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EX-31 - EXHIBIT 31.2 PROTEXT MOBILITY - ProText Mobility, Inc.exhibit312.htm
EX-32 - EXHIBIT 32.1 PROTEXT MOBILITY - ProText Mobility, Inc.exhibit321.htm
EX-32 - EXHIBIT 32.2 PROTEXT MOBILITY - ProText Mobility, Inc.exhibit322.htm
EX-31 - EXHIBIT 31.1 PROTEXT MOBILITY - ProText Mobility, Inc.exhibit311.htm
EXCEL - IDEA: XBRL DOCUMENT - ProText Mobility, Inc.Financial_Report.xls

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

 

x

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

 

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2013

 

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.)

 

 

16885 River Birch circle

 

Delray Beach, FL

33445

(Address of principal executive offices)

(Zip Code)

 

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

 

60 Queens Street, Suite 106,

Syosset, New York  11791

 (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 August 8, 2013 is 701,447,021 shares.

 

PROTEXT MOBILITY, INC. AND SUBSIDIARIES

 

INDEX

 

 

 

 

 

 

Page No.

 

 

Forward-Looking Statements

2

 

 

PART I FINANCIAL INFORMATION

 

 

 

ITEM 1 – Financial Statements:

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2013 (Unaudited) and December 31, 2012

3

 

 

Condensed Consolidated Statements of Operations For the Six and Three Months ended June 30, 2013 (Unaudited) and 2012 (Unaudited)

4

 

 

Condensed Consolidated Statements of Cash Flows For the Six Months ended June 30, 2013 (Unaudited) and 2012 (Unaudited )

5

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

6 - 16

 

 

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

17-21

 

 

ITEM 3 – Quantitative and Qualitative Disclosure about Market Risk

22

 

 

ITEM 4T –Controls and Procedures

22

 

 

PART II:

 

 

 

Item 1 – Legal Proceedings

23

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

23

Item 3 – Defaults upon Senior Securities

23

Item 4 – Mine Safety Disclosures

23

Item 5 - Other Information

23

Item 6 – Exhibits

23

Signature Page

24

 

 



 

 

 

 

 

 

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.

 

 

 

2


PROTEXT MOBILITY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

June 30,

 

December 31,

 

2013

 

2012

 

(Unaudited)

 

 

ASSETS

 

 

 

Current assets:

 

 

 

  Cash

 $                   16,296

 

 $                  349

        Total current assets

                      16,296

 

349

 

 

 

 

Other assets:

 

 

 

  Security deposit

-   

 

2,700

        Total other assets

-   

 

2,700

 

 

 

 

        Total assets

 $                   16,296

 

 $               3,049

 

 

 

 

LIABILITIES

 

 

 

Current liabilities:

 

 

 

  Current portion of 10% convertible notes payable  

 $                 114,034

 

 $           114,034

  Convertible short term bridge notes payable, net of

 

 

 

  discount of $140,344 and $60,485 respectively

                 1,253,798

 

1,337,656

  Loans payable

                      30,000

 

             5,000

  Derivative liability

                    165,241

 

                         -  

  Accounts payable

                    736,159

 

750,423

  Accrued expenses

                 1,398,577

 

1,218,039

        Total current liabilities

                 3,697,809

 

3,425,152

 

 

 

 

Other liabilities:

 

 

 

  Dividends payable

                 1,266,257

 

1,033,757

        Total liabilities

                 4,964,066

 

4,458,909

 

 

 

 

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 28,968 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 - 950,000,000 shares;    issued and outstanding -  701,447,021 and 293,313,312 shares, respectively

 

 

 

 

                       70,146

 

29,330

  Additional paid-in capital

                45,340,966

 

44,943,481

  Accumulated deficit

               (50,358,936)

 

   (49,428,725)

        Total stockholders' deficit

                 (4,947,770)

 

     (4,455,860)

 

 

 

 

       Total liabilities and stockholders' deficit

$                   16,296 

$                3,049

 

 

 

 

See notes to unaudited condensed consolidated financial statements

3


PROTEXT MOBILITY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

 

 

 

 

 

 

For the Six Months Ending June 30,

For the Three Months Ending June 30,

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 $          642

 

 $          7,836

 

 $         377

 

 $           2,569   

 

 

 

 

 

 

 

 

Cost of Sales

 

 

 

 

 

 

 

   Amortization of software costs

-   

 

54,336

 

-   

 

           27,168

Cost of sales

-   

 

54,336

 

-   

 

27,168  

 

 

 

 

 

 

 

 

Gross Profit (loss)

642

 

 (46,500)

 

377

 

 (24,599)

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

  Selling

2,640

 

12,741

 

2,369

 

3,651

  Web site costs

26,805

 

78,795

 

-   

 

36,955  

  General and administrative

356,823

 

634,200

 

188,897

 

316,127

  Depreciation and amortization

-   

 

5,004

 

-   

 

2,502  

Total operating expenses

386,268

 

730,740

 

191,266

 

359,235

 

 

 

 

 

 

 

 

Loss from operations

 (385,626)

 

 (777,240)

 

 (190,889)

 

 (383,834)

 

 

 

 

 

 

 

 

Other expenses:

 

 

 

 

 

 

 

  Interest

89,478

 

155,188

 

50,302  

 

62,895  

  Derivative expense

81,241

 

-   

 

41,699

 

-   

  Debt conversion expense

45,339

 

-   

 

29,500  

 

22,500  

  Amortization of note discounts

96,027

 

213,129

 

47,731

 

143,570

Total other expenses

312,085

 

368,317

 

169,232

 

228,965

 

 

 

 

 

 

 

 

Net loss

 (697,711)

 

(1,145,557)

 

 (360,121)

 

 (612,799)

 

 

 

 

 

 

 

 

Common stock dividends to be issued for Series B Preferred Stock

 (232,500)

 

 (235,083)

 

 (117,542)

 

 (117,542)

 

 

 

 

 

 

 

 

  Net loss applicable to common stock holders

 $  (930,211)

 

 $ (1,380,640)

 

 $  (477,663)

 

 $    (730,341)

 

 

 

 

 

 

 

 

Per share data

 

 

 

 

 

 

 

  Net Loss per share - basic and diluted

 $        (0.00)

 

 $          (0.01)

 

 $        (0.00)

 

 $         (0.00)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of  shares outstanding- basic and diluted

461,665,787

 

218,223,856

 

564,744,159

 

233,436,011

 

 

 

 

 

 

 

 

See notes to unaudited condensed consolidated financial statements

4






PROTEXT MOBILITY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

 

 

   For the Six Months Ended June 30,

 

2013

 

2012

 

 

 

 

Cash flows from operating activities:

 

 

 

Net loss

 $               (697,711)

 

 $             (1,145,557)

Adjustments to reconcile net loss to net cash

 

 

 

 used in operating activities:

 

 

 

Debt modification expense

45,339

 

-   

Common stock issued for services

36,200

 

25,542

Common stock issued for compensation

80,000

 

80,000

Stock issued for interest

6,918

 

6,918

Compensatory element of stock options

-   

 

16,182

Loss on change in derivative liability

81,241

 

-   

Amortization of software and website development and website development costs

-   

 

59,340

Interest on debt restructuring

12,710

 

-   

Amortization of discount related to debt

                           96,027

 

                      213,129

Increase (decrease) in cash flows as a result of changes in asset and liability account balances:

 

 

 

Deposit

2,700

 

6,754

Accounts payable and accrued expenses

170,175

 

263,736

Total adjustments

531,310

 

671,601

 

 

 

 

Net cash used in operating activities

                      (166,401)

 

                        (473,956)

 

 

 

 

Cash flows from financing activities:

 

 

 

  Proceeds from sale of common stock

20,848

 

48,000

  Proceeds from loans payable

6,000

 

-   

  Proceeds from convertible bridge notes payable

180,500

 

499,500

  Payments of bridge notes payable

 (25,000)

 

 (77,500)

Net cash provided by financing activities

182,348

 

470,000

 

 

 

 

Net increase (decrease) in cash

15,947

 

 (3,956)

 

 

 

 

Cash at beginning of period

349

 

3,956

 

 

 

 

Cash at end of period

 $                    16,296

 

 $                             -  

 

 

 

 

Supplemental Schedules of Noncash Investing and Financing Activities:

 

 

 

Common stock issued as a result of loans payable conversions

 $                    11,000

 

 $                              - 

Common stock issued as a result of convertible debt conversion

 $                  142,210

 

 $                             -  

Common stock issued in lieu of accrued interest

 $                      3,900

 

 $                              - 

Restricted stock issued in connection to bridge loans

 $                      3,965

 

 $                              - 

Debt discount of beneficial conversion feature in relation to bridge loans

 $                    87,920

 

 $                    343,033

Common stock issued as a result of debt conversion

 $                              -

 

 $                     45,000 

Common stock dividends payable for Series B Preferred Stock

 $                  232,500

 

 $                   235,083

 

 

 

 

See notes to unaudited condensed consolidated financial statements

5




 

PROTEXT MOBILITY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2013 and 2012

 

NOTE 1 - DESCRIPTION OF BUSINESS AND GOING CONCERN

 

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’

 

Protext Mobility develops, markets and sells software 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’s offerings include solutions for both the consumer and enterprise markets, with downloadable applications for mobile communications devices: SafeText, DriveAlert & CompliantWireless.   

 

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. Compliant Wireless is a proprietary mobile platform designed for small to large companies to manage employee’s use of mobile devices for business through providing insight into the content and activity generated within their mobile work environment.

 

These circumstances raise substantial doubt about the Company's ability to continue as a going concern.  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 underserved “trillion” 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 increase cash flows from operations. The Company has been successful in raising money from equity and debt transactions. For the six months ended June 30, 2013, the Company raised a total of approximately $207,000 comprised of proceeds from sale of common stock and issuance of debt. During the six months ended June 30, 2012, the Company raised a total of approximately $548,000 comprised of the proceeds from sale of common stock and issuance of debt. For the six months ended June 30, 2013 and 2012, approximately $153,000 and $45,000, respectively of the bridge notes payable have been converted into common stock.

 

The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As reflected in the consolidated financial statements, the Company incurred net losses of $697,711 and $1,145,557 for the six months ended June 30, 2013 and 2012, respectively.  In addition, the Company had negative working capital (current liabilities minus current assets) of approximately $3,682,000 and an accumulated deficit of approximately $50,359,000 at June 30, 2013.

 

The accompanying unaudited condensed 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 subsidiaries. All intercompany transactions have been eliminated in consolidation.




6



  

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

  

(a) Basis of Presentation:

 

ProText Mobility, Inc. is organized as a single reporting unit, with two operating divisions, and believes that it operates as a single business.   References in this report to “ProText Mobility”, the “Company”, “we”, “us” or “our” refers to ProText Mobility Inc. and its consolidated subsidiaries. All intercompany transactions have been eliminated in consolidation.

 

 (b) 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.  

 

(c) Use of Estimates:

 

The preparation of unaudited condensed consolidated 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.

 

(d) 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 June 30, 2013 and 2012 have been excluded from the per share computations as their effect would be anti-dilutive:

 

 

 

For the Six Months Ended June 30,

 

 

2013

 

2012

Non ISO Stock Options

 

 

19,017,815

 

 

 

21,312,019

 

Convertible Preferred Stock

 

 

51,444,780

 

 

 

51,444,780

 

Convertible Bridge Notes and Notes Payable

 

 

488,781,632

 

 

 

27,225,830

 

Warrants

 

 

32,929,181

 

 

 

35,298,981

 

 

(e) Stock Based Compensation:

 

Effective January 1, 2006, the Company’s 2004 Stock Plan and options granted outside of the Plan are accounted for in accordance with the recognition and measurement provisions of Share Based Compensation as defined in FASB Codification, topic 718, which  requires compensation costs related to share-based payment transactions, including employee stock options, to be recognized in the financial statements.

  

(f) Research and Development Costs:

 

Research and development costs are expensed as incurred. No research and development costs were incurred during the six months ended June 30, 2013 and 2012.

 

Research and development costs are generally expensed as incurred.



7

 



(g) Derivative Liabilities

 

The Company assessed the classification of its derivative financial instruments as of June 30, 2013, which consist of convertible instruments and rights to shares of the Company’s common stock, and determined that such derivatives meet the criteria for liability classification under ASC 815.

 

ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.

 

During the six months ended June 30, 2013, the Company had notes payable outstanding in which the conversion rate was variable and undeterminable. Accordingly, the Company has recognized a derivative liability in connection with such instruments. The Company uses judgment in determining the fair value of derivative liabilities at the date of issuance at every balance sheet thereafter and in determining which valuation is most appropriate for the instrument (e.g., Black Scholes), the expected volatility, the implied risk free interest rate, as well as the expected dividend rate.


 

(h) 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 six months ended June 30, 2013 and 2012, the Company determined there was impairment to the software capitalization and website development expense and recorded write offs of approximately $0. Since 2012 the Company fully impaired software capitalization and website development expense.

 

(i) Cash Equivalents:

 

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with a remaining maturity of three months or less, when purchased, to be cash equivalents.

 

(j) Fair Value of Financial Instruments:

 

The Company’s financial instruments are cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, notes payable and obligations under capital leases. The carrying amounts of accounts payable and accrued expenses approximate fair value due to the short term nature of these financial instruments. The recorded values of notes payable and obligations under capital leases approximate their fair values, as interest approximates market rates.

 

(k) Concentration of Credit Risk:

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company from time to time may maintain cash balances, which exceed the Federal

 

Depository Insurance Coverage limit. The Company performs periodic reviews of the relative credit rating of its bank to lower its risk. Concentrations of credit risk with respect to accounts receivable are limited because a number of geographically diverse customers make up the Company’s customer base, thus spreading the trade credit risk.

 

8



(l) Property and Equipment and Depreciation:

 

Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided for over the estimated useful lives of the related asset using the straight-line method. The estimated useful lives for significant property and equipment categories are as follows:

 

 

 

 

 

 

 

 

 

 

Data processing equipment

 

3 to 5 years

Telecommunication equipment

 

5 years

Purchased software

 

3 years

 

(m) Recently Issued Accounting Pronouncements:


We have reviewed accounting pronouncements issued during the past two years and have adopted any that are applicable to our company. We have determined that none had a material impact on our unaudited condensed consolidated financial position, results of operations, or cash flows for the six months ended June 30, 2013 and 2012.

 

  

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 six months ended June 30, 2013, 82,330,888 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 six months ended June 30, 2013 and 2012 include share-based compensation expense for employees and board of directors totaled approximately $80,000 and $80,000, 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.

 

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 $0 for the six months ended June 30, 2013 and 2012, respectively.  These amounts are included in the Consolidated Statements of Operations within the general and administrative expenses line item.

 

There were no options granted to non-employees during the six months ended June 30, 2013.

 

9

The following table represents our stock options granted, exercised, and forfeited during the six months ended June 30, 2013.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Weighted

 

 

 

 

 

 

 

 

 

Average

 

 

Average

 

 

 

 

 

 

 

 

 

Exercise

 

 

Remaining

 

 

Aggregate

 

 

 

Number

 

 

Price

 

 

Contractual

 

 

Intrinsic

 

Stock Options

 

of Shares

 

 

per Share

 

 

Term

 

 

Value

 

Outstanding at December 31, 2011

 

 

31,504,900

 

 

$

0.09

 

 

 

2.7715

 

 

$

0

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Forfeited/expired

 

 

 (11,237,085)

 

 

 

0.11

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2012

 

 

20,267,815

 

 

$

0.08

 

 

 

2.3099

 

 

$

0

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Forfeited/expired

 

 

(1,250,000)

 

 

 

0.15

 

 

 

 

 

 

 

Outstanding at June 30, 2013

 

 

19,017,815

 

 

$

0.07

 

 

 

1.9459

 

 

$

0

 

 

  As of June 30, 2013 and 2012, $0 of compensation cost related to non-vested stock options was recognized.

 

NOTE 4 -   PROPERTY AND EQUIPMENT

 

The following is a summary of property and equipment, at cost less accumulated depreciation, at:

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

 

December 31,   

 

 

2013

 

 

2012

 

Furniture and fixtures

 

$

3,780

 

 

$

3,780

 

Data processing equipment

 

 

212,730

 

 

 

212,730

 

Telecommunication equipment

 

 

21,262

 

 

 

21,262

 

Purchased software

 

 

2,395

 

 

 

2,395

 

 

 

 

240,167

 

 

 

240,167

 

Less: accumulated depreciation

 

 

(240,167

)

 

 

(240,167

)

Total property and equipment, net

 

$

-

 

 

$

-

 

 

Depreciation charged to operations amounted to approximately $0 for the six months ended June 30, 2013 and 2012. Property and equipment include gross assets acquired under capital leases of approximately $0 at June 30, 2013 and 2012. Capital leases are included as a component of data processing equipment. Amortization of assets under capital leases is included in depreciation expense.

 

NOTE 5 - 10% CONVERTIBLE NOTES PAYABLE

 

During the fiscal year ended 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 $7,000 for six months ended June 30, 2013 and 2012, respectively and is included in interest expense on the consolidated statement of operations and in accrued expenses on the consolidated balance sheet as of June 30, 2013 and December 31, 2012, respectively.

 

As reflected on the balance sheets, the value of the 10% convertible notes at June 30, 2013 and December 31, 2012 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.  The Notes are convertible at any time at the option of the holder into Common Stock at the conversion rate of $0.40 per share. 

 

10





 

 

 

 

 

NOTE 6 - BRIDGE NOTES PAYABLE

 

Convertible Bridge Notes Payable:


2013

Convertible Bridge Notes Payable:

 

During the six months ended June 30, 2013, the Company fully converted four short-term convertible bridge notes and partially converted three short-term convertible bridge notes totaling $142,000 into 268,849,209 shares of common stock. During the six months ended June 30, 2013, the Company received $180,500 in short term convertible bridge notes payable. The notes bear interest between 8% - 15% interest, are payable upon maturity, and are convertible between date of issuance – 180 days. As a result, the Company recorded $74,349 debt discount related to beneficial conversion feature. Several note holders received a total of 14,575,000 shares upon issuance of the notes and as a result recorded a debt discount of $12,535 of which $3,026 was amortized.


In connection with the outstanding convertible notes payable, the Company has recorded amortization expense of $96,027 for the six months ended June 30, 2013

with $140,344 net discount balance remaining. As of June 30, 2013, the balance of the Company’s convertible debt amounts to $1,253,799.


In addition, the Company and an issuer of three convertible debentures totaling $42,290 and accrued interest of $3,571 restructured the convertible notes to a non-convertible loan totaling $55,000. The Company recorded the additional $9,139 as interest expense. During the quarter, the Company repaid $25,000 relating to this loan. The balance as of June 30, 2013 is $30,000.

 

2012

Convertible Bridge Notes Payable:

 

During the six months ended June 30, 2012, the Company repaid two short-term convertible bridge notes totaling $77,500. In addition, the Company converted a portion of a $51,000 short-term convertible bridge note totaling $45,000 into 4,500,000 shares of common stock. The Company received $118,500 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 six months ended June, 2012, the Company entered in to several short term convertible notes totaling $381,000. 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 38,100,000 shares and as a result recorded a debt discount of $262,257 of which $153,603 was amortized.

 

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.


Loans Payable:

2013

 

On February 20, 2013, the Company entered in to short term note payable totaling $6,000. This note matures on February 27, 2013 and bears interest at 6% per annum. In addition, the Company converted two loans totaling $11,000 into 9,892,402 shares of common stock.

 

On May 24, 2013, the Company and an issuer of three convertible debentures totaling $42,290 and accrued interest of $3,571 restructured the convertible notes to a non-convertible loan totaling $55,000. The Company recorded the additional $9,139 as interest expense. During the quarter, the Company repaid $25,000 relating to this loan. The balance as of June 30, 2013 is $30,000.

 

2012


In October of 2012, the Company entered in to short term note payable totaling $5,000. This note matures on April 17, 2013 and bears interest at 8% per annum.

11

NOTE 7 - DERIVATIVE LIABILITIES

 

The Company accounts for the embedded conversion features included in its convertible instruments. The Company has identified the embedded derivatives related to these convertible loans during the conversion kick in period. During June 30, 2013, the Company determined that these loans became convertible and thus the fair value of the derivative at the kick in period which amounted to $15,000. This amount was charged directly to derivative expense since the debt discount had been calculated and amortized in the prior period.

 

At June30, 2013, the Company marked to market the fair values of the derivative liability amounting to $165,241 and recorded a $81,241 loss.  The fair values of the embedded derivatives were determined using Black Scholes Option Pricing Model based on the following assumptions (1) dividend yield of 0%, (2) expected volatility of 275.45% to 339.78% (3) weighted average risk free rate of 0.11% to 0.15%, expected life of 0.00 to 0.95 year and (5) estimated fair value of the Company’s common stock of $0.0003 to $0.0004 per share.

 

NOTE 8 -    EQUITY TRANSACTIONS

 

Common Stock:


2013

 

Payment of Interest

 

For the six months ended June 30, 2013, the Company issued 5,696,823 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 21,950,000 shares (valued at $36,200) for the six months ended June 30, 2013 of the Company’s restricted common stock as payment for compensation to consultants. The Company issued 60,380,888 shares (valued at $80,000) for the six months ended June 30, 2013 of the Company’s restricted common stock as payment for services to the Board of Directors.

 

Debt Conversion of Interest

 

In the six months ended June 30, 2013, the Company issued 8,040,587 shares of its common stock as a result of converting $3,900 of accrued interest on the bridge note holders.

 

Debt Conversion

 

In the six months ended June 30, 2013, the Company issued 278,741,611 shares (268,849,209 for the conversion of convertible notes payable and 9,892,402 shares for the conversion of loans payable) of its common stock as a result of converting $153,210 of principal on the bridge note holders.


Common Stock Issued in Connection with Debt Issuance

 

In the six months ended June 30, 2013, the Company issued 14,575,000 shares of its common stock as a result of the issuance of $3,965 of principal on the bridge notes.

 

Issuance of Common Stock as a Result of Sale of Securities

 

In the six months ended June 30, 2013, the Company issued 18,748,800 shares of common stock for proceeds from the sale of the Company’s common stock of $20,848.


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 authorizing the Company’s Board of Directors to effect up to a 20-to-1 reverse split of the Company's common stock, par value $0.0001. As of the date of issuance of the accompanying financial statements, the Company’s Board of Directors have not authorized a reverse stock split.

 

12

NOTE 8 -    EQUITY TRANSACTIONS (continued)

 Common Stock


In May 2013, the Company increased its authorized share amount from 775,000,000 shares, of which 750,000,000 relate to common shares and 25,000,000 relate to preferred shares, to 975,000,000 shares of which 950,000,000 relate to common shares and 25,000,000 relate to preferred shares. 


Under certain obligations for conversion of convertible notes, preferred shares, options and warrants issued by the Company to various lenders and investors, the Company has contractual commitments to issues a number of its common shares such that if all outstanding convertible instruments were converted, the Company would not have a sufficient number of authorized shares. Under generally accepted accounting principles,  if the Company is unable to deliver the required shares, the holder would be entitled to other remedies, such as cash settlement, which would cause the instrument to be classified as a liability

 

As stated in footnote 9, the holders of Series Preferred B Convertible B Stock are entitled to such number of votes equal to 51% of the outstanding common stock on an-converted basis only with respect to a proposal to increase the authorized number of shares of capital stock. The Company’s management controls  the Series B Convertible shares  and at their sole discretion may  increase the number of authorized shares of common stock. Accordingly, the Company  has classified the instruments as a liability  at June 30, 2013. The Company has concluded it will have sufficient authorized and unissued shares to settle all contracts subject to ASC 815-40 (EITF Issue 00-19).


Warrants:

 

During the six months ended June 30, 2013, the Company did not grant any warrants.

 

 

 

Weighted

 

 

 

 

 

Average

 

 

 

Common

 

 

Exercise

 

 

 

Shares

 

 

Price

 

Outstanding at December 31, 2011

 

 

104,767,316

 

 

$

0.03

 

Issued

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

Expired

 

 

(71,430,735)

 

 

 

(0.21)

 

Outstanding at December 31, 2012

 

 

33,336,581

 

 

$

0.026

 

Issued

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

Expired

 

 

(407,400)

 

 

 

(0.247)

 

Outstanding at June 30, 2013

 

 

32,929,181

 

 

$

0.04

 

 

 

 

 

13

 

 

NOTE 9 -     PREFERRED STOCK

 

Series A Convertible Preferred Stock

 

For the six months ended June 30, 2013 and the year ended December 31, 2012, the Company has 28,968 shares of Series A Convertible Preferred Stock issued. The holders of outstanding shares of Series A Preferred Stock are entitled to receive, in any fiscal year, when, if and as declared by the Board of Directors, out of any assets at the time legally available, dividends on a pro rata basis in cash at the rate of 7% per annum on the stated value of $2.62 per share. Each holder of shares of Series A Preferred Stock shall have the right, at any time and from time to time, to convert some or all such shares into fully paid and non-assessable shares of common stock at the rate of 10 shares of common stock for every one share of Series A Preferred Stock.

 

Series B Convertible Preferred Stock

 

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.  The holders of Series Preferred B Convertible B Stock are entitled to such number of votes equal to 51% of the outstanding common stock on an-converted basis only with respect to a proposal to increase the authorized number of shares of capital stock. 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 551,551 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 $2,783,000 as a deemed preferred dividend relating to warrant modification with a corresponding credit to additional paid in capital. The Company recorded $4,625,815 as a deemed preferred dividend relating to issuance of common stock and warrants with a corresponding credit to additional paid in capital.

 

In accordance with the agreement, dividends payable in common stock amounting to 2,708,000 shares were issued for the year ended December 31, 2010.

 

 

14

 

 

NOTE 9 -     PREFERRED STOCK (continued)

 

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.

 

 

     ▪

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 Amount payable 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 $1,266,257 and $1,033,757at June 30, 2013 and December 31, 2012, respectively which is included in the accompanying unaudited condensed consolidated balance sheet.

 

 

NOTE 10 -     COMMITMENTS AND CONTINGENCIES

 

Legal Proceedings

 

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.

 

15

 

NOTE 10 -     COMMITMENTS AND CONTINGENCIES (continued)

 

Ms. Von Biederman motioned for a summary judgment 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 judgment 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 Biederman the $20,000 owed under the consulting agreement. 

 

The Company is currently in the process of a settlement regarding this case.

 

In July 2012, a former employee filed suit against the Company alleging various employment related claims.  The case is ongoing and the Company has accrued roughly $24,000 relating to the fees in question.

 

  

NOTE 11 - SUBSEQUENT EVENTS

 

Between July 1, 2013 and August 8, 2013, the Company received $50,000 in the form of convertible bridge notes payable.

 

 

 

 

16

 



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, 2012.

 

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

 

Forward Looking Statements

 

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

 

General

 

Protext Mobility develops innovative products and solutions for the mobile communications market. As disclosed in public filings, the Company has evolved from a software developer for personal computers (“PC”) to products designed for the mobile industry.

 

We have built a proprietary & feature rich, mobile messaging platform.  The robust and flexible feature set can be customized and applied to various vertical markets.  The solutions are scalable and can be tailored to meet the specific demands or needs of a large, end user base. .  Our products are designed for mobile devices running on the Android & Blackberry OS providing parents and corporations, solutions to help manage their children's / employee’s mobile communications activities.

 

The mobile solutions we‘ve developed on our platform utilize our patent pending SmartMessageAnalysis to provide parents peace of mind as it relates to the 3 most serious dangers a child may encounter as they use mobile devices...Bullying, Sexting and Distracted Driving.  We have bundled certain features and released them under SafeText and DriveAlert.  The mobile solutions for the enterprise/corporate compliance are marketed under CompliantWireless, with consumer solutions marketed under FamilyMobileSafety.

 

Comprehensive Feature Set & Platform:  Consumer & Enterprise Markets

 

Text Message & Picture Message Dashboard- Text/Pic Messaging Summary: At-a-glance view to text alerts by calendar; Text & email alerts to parent for quick attention. Text/Pic Messaging Detail View: Access to all message details; Flagging & highlighting of violation words & phrases with description; Category & descriptions for each violation.

 

Web Browser DashboardEasily monitor browsing activities via the SafeText online dashboard; At-a-glance view to web browsing activity by calendar; Displayed by date/time the website addresses which have been visited.

 

GPS Location Dashboard- Easily review GPS Location history from the device via the Dashboard; Locate lost device via the “Locate Now” button; Automatically collects positions at the time of phone use; One-click viewing of historical positions and speed.

 

Voice Call Dashboard- Easily review Voice Calls from the device via the Dashboard: View voice call logs including incoming and outgoing calls; Logs include indication of call direction and duration.

Application Install Dashboard-  Easily review Installed and uninstalled Apps log from the device via the Dashboard; Display includes application name, details and status; Includes GPS Location & speed indicator.

 

17

Consumer Market:

 

SafeText: 

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

 

DriveAlert:

A virtual “lock-box”, designed to curb mobile device use while driving and to help mitigate the risks of driving while distracted.  A downloadable application, the smartphone solution launches automatically when the vehicle is in motion, sends customized auto-replies to incoming texts and emails, automatically sends in-coming calls to voicemail, and in an emergency, the driver can override DriveAlert to make out-going calls. DriveAlert not only blocks texting, but also all other applications the driver may be distracted by, while the phone is in motion. The current configuration is fully compatible with the Android and Blackberry operating systems.

 

Enterprise Market:

 

Compliant Wireless

Compliant Wireless is a proprietary mobile platform designed for small to large companies to manage employee’s use of mobile devices for business through providing insight into the content and activity generated within their mobile work environment.  The current configuration is fully compatible with the Android and Blackberry operating systems.  Distracted Driving prevention is uniquely incorporated within a turnkey mobile management and productivity tool where essentially all employee mobile activity are viewable & archived, with violations to company policies being flagged and reported. 

 

CompliantWireless offers company administrator's secure access to a customized web-based and mobile dashboard to review corporate communications and activities taking place on their employee’s mobile devices via the SafeText and DriveAlert modules.  With CompliantWireless, administrators are offered an effective and robust solution to deter, prevent and monitor for inappropriate mobile activities such as sexting, distracted driving, and bullying while importantly maintaining the integrity of data and content being sent via employer supplied devices.

 

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

 

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

 

18



Results of Operations


Comparison of the Results for the Six Months Ended June 30, 2013 and 2012

 

Revenue for the six months ended June 30, 2013 and 2012 was approximately $600 and $8,000, respectively, a decrease of approximately $7,400. Gross profit increased approximately $47,000 from a gross loss of $47,000 due to the amortization of capitalized software costs in the period ended June 30, 2012 of $54,000 compared to $0 in the same period in the current year.

 

Selling costs decreased to approximately $10,000 from approximately $13,000 for the six months ended June 30, 2013 and 2012, respectively.

 

Website costs decreased by approximately $51,000 for the six months ended June 30, 2013 compared to the same prior period.

 

General and administrative expenses decreased to approximately $357,000 from approximately $634,000 for the six months ended June 30, 2013 and 2012, respectively.  The decrease of approximately $277,000 consists of the following changes:

 

 

 

 

 

·

Compensation costs (which include stock compensation, salaries, taxes and benefits) decreased approximately $42,000 for the current period ended June 30, 2013 compared to the prior comparable period due to a decrease in salaries, employee benefits and related taxes.

 

 

 

 

·

Professional fees (which include accounting/auditing, consulting and legal fees) decreased approximately $176,000 for the six months ended June 30, 2013 compared to the same period in 2012.  This is primarily a result of the decrease in consulting expense of approximately $97,000, a decrease of approximately $80,000 in legal, accounting and other professional services.

 

 

·

Decrease in general insurance expense of approximately $23,000, and a decrease in rent expense of approximately $22,000 compared to the same period in 2012.

 

Interest expense for the six months ended June 30, 2013 and 2012 was approximately $89,000 and $155,000 respectively, a decrease of approximately $66,000. The decrease in interest expense is due to the fact that an adjustment was made in the prior period to record $32,000 in interest not previously recorded as well as a lower balance in interest bearing notes in the current period.

 

Loss on change in derivative expense totaled approximately $81,000 and $0 for the six months ended June 30, 2013 and 2012, respectively and was due to derivative liability recorded related to five convertible notes.

 

Amortization expense from deferred note discounts for the six months ended June 30, 2013 and 2012 was approximately $96,000 and $213,000, respectively. The decrease in amortization was due to the full amortization of existing notes


Comparison of the Results for the Three Months Ended June 30, 2013 and 2012

 

Revenue for the three months ended June 30, 2013 and 2012 was approximately $400 and $2,500, respectively, a decrease of approximately $2,100. Gross profit increased approximately $25,000 from a gross loss of $25,000 due to the amortization of capitalized software costs in the period ended June 30, 2012 of $27,000 compared to $0 in the same period in the current year.

 

Selling costs decreased to approximately $2,000 from approximately $4,000 for the three months ended June 30, 2013 and 2012, respectively.

 

Website costs decreased by approximately $37,000 for the three months ended June 30, 2013 compared to the same prior period.

 

19

 

General and administrative expenses decreased to approximately $189,000 from approximately $316,000 for the three months ended June 30, 2013 and 2012, respectively.  The decrease of approximately $127,000 consists of the following changes:

 

 

 

 

 

·

Compensation costs (which include stock compensation, salaries, taxes and benefits) decreased approximately $41,000 for the current period ended June 30, 2013 compared to the prior comparable period due to a decrease in salaries, employee benefits and related taxes.


 

 

 

 

·

Professional fees (which include accounting/auditing, consulting and legal fees) decreased approximately $67,000 for the three months ended June 30, 2013 compared to the same period in 2012.  This is primarily a result of the decrease in consulting expense of approximately $28,000, a decrease of approximately $39,000 in legal, accounting and other professional services.

 

 

·

Decrease in general insurance expense of approximately $14,000, and a decrease in rent expense of approximately $4,000 compared to the same period in 2012.

 

Interest expense for the three months ended June 30, 2013 and 2012 was approximately $50,000 and $63,000 respectively, a decrease of approximately $13,000. The decrease in interest expense is due to a lower balance in interest bearing notes in the current period.

 

Loss on change in derivative expense totaled approximately $42,000 and $0 for the three months ended June 30, 2013 and 2012, respectively and was due to derivative liability recorded related to five convertible notes.

 

Amortization expense from deferred note discounts for the three months ended June 30, 2013 and 2012 was approximately $48,000 and $144,000, respectively. The decrease in amortization was due to the full amortization of existing notes


 


20
 

 



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 June 30, 2013, the Company had cash and cash equivalents of approximately $16,000 and a working capital deficiency of approximately $3,700,000.  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 six months ended June 30, 2013 and 2012 was approximately $166,000 and $474,000, respectively.   The current period net cash used in operating activities relates to the net loss of approximately $698,000 offset by adjustments totaling approximately $531,000, which primarily relates to approximately $123,000 of non cash stock compensation expense, $96,000 of amortization of debt discount, debt modification expense of approximately $45,000, loss on change in derivative liability of $81,000 and an increase of accounts payable and accrued expenses of approximately $170,000. The prior comparative period’s net cash used in operating activities relates to the net loss of approximately $1,146,000 offset by adjustments totaling approximately $694,000, which primarily relates to approximately $129,000 of non cash stock compensation expense, $272,000 of amortization and a decrease of approximately $264,000 relating to accounts payable and accrued expenses.


Net cash provided by financing activities was approximately $182,000 and $470,000 for the six months ended June 30, 2013 and 2012, respectively. The decrease of approximately $298,000 was the result of lower proceeds from the sale of common stock and issuance of bridge notes payable as compared to the prior period.

 

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

 

Research and Development

 

Research and development costs are generally expensed as incurred. In accordance with the provisions of FASB Codification Topic ACS 985-20, "Costs of Software to be Sold, Leased, or Marketed,” software development costs are subject to capitalization beginning when a product's technological feasibility has been established and ending when a product is available for release to customers. For the six months ended June 30, 2013 and 2012 the Company capitalized $0 software and website development costs. 


In accordance with FASB Codification Topic ASC 360-10-15, Impairment or Disposal of Long-Lived Assets, we review long-lived assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered.  In such circumstances, we will estimate the future cash flows expected to result from the use of the asset and its eventual disposition.  Future cash flows are the future cash inflows expected to be generated by an asset less the future outflows expected to be necessary to obtain those inflows.  If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, we will recognize an impairment loss to adjust to the fair value of the asset.  There was no impairment for the period ended June 30, 2013 and 2012. Since 2012, the Company fully impaired software capitalization and website development expense.

 

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

 

21



Critical Accounting Policies:

 

Refer to the Annual Report on Form 10-K/A for the year ended December 31, 2012 filed with SEC for a listing of all such accounting principles.

 

 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Not Applicable

 

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 Executive Director has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of June 30, 2013 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 six month period ended June 30, 2013 that have materially affected, or are reasonably like to materially affect, our internal controls over financial reporting.

 

The Company's management, including the Executive Director, 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.

 

 

22

PART II

 

Item 1.  Legal Proceedings.

 

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.  The Company is currently in the process of a settlement regarding this case.

 

In July 2012, a former employee filed suit against the Company alleging various employment related claims.  The case is ongoing and the Company has accrued roughly $24,000 relating to the fees in question.

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

 

In the six months ended June 30, 2013, pursuant to a stock purchase agreement the Company received $20,848 and issued 18,748,800 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 June 30, 2013.

 

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.

 

23

 

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/ Steve Berman

 

 

Steve Berman, Interim Chief Executive Officer

 

 

 

 

Date: August 19, 2013

 



 

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