000,000 of its Series B Convertible Preferred Stock (220,022 shares), in the aggregate, at a purchase price per share of $9.09, and has issued to such assignees Warrants to purchase 22,002,200 shares of the Company’s Common Stock, in the aggregate, at an exercise price of $0.15 per share.  Each share of Series B Convertible Preferred Stock is convertible into 100 shares of the Company’s Common Stock at the sole discretion of the holder.  Pursuant to the Agreement, Rock Island may designate one member for service on the Company’s board of directors.  Under the terms of the Agreement, Rock Island and its assignees could, at their discretion, purchase additional shares of Series B Convertible Preferred Stock and Warrants in two additional tranches of $2,000,000 and $1,000,000 payable on or before December 2, 2009, and January 8, 2010, respectively.

 

On March 4, 2010, ProText Mobility, Inc. (the “Company”) entered into Amendment No. 2 (“Amendment No. 2”) to the Series B Convertible Preferred Stock Purchase Agreement, dated July 29, 2009, as amended by Amendment No. 1 to the Series B Convertible Preferred Stock Purchase Agreement, with Rock Island Capital, LLC (the “Purchaser”), dated September 4, 2009 (as amended, the “Purchase Agreement”).  Pursuant to the Purchase Agreement, the Company agreed to sell to the Purchaser, in tranches (with the last tranche to occur within approximately 60 days from execution of Amendment No. 2), an aggregate of 550,055 shares of Series B Preferred Stock (of which 220,022 shares were sold prior to execution of Amendment No.2) for an aggregate purchase price of $5,000,000 (of which $2,000,000 was sold prior to execution of Amendment No. 2). In addition, the Company agreed to issue to the Purchaser five-year warrants to purchase 50,000,000 shares at an exercise price of $0.03, exercisable on a cashless basis, and 50,000,000 shares at an exercise price of $0.06, not exercisable on a cashless basis, in tranches pro rata with the sale of the Series B Preferred Stock. The exercise price of the warrants not exercisable on a cashless basis shall be reduced to $0.03 if the closing price of the Company’s common stock has a volume weighted average price of less than $0.06 for a thirty day period during the term of such warrants. The Company also agreed to issue to the Purchaser 45,000,000 shares of common stock (the “Additional Shares”), in tranches pro rata with the sale of the Series B Preferred Stock. As amended by Amendment No. 3, the Purchaser may terminate the Purchase Agreement upon 10 days’ written notice, in which event the Purchaser shall not be obligated to make any additional purchases under the Purchase Agreement.

 

In connection with the Purchase Agreement, the Company filed an Amended and Restated Certificate of Designation of Series B Preferred Stock (the “Certificate of Designation”) filed with the State of Delaware on September 5, 2010.

 

In accordance with the accounting guidance for modifications, for Amendment No. 2, the Company recorded approximately $2,024,000 as a deemed preferred dividend relating to warrant modification with a corresponding credit to additional paid in capital. The Company recorded $1,980,000 as a deemed preferred dividend relating to issuance of common stock with a corresponding credit to additional paid in capital.

 

In accordance with the agreement, dividends payable in common stock amounting to 1,617,578 shares were issued for the year ended December 31, 2010.

 

On July 29, 2010 the Company entered into Amendment No. 4 to the Stock Purchase Agreement of its Series B Convertible Preferred Stock with Rock Island Capital LLC whereby it amended the termination clause to remove the penalties and the termination payment fee.

 

On October 19, 2010 the Company entered into Amendment No. 5 to the Stock Purchase Agreement of its Series B Convertible Preferred Stock with Rock Island Capital LLC (“Purchaser”) whereby the Purchaser agreed to purchase from the Company, and the Company agreed to sell to the Purchaser, up to 192,500 units, with each unit consisting of (i) one share of Series B Preferred Stock, (ii) 81.818181 shares of the Company’s common stock and (iii) five-year warrants to purchase 181.818181 shares of the Company’s common stock at an exercise price of $0.01 (which may be exercised on a cashless basis), for a purchase price of $9.0909 per unit. The units will be sold in installments of at least $100,000 each on before the 30 th day following the prior payment, with the first installment due on or before the thirtieth day following the final payment of the aggregate purchase price under the Agreement. In the event that the Purchaser shall fail to timely pay any installment and does not notify the Company in writing at least five days prior to such installment due date (upon which notice the Purchaser shall be granted a 7-day extension), the Company may, from and after the expiration of any and all applicable cure periods, terminate the Agreement, and the Company shall have no right to pursue any other remedy against Purchaser.

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

NOTE 8 - PREFERRED B (continued)

 

 

¨

The warrants issued or issuable under the Agreement shall be exercisable on a cashless basis.

 

 

¨

On October 20, 2010, the Company filed an Amended and Restated Certificate of Designation of Series B Preferred Stock, pursuant to which:

 

 

  •  

Pursuant to the commitment of the additional financing of $1,750,000, the number of shares of authorized Series B Preferred Stock was increased from 550,055 to 1,000,000;

 

 

  •  

Pursuant to the commitment of the additional financing of $1,750,000, the Special Dividend Amountpayable to the holders of Series B Preferred Stock was increased from $2,500,000 to $3,375,000;and

 

 

  •  

The holders of Series B Preferred Stock shall be entitled to cumulative dividends at a rate of 10% per annum, compounded annually and payable in cash upon conversion of the Series B Preferred Stock into shares of common stock or upon such other date as determined by the Board of Directors of the Company.

 

In accordance with the accounting guidance for modifications, for Amendment No. 5, the Company recorded approximately $760,000 as a deemed preferred dividend relating to warrant modification with a corresponding credit to additional paid in capital.

 

For the year ended December 31, 2010, the Company received $2,650,000 from the sale of Series B Convertible Preferred Stock, and issued an additional 291,529 preferred B shares. The Company recorded the beneficial conversion feature and the warrant associated with such investment as a deemed preferred dividend of $2,650,000 with a corresponding credit to additional paid in capital In accordance with Amendment No. 5, the Company has accrued dividends payable amounting to approximately $562,000 and $91,000 at December 31, 2011 and December 31, 2010, respectively which is included in the accompanying consolidated balance sheet.

 

As of September 30, 2012, the Company has accrued for an additional $352,625 of dividends resulting in a total payable balance of $914,923.

 

NOTE 9 - COMMITMENTS AND CONTINGENCIES

 

Legal Proceedings

 

Almut Von Biederman

 

On May 10, 2010, the Company was served with an action from Ms. Von Biederman for breach of contract seeking damages in excess of $75,000. The Company was in mediation  proceedings, and has accrued $20,000 of prior consulting fees due to Ms. Von Biederman.

 

Ms. Von Biederman motioned for a summary judgement that the Company breached the employment agreement by terminating her employment without good cause and/or due to a change in control of the Company.  On August 8, 2012 Ms. Von Biederman's motion was denied. 

 

Further, on August 8, 2012, the Court granted Ms. Von Biederman a summary judgement that the Company breached the emloyment agreement by failing to pay her salary owed between July 29, 2009 and November 15, 2009 and the Company breached the consulting agreement by failing to pay Ms. Von Biederman the $20,000 owed under the consulting agreement. 

 

NOTE 10 - SUBSEQUENT EVENTS

 

On October 18, 2012, the Company received $5,000 in the form of a short term promissory note. The note bears interest at 8% interest and is due on December 31, 2012.  

 

In addition, the Company received $5,000 in the form of a revenue linked convertible note. This note matures in 9 months, is non interest bearing and convertible into $0.07 a share after 9 months. In addition, the noteholder received 500,000 shares as per the terms of the agreement. 

 

In November 2012 the holders of more than a majority of the voting power of the shareholders of the Company, have approved an amendment to the certificate of incorporation to effect up to a 20-to-1 reverse split of the Company's common stock, par value $0.0001.

 

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Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

The following is a discussion of our results of operations and current financial position.  This discussion should be read in conjunction with our unaudited consolidated financial statements and related notes included elsewhere in this report, as well as our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K/A for the year ended December 31, 2011.

 

As used in this quarterly report on Form 10-Q, references to the “Company,” “we,” “us,” “our” or similar terms include ProText Mobility, Inc. and its consolidated subsidiaries.

 

Forward Looking Statements

 

Except for the historical information contained herein, the matters discussed below or elsewhere in this quarterly report may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements.  Forward-looking statements reflect the Company's views and assumptions based on information currently available to management. Such views and assumptions are based on, among other things, the Company's operating and financial performance over recent years and its expectations about its business for the current and future fiscal years.  Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct.  Such statements are subject to certain risks, uncertainties and assumptions, including, but not limited to, (a) the Company's ability to secure necessary capital in order to continue to operate (b) the Company's ability to complete and sell its products and services, (c) the Company's ability to achieve levels of sales sufficient to cover operating expenses, (d) prevailing economic conditions which may significantly deteriorate, thereby reducing the demand for the Company's products and services, (e) regulatory or legal changes affecting the Company's business and (f) the effectiveness of the Company's relationships in the parental control and monitoring software and services, and imaging products business.

 

General

 

Protext Mobility develops innovative products and solutions for the mobile communications market. As disclosed in public filings, the Company has evolved from a software developer for personal computers (“PC”) to products designed for the mobile industry.  We have built a unique, feature rich, flexible and robust mobile messaging platform.   The current solutions were developed out of the need for, and desire of, consumers to gain necessary insight and visibility into their children's use of today's mobile technology.  The mobile solutions we have developed on our platform for the direct-to-consumer market helps to provide parents peace of mind as it relates to the 3 most serious dangers a child may encounter as they use mobile devices...Bullying, Sexting and Distracted Driving. We have bundled certain features developed on our platform and have released them under the SafeText and DriveAlert brands.  Both offerings are available to consumers at the www.FamilyMobileSafety.com_website.

SafeText is a premium service for mobile devices that provides parents a solution to help manage their children’s mobile communication activities. SafeText is an easy to use and effective mobile solution, providing notification when potentially "dangerous" situations are happening through a text messaging interaction. The comprehensive offering enables and empowers parents with an easy to use, robust set of tools and features designed to help protect and manage their children’s text messaging activities. SafeText maintains a proprietary database including an extensive library of words, phrases, and slang that allow for a complete auto-analysis of text conversations. Furthermore, SafeText provides detailed information on voice calls, mobile web browsing, and geo-location. Core features of SafeText are proprietary, patent-pending technology, and we consider to be competitively advantageous. The SafeText solution is designed to operate on multiple mobile platforms. The current configuration is fully compatible with the ANDRIOD and Blackberry operating systems;

other mobile offerings are currently in development.

DriveAlert is a virtual “lock-box” designed to help mitigate the risks of driving while distracted. The smartphone solution launches automatically when the vehicle is in motion, sends customized auto-replies to incoming texts and emails, automatically sends in-coming calls to voicemail, and in an emergency, the driver can easily override DriveAlert to make out-going calls. DriveAlert not only blocks texting, but also all other applications the driver may be distracted by, such as Twitter, Facebook, Instant Messaging, Email and Browsing while the phone is in motion. DriveAlert is available for ANDROID and BlackBerry smartphones.

 

 

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The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern. These circumstances raise substantial doubt about the Company's ability to continue as a going concern. The consolidated unaudited financial statements do not include any adjustments that might result from the outcome of this uncertainty. Management's efforts have been directed towards the development and implementation of a plan to generate sufficient revenues to cover all of its present and future costs and expenses. The plan includes, among other things, continuing to market our SafeText and DriveAlert products and leveraging the Company’s core competencies. Our marketing strategy for SafeText and DriveAlert device-base solution is primarily direct-to-consumer. The Company has established relationships with mobile resellers and is in discussions with numerous mobile resellers for additional distribution opportunities.

 

If the Company does not generate sufficient revenues from the sales of its products in an amount necessary to meet its cash needs, the Company will need additional financing to continue to operate. As the Company increases sales from its products and services, the Company expects to increase cash flows from operations.

 

Results of Operations


Comparison of the Results for the Nine Months Ended September 30, 2012 and 2011

 

Revenue for the nine months ended September 30, 2012 and 2011 was approximately $9,500 and $19,000, respectively, a decrease of approximately $9,500. Gross loss increased to approximately $72,000 from $51,000 due to the amortization of capitalized software costs in the period ended September 30, 2011 of $81,000 compared to $70,000 in the same period in the current year.

 

Selling costs decreased to approximately $15,000 from approximately $17,000 for the nine months ended September 30, 2012 and 2011, respectively.

 

Website costs increased by approximately $16,000 for the nine months ended September 30, 2012 compared to the same prior period.

 

General and administrative expenses decreased to approximately $906,000 from approximately $1,775,000 for the nine months ended September 30, 2012 and 2011, respectively.  The decrease of approximately $869,000 consists of the following changes:

 

 

·

Compensation costs (which include stock compensation, salaries, taxes and benefits) decreased approximately $1,014,000 for the current period ended September 30, 2012 compared to the prior comparable period due to a decrease in salaries, employee benefits and related taxes.

 

 

·

Professional fees (which include accounting/auditing, consulting and legal fees) increased approximately $246,000 for the nine months ended September 30, 2012 compared to the same period in 2011.  This is primarily a result of the increase in consulting expense of approximately $333,500 and a decrease of approximately $87,000 in legal and other professional services.

 

 

·

Decrease in marketing expense of approximately $15,000, software development expense of approximately $18,000 and a decrease in insurance expense of approximately $40,000 compared to the same period in 2011.

 

Interest expense for the nine months ended September 30, 2012 and 2011 was approximately $194,000 and $80,000 respectively, an increase of approximately $114,000. The increase in interest expense is due to the fact that the outstanding balance of convertible notes was higher as of September 30, 2012 compared to the prior period.

 

Gain on extinguishments of liabilities totaled approximately $0 and $22,000 for the nine months ended September 30, 2012 and 2011, respectively and was due to settlements of outstanding  liabilities and a due to shareholder balance.

 

Amortization expense from deferred note discounts for the nine months ended September 30, 2012 and 2011 was approximately $295,000 and $566,000, respectively. Although the principal amount of notes payable is lower in the prior period, the Company recorded the amortization when the debtors extended the notes in the first quarter of the fiscal year ended December 31, 2011.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comparison of the Results for the Three Months Ended September 30, 2012 and 2011

 

Revenue for the three months ended September 30, 2012 and 2011 was approximately $2,600 and $6,300, respectively, a decrease of approximately $3,700. Gross loss increased to approximately $25,000 from $19,000 due to the increased amortization of software costs as well as the decrease in sales for period ended September 30, 2012.

 

Selling costs decreased to approximately $3,700 from approximately $1,500 for the three months ended September 30, 2012 and 2011, respectively.

 

       Website costs increased by approximately $1,200 for the three months ended September 30, 2012 compared to the same prior period.

 

General and administrative expenses decreased to approximately $316,000 from approximately $533,000 for the three months ended September 30, 2012 and 2011, respectively.  The decrease of approximately $217,000 consists of the following changes:

 

 

·

Compensation costs (which include stock compensation, salaries, taxes and benefits) decreased approximately $236,000 for the current period ended September 30, 2012 compared to the prior comparable period due to a decrease in salaries, employee benefits and related taxes.

 

 

·

Professional fees (which include accounting/auditing, consulting and legal fees) increased approximately $34,000 for the three months ended September 30, 2012 compared to the same period in 2011.  This is primarily a result of the increase in consulting expense of approximately $95,000 and a decrease of approximately $61,000 in legal and other professional services.

 

 

·

Decrease in rent expense of approximately $10,000, and a decrease in insurance expense of approximately $28,000 compared to the same period in 2011.

 

Interest expense for the three months ended September 30, 2012 and 2011 was approximately $63,000 and $30,000 respectively, an increase of approximately $33,000. The increase in interest expense is due to the fact that the outstanding balance of convertible notes was higher as of September 30, 2012 compared to the prior period.

 

Gain on extinguishments of liabilities totaled approximately $0 and $2,000 for the three months ended September 30, 2012 and 2011, respectively and was due to settlements of outstanding  liabilities and a due to shareholder balance.

 

Amortization expense from deferred note discounts for the three months ended September 30, 2012 and 2011 was approximately $295,000 and $566,000, respectively. The increase in amortization expense from deferred note discounts is due to the full amortization of the deferred notes in the three months ended September 30, 2011.

 

Liquidity and Capital Resources

 

The Company's liquidity and capital needs relate primarily to working capital and other general corporate requirements.  To date, the Company has funded its operations with stockholder loans, by issuing notes and by the sale of common and preferred stock.  Since inception, the Company has not generated any significant cash flows from operations.  At September 30, 2012, the Company had cash and cash equivalents of approximately $1,000 and a working capital deficiency of approximately $3,070,000.  If the Company does not generate sufficient revenues from the sales of its products in an amount necessary to meet its cash needs, the Company would need additional financing to continue to operate.  As the Company increases sales from its products and services, the Company expects to increase cash flows from operations.

 

Net cash used in operating activities for the nine months ended September 30, 2012 and 2011 was approximately $596,000 and $592,000, respectively.   The current period net cash used in operating activities relates to the net loss of approximately $1,594,000 offset by adjustments totaling approximately $998,000, which primarily relates to approximately $230,000 of non cash stock compensation expense, and $383,000 of amortization. The prior comparative period’s net cash used in operating was due to a net loss of approximately $2,610,000 offset by non cash stock compensation of approximately $680,000 and approximately $656,000 of depreciation and amortization.

 

 

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Net cash used in investing activities for the nine months ended September 30, 2012 and 2011 was approximately $0 and $141,000 and is attributable to the additions of capitalizable software and website development costs in 2011.

 

Net cash provided by financing activities was approximately $594,000 and $712,000 for the nine months ended September 30, 2012 and 2011, respectively. The decrease of approximately $118,000 was the result of lower proceeds from the sale of common stock, and an increase in payments of bridge notes payable as compared to the prior period.

 

While the Company has raised capital from equity and debt transactions as mentioned above, we are dependent on improved operating results and raising additional funds over the next twelve month period. There are no assurances that we will be able to secure additional funding. In the event that we are unable to generate sufficient cash flow or receive proceeds from offerings of debt or equity securities, the Company may be forced to curtail or cease its activities.

 

 

Research and Development

 

Research and development costs are generally expensed as incurred. In accordance with the provisions of FASB Codification Topic ACS 985-20, "Costs of Software to be Sold, Leased, or Marketed,” software development costs are subject to capitalization beginning when a product's technological feasibility has been established and ending when a product is available for release to customers. For the nine months ended September 30, 2012, and 2011 the Company capitalized approximately $0 and $141,000 of software and website development costs, respectively.  The software and website costs are amortized on a straight line basis over the estimated useful life of three years. Amortization expense for the nine months ended September 30, 2012 and 2011 was approximately $89,000 and $76,000 respectively.

 

In accordance with FASB Codification Topic ASC 360-10-15, Impairment or Disposal of Long-Lived Assets, we review long-lived assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered.  In such circumstances, we will estimate the future cash flows expected to result from the use of the asset and its eventual disposition.  Future cash flows are the future cash inflows expected to be generated by an asset less the future outflows expected to be necessary to obtain those inflows.  If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, we will recognize an impairment loss to adjust to the fair value of the asset.  There was no impairment for the period ended September 30, 2012. For the period ended September 30, 2011, the Company recorded a write off of approximately $39,000 for website development costs which is included in the accompanying consolidated statement of operations.

 

The Company continually strives to enhance and improve the functionality of its software products.  As such all new programming must be tested, even if it is only a small component of a larger existing element of the software, before being released to the public. Testing is an ongoing process and generally occurs in three areas. First, upgrades and enhancements are done on a continual basis to prolong the lifecycle of the products and as new enhancements and upgrades are completed, each item must be tested for performance and function. Testing is also performed to assure that new components do not adversely affect existing software. Finally, as with all software, testing must assure compatibility with all third party software, new operating systems and new hardware platforms.

 

Critical Accounting Policies:

 

Refer to the Annual Report on Form 10-K/A for the year ended December 31, 2011 filed with SEC for a listing of all such accounting principles.

 

 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Not Applicable

 

 

 

 

 

 

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Item 4T.  Controls and Procedures.

 

 

 

(a)

Evaluation of Disclosure Controls and Procedures. The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. The Chief Executive Officer has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of September 30, 2012 and has concluded that, as of such date, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported with the time periods specified in the Commission's rules and forms.

 

 

(b)

Changes in Internal Controls.  There were no changes in our internal controls over financial reporting that occurred during the nine month period ended September 30, 2012 that have materially affected, or are reasonably like to materially affect, our internal controls over financial reporting.

 

The Company's management, including the Chief Executive Officer, does not expect that the Company's disclosure controls or the Company's internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and may not be detected. We will conduct periodic evaluations of our internal controls to enhance, where necessary, our procedures and controls.

 

 

 

 

 


 

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PART II

 

Item 1.  Legal Proceedings.

 

Almut Von Biedermann

 

On May 10, 2010, the Company was served with an action from Ms. Von Biederman for breach of contract seeking damages in excess of $75,000. The Company is currently in mediation proceedings, and has accrued $20,000 of prior consulting fees due to Ms. Von Biedermann.

 

Ms. Von Biederman motioned for a summary judgement that the Company breached the employment agreement by terminating her employment without good cause and/or due to a change in control of the Company. On August 8, 2012, Ms. Von Biederman's motion was denied.


Further, on August 8, 2012, the Court granted Ms. Von Biederman a summary judgement that the Company breached the employment agreement by failing to pay her salary owed between July 29, 2009 and November 15, 2009 and the Company breached the consulting agreement by failing to pay Ms. Von Beiderman the $20,000 owed under the

consulting agreement.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

 

In the six months ended September 30, 2012, pursuant to a stock purchase agreement the Company received $45,000 and issued 6,784,722 shares of common stock.

 

The above securities were issued pursuant to the exemption from registration under Section 4(2) of the Securities Act for transactions not involving a public offering.

 

Item 3.  Defaults upon Senior Securities.

 

The Company is currently in default on the 10% convertible notes totaling $114,034 of principal as of September 30, 2012.

 

Item 4.  Mine Safety Disclosures.

 

N/A

 

Item 5.  Other Information.

 

None.

 

 

Item 6.

Exhibits.

 

31.1

 

Certification of Principal Executive Officer pursuant to Section 302 of Sarbanes Oxley Act of 2002

32.1+

 

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of 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, Exhibits 32.1 is furnished and not filed.

 

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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.

 

ProText Mobility, Inc.

 

(Registrant)

 

 

 

 

By:

/s/ Peter Charles

 

 

Peter Charles, Principal Executive Officer

 

 

 

 

Date: December 26, 2012

 

 

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