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EX-21.1 - LIST OF SUBSIDIARIES - WITH, INC.medl123113_ex211.htm
EX-31.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER - WITH, INC.medl123113_ex311.htm
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - WITH, INC.medl123113_ex322.htm
EX-31.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER - WITH, INC.medl123113_ex312.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - WITH, INC.medl123113_ex321.htm
EXCEL - IDEA: XBRL DOCUMENT - WITH, INC.Financial_Report.xls

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

For the fiscal year ended December 31, 2013

OR

[  ]       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: 333-166343

 

MEDL Mobile Holdings, Inc.

 (Exact name of registrant as specified in its charter)

Nevada   80-0194367
        (State of incorporation)   (I.R.S. Employer Identification No.)

 

18475 Bandilier Circle, Fountain Valley, California, 92708

 

(714) 617-1991

         (Address of principal executive offices)

(Registrant's Telephone Number, Including Area Code)

 

Securities registered under Section 12(b) of the Act:

None

 

Securities registered under Section 12(g) of the Act:

None

____________________

 

·Indicate by check mark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    o   Yes     x No
·Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    o   Yes     x No
·Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes   o No
·Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  x Yes      o   No
·Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
·Indicate by check mark whether the registrant is a large accelerated file, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o Accelerated filer o
Non-accelerated filer    o      (Do not check if a smaller reporting company) Smaller reporting company x

 

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

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter:  approximately $7,526,574 as of June 30, 2013

 

As of March 31, 2014, there were 50,159,876 shares of the issuer's $0.001 par value common stock outstanding.

 

Documents incorporated by reference. None

 
 

 

 

 

 

TABLE OF CONTENTS

 

 

       
       
  PART I    
    Page  
Item 1. Business 1  
Item 1A. Risk Factors 5  
Item 1B. Unresolved Staff Comments  14  
Item 2. Properties 14  
Item 3. Legal Proceedings 14  
Item 4. Mine Safety Disclosures 14  
       
  PART II    
       
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities  14  
Item 6. Selected Financial Data  16  
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations  16  
Item 7A. Quantitative and Qualitative Disclosures About Market Risk  20  
Item 8. Financial Statements and Supplementary Data  21  
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  38  
Item 9A. Controls and Procedures  38  
Item 9B. Other Information  39  
       
  PART III    
       
Item 10. Directors, Executive Officers and Corporate Governance  39  
Item 11. Executive Compensation  41  
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 43  
Item 13. Certain Relationships and Related Transactions, and Director Independence  43  
Item 14. Principal Accounting Fees and Services  44  
       
  PART IV    
Item 15. Exhibits, Financial Statement Schedules  45  
       

 

 

 

 

 
 

 

 

PART I

 

Forward-Looking Information

 

This Annual Report of MEDL Mobile Holdings, Inc. on Form 10-K contains forward-looking statements, particularly those identified with the words, “anticipates,” “believes,” “expects,” “plans,” “intends," “objectives,” and similar expressions. These statements reflect management's best judgment based on factors known at the time of such statements. The reader may find discussions containing such forward-looking statements in the material set forth under “Management's Discussion and Analysis and Plan of Operations,” generally, and specifically therein under the captions “Liquidity and Capital Resources” as well as elsewhere in this Annual Report on Form 10-K. Actual events or results may differ materially from those discussed herein. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements. The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements.

 

ITEM 1. BUSINESS

 

Throughout this Annual Report on Form 10-K, the terms “MEDL”, “Registrant,” “we,” “us,” “our,” and “the Company” refer to MEDL Mobile Holdings, Inc., a Nevada corporation that was formerly known as Resume in Minutes, Inc. prior to its name change in June 2011, and, unless the context indicates otherwise, also includes all of this company's subsidiaries through which this company conducts certain of its operations. To the extent applicable, depending on the context of the disclosure, the terms “we,” “us,” “our,” and “our company” also includes Hang With, Inc., a Nevada corporation, in which we currently own 75.77% of the equity securities.

 

Introduction

 

We currently operate two related businesses. Through our MEDL Mobile, Inc. subsidiary, we have developed a proprietary system for developing mobile application software, or “Apps”. To date, we have architected, designed and developed a library of several hundred apps and related technologies designed predominately for iPhone, iTouch, iPad and Android Devices. MEDL and MEDL Apps have been featured on CNBC, BBC, ABC, CBS, NBC, CNN, in the pages and web pages of USA Today, Esquire, Billboard, Fast Company, The New York Times, The LA Times, The Chicago Tribune, The Orange County Register, The Washington Post and The Guardian; and by top sites such as Mashable, Macworld, Yahoo, Huff Post College, TNW and Gizmodo. Multiple MEDL Apps have reached #1 in their category on the Apple App Store. Through our Hang With, Inc. subsidiary, we operate our “Hang w/” live social mobile video platform that is available for download on iPhone and android phones via Apple App Store and the Google Apps Marketplace.

Our principal executive offices are located at 18475 Bandilier Circle, Fountain Valley, California 92708, and our current telephone number at that address is (714) 617-1991. We maintain a website at: www.medlmobile.com. Our annual reports, quarterly reports, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and other information related to this company are available on our website as soon as we electronically file those documents with, or otherwise furnish them to, the Securities and Exchange Commission. Our Hang With, Inc. subsidiary also maintains a website at www.hangwith.com. Our Internet websites and the information contained therein, or connected thereto, are not and are not intended to be incorporated into this Annual Report on Form 10-K.

 

MEDL’s business today is primarily organized in two areas of opportunity:

1.MEDL Custom Development

Mission:  To develop the cutting edge standard for mobile applications across platform, operating system and classification - as work for hire on behalf of third parties.

 

2.Hang With, Inc.

Mission: To allow the world to Hang w/ each other via live-streaming video and simultaneous chat - and in so doing, to be the recognized leader in live-streaming social media.

 

In November, 2012, we incorporated Hang With, Inc. and transferred the Hang w/ assets to that entity. Hang With, Inc. has issued shares to third party investors to fund its operations and, as a result, it now operates as a standalone company with MEDL as its largest shareholder.

 

1
 

1. Custom Development

Our custom development arm develops Apps for customers that vary in size from small start-ups to large multinational corporations, in a diverse range of industries including retailing, fast food, air travel, medical devices, higher education and fashion.  We are typically paid a fixed price for development of the App. Our customers cover the development costs and own the final work product while we retain ownership of the elements of the computer code.  

MEDL believes it is known for high quality strategic mobile development, securing development and consulting contracts with companies such as: Hyundai, Disney, Experian, Goodwill Industries, UCLA, BBK Worldwide, Taco Bell, Iconix Brand Group, Monster.com, Emirates Airlines, Teleflora, Medtronic, Kaiser Permanente and About.com.

At the present time, we prepare for our customers, packages for sale in the Apple App Store and the Google Android Marketplace. This package includes App store copy, sample screen shots and SEO tags to improve discovery of the Apps in the App stores. We are familiar with the App stores’ requirements and our average approval time is 5-10 days.  We also work with customers to develop a custom launch plan, or to augment their existing plans. We use tools including social network marketing, viral videos, bloggers, banner marketing, public relations and integration into our clients’ existing advertising and marketing strategies to further this launch plan.  We also leverage our extensive marketing and advertising experience to work with advertising, media and PR agencies.

In addition, we provide maintenance, reporting and upgrades and also integrate third party vendors into an App to provide a complete suite of user analytics, which allows customers to track downloads, total number of App user sessions, time spent per session, features of the App accessed and advertising click-through.

Our custom development team is well versed in working closely with in-house IT departments and other third party technology providers in order to deliver complex back-end integrations that result in simple-to-use front end user experiences.

2. Hang With, Inc.

 

The patent-pending “Hang w/” App allows live real-time video to be sent from one phone to many. The goal of the platform is twofold: 1) to become the premiere social media network for people around the globe to connect, communicate and share experiences via live streaming broadcasts; and 2) to enable celebrities and public figures to easily monetize their fan bases.

The “Hang w/” live social mobile video platform was approved for release by Apple on March 20, 2013 and is available for download on the Apple App Store. The “Hang w/” live social mobile video platform was approved for release by Google on July 9, 2013 and is available for download on android phones via the Google Apps Marketplace.

In January of 2014, the Hang w/ App passed 1,000,000 downloads.

By streaming live video directly from the phone of a celebrity (“Celeb”) to the phone of a fan, we believe Hang w/ allows a Celeb to create a real-time genuine relationship - and a built-in advertising model has the ability to generate revenue. More than just a celebrity platform, Hang w/ allows anyone with an iPhone, iPad or Android device to broadcast live to friends, family or even millions of viewers.

Broadcasts can be viewed live in the app, on Facebook, on the web, and via links shared on Twitter. Archived content can be viewed in the App, shared via social media, and distributed to content distribution partners. The App is free to use and is available on both iOS and Android.

Ad serving technology is fully embedded. Every broadcast can begin with a short video or image-based ad unit and can end with a clickable rich media ad unit.

An in-app “digital coin” system has been embedded and can be implemented to generate additional revenue through the purchase of digital goods.

Our goal is to generate revenues from our “Hang w/” live social mobile video platform through the sale of short video advertisements that will be played before and after each live broadcast. We have not yet initiated this revenues model and are currently permitting ad-free broadcasting over this platform.

2
 

Application features include:

- Live streaming broadcast from one to many with variable bit rate broadcasting and simultaneous chat

- Push Notification powered by Parse.

- Integrated advertising platform capable of running video and rich media

- Integrated “Coin” monetization platform

- 24 hour moderation platform with user protections

- #hashtag content tagging and related channels

- Broadcasts can be scheduled or spontaneous.

- Viewers chat with the broadcaster and with each other

- Broadcasters can choose to broadcast in 3, 6 or 9 minute units

- 60 minute broadcasts are available for verified celebrity accounts

- Broadcasters can choose to make archived broadcasts public or private

- Broadcasts stream live and on-demand to web and Facebook.

 

Hang w/ passed one million downloads in only nine months. We believe growth has been driven in part by celebrity social media activity, which has been shown to create spikes in downloads and activity.

 

The Hang w/ app provides multiple opportunities for users to share activity and content to social media - and allows users to invite their Facebook friends to download the application - all of which we believe drives awareness and growth.

Industry Background and Trends

 

Apps are designed to help a user perform specific tasks and are generally downloaded by users from an App store directly onto their smartphone or tablet. Apps have become increasingly popular which is evidenced by the following statistics published by the noted sources:

 

            56% of American adults are now smartphone owners. Pew Internet & American Life Project, 2013

            Apple has sold 500 million iPhones since its launch in 2007.  - Forbes 2014

            Up from 19.4% in 2013, mobile search will comprise an estimated 26.7% of the [Google’s] total ad revenues this year. – eMarketer 2014

            Mobile app use [grew] 115% in 2013 – Flurry 2014

            92 of the top 100 best global brands ranked by Interbrand were present in the Apple App Store, while 75 of the brands were present on Google Play. – Distimo 2013

            On a typical day in November 2013, Distimo estimates the global revenues for the top 200 grossing apps at over $18M in the Apple App Store and over $12M for Google Play. In November 2012, these estimates were at $15M for the Apple App Store and only at $3.5M for Google Play.  – Distimo 2013

            Consumer spend on music apps increased 77% in 2013. – App Annie 2014

            Apps are a now vital marketing tool for Hollywood movies, and provide  additional revenue. In 2012, seven of the top 10 grossing movies had associated tie-in apps. In 2013, all of the top 10 grossing movie titles had tie-in apps. – App Annie, 2014

            Nearly all Generation Y consumers owned a mobile phone of some kind and 72% owned smartphones. - Forrester, 2013

            1.2 billion people worldwide were using mobile apps at the end of 2012. This is forecast to grow at a 29.8 percent each year, to reach 4.4 billion users by the end of 2017. – Portio Research 2013 

            In Q1 2013, there were 13.4 billion app downloads, up 11 percent from Q4 2012, creating revenue of US$2.2 billion. – Canalys 2013

           

3
 

By 2017, 25 percent of enterprises will have an enterprise app store – Gartner 2013

            Global mobile traffic now accounts for 15% of all Internet traffic. – Internet Trends 2013

            85% of people prefer mobile apps to mobile websites - WebDAM 2014

            40% of CNN’s website traffic came from mobile in 2013 – CNN 2014

            En route to the store, 70 percent of smartphone shoppers use a store locator to plan their shopping trip – Nielsen 2013

            Mobile coupons are redeemed 10 times as often as traditional coupons. – eMarketer 2013

Competition

There are many companies who compete directly with both our App development products and services and with our Hang w/ mobile video operations.  These companies may already have an established market in our industry.  Most of these companies have significantly greater financial and other resources than us and have been developing their products and services longer than we have been developing ours.  Additionally, there are not significant barriers to entry in our industry and new companies may be created that will compete with us and other, more established companies who do not now directly compete with us, may choose to enter our markets and compete with us in the future.

We believe that we are one of the leaders in the App custom development sector for advertising, web development and specialty mobile companies.

We believe Hang w/ can fill a yet-to-be-taken spot on the landscape for a live-streaming, mobile, social-media leader. While no exact competitor exists today, elements of Hang w/ exist in other platforms. Mobile videos, albeit shorter form and not live, are shared today by Instagram, Vine and others. Live streaming is currently being supported for specific accounts by YouTube and by other platforms such as Ustream and Livestream.

App Developers Alliance

MEDL is a founding member and holds a board seat on the App Developers Alliance, a Washington D.C.-based organization that represents the concerns of more than 30,000 app developers.

 

Intellectual Property and Proprietary Rights

Our intellectual property and proprietary rights consist of (i) a patent-pending algorithmic that learns user behavior and then makes recommendations based upon this user behavior, and (ii) software copyrights and knowhow. When developing Apps for third party customers, we typically we own all tools, code, subroutines and processes contained within all of our Apps developed for custom development clients. This allows us to improve time to market and lower costs while continuing to provide cutting edge development for our clients.

Similarly, we own all tools, code, subroutines and processes contained within all of our Apps that are developed in partnership and via incubation. We also acquire the rights to all tools, code, subroutines and processes contained within all of the Apps that we acquire via the Alliance program.

Our ever growing library of “MEDL Tools” allows us to constantly improve time to market, improve functionality, cross pollinate thinking and technology, and better the quality of Apps across our entire library. We can also create entirely new Apps by combining features and functions from other Apps within the library.

Proprietary rights are important to our success and our competitive position. To protect our proprietary rights, we rely on copyright, service marks and trade secret laws, confidentiality procedures and contractual provisions.  We currently have one registered trademark and several common law trademarks.

We cannot assure you that any of our proprietary rights with respect to our products or services will be viable or of value in the future since the validity, enforceability and type of protection of proprietary rights in Internet-related industries are uncertain and still evolving.

Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Policing unauthorized use of our products is difficult, and while we are unable to determine the extent to which piracy of our software products exists, software piracy can be expected to be a persistent problem. In addition, the laws of some foreign countries do not protect proprietary rights to as great an extent as do the laws of the United States, and effective copyright, trademark and trade secret protection may not be available in those jurisdictions. Our means of protecting our proprietary rights may not be adequate to protect us from the infringement or misappropriation of such rights by others.

In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights, particularly in the software and Internet-related industries. We could become subject to intellectual property infringement claims as the number of our competitors grows and our products and services overlap with competitive offerings. These claims, even if not meritorious, could be expensive to defend and could divert management’s attention from operating our company. If we become liable to third parties for infringing their intellectual property rights, we could be required to pay a substantial award of damages and to develop non-infringing technology, obtain a license or cease selling the products that contain the infringing intellectual property. We may be unable to develop non-infringing technology or obtain a license on commercially reasonable terms, if at all.

4
 

Government Regulation

Our activities are not currently subject to any particular regulations by governmental agencies other than those routinely imposed on corporate businesses. However, the advertisers that advertise with our Apps are subject to Federal Trade Commission and state rules on advertising and marketing on the Internet, including truth-in advertising rules, online advertising disclosures and the CAN-SPAM Act (Controlling the Assault of Non-Solicited Pornography and Marketing Act) of 2003.  To date, we have not been materially impacted by these rules because our platforms are designed to ensure that proper disclosures are made in connection with every publication.  We cannot predict the impact that future regulations may have on us nor can we predict the impact that future regulations may have on the advertisers that advertise within our Apps.

Employees

As of December 31, 2013, we had 26 full-time employees and 2 part-time employees.  None of our employees are represented by a collective bargaining agreement. We consider our relations with our employees to be very good.

 

ITEM 1A. RISK FACTORS

 

There are numerous and varied risks, known and unknown, that may prevent us from achieving our goals. If any of these risks actually occur, our business, financial condition or results of operation may be materially adversely affected. In such case, the trading price of our common stock could decline and investors could lose all or part of their investment.

 

Risks Related to Our Company

 

We have a limited operating history and are subject to the risks encountered by early-stage companies.

 

Our MEDL Mobile, Inc. App development subsidiary was incorporated in the state of California in March 2009 but has only conducted significant operations since 2011. Because our operating company has a limited operating history, you should consider and evaluate our operating prospects in light of the risks and uncertainties frequently encountered by early-stage companies in rapidly evolving markets. Similarly, we formed Hang With, Inc. in November 2012, and our “Hang w/” live social mobile video platform was approved for release by Apple on March 20, 2013. Accordingly, Hang With also only has a limited operating history. For us, for both our App development business and the Hang With business, these risks include:

 

  · risks that we may not have sufficient capital to achieve our growth strategy;
  · risks that we may not develop our product and service offerings in a manner that enables us to be profitable and meet our customers’ requirements;
  · risks that our growth strategy may not be successful; and
  · risks that fluctuations in our operating results will be significant relative to our revenues.

 

These risks are described in more detail below. Our future growth will depend substantially on our ability to address these and the other risks described in this section. If we do not successfully address these risks, our business would be significantly harmed.

 

We may need additional funding in the near future to continue to fund our current level of operations.

  

We may have to obtain additional funding from the sale of our securities, from debt or from strategic transactions in order to fund our current level of operations. We have not identified the sources for additional financing that we may require, and we do not have commitments from third parties to provide this financing. Certain investors may be unwilling to invest in our securities since our securities are quoted on the OTC Bulletin Board and not traded on a national securities exchange, particularly if there is only limited trading in our common stock on the OTC Bulletin Board at the time we seek financing. There is no assurance that sufficient funding through a financing will be available to us at acceptable terms or at all. Historically, we have raised capital through the issuance of our equity securities.  If additional funds are raised through the issuance of equity securities, the percentage ownership of our existing members will be reduced, our members may experience additional dilution in net book value, and such equity securities may have rights, preferences, or privileges senior to those of our existing shareholders. Furthermore, any debt financing, if available, may involve restrictive covenants, which may limit our operating flexibility with respect to business matters. Given the risks associated with our business, the risks associated with our common stock, the worldwide financial crisis that has severely affected the capital markets, and our status as a small public company, we may have a great deal of difficulty raising capital through traditional financing sources. Therefore, we cannot guarantee that we will be able to raise capital, or if we are able to raise capital, that such capital will be in the amounts needed. If adequate funds are not available on acceptable terms or at all, we may be unable to develop or enhance our services and products, take advantage of future opportunities, repay debt obligations as they become due, or respond to competitive pressures, any of which would have a material adverse effect on our business, prospects, financial condition, and results of operations. 

 

5
 

We have had operating losses since formation and expect to continue to incur net losses for the near term.

 

As of December 31, 2013, we had an accumulated deficit of $7,533,214 and working capital of $653,997.   We have reported net losses of $2,892,198 and $2,833,430 for the years ended December 31, 2013 and 2012, respectively.  Unless our sales increase substantially in the near future, we anticipate that we will continue to incur net losses in the near term, and we may never be able to achieve consistent profitability.  In order to achieve profitable operations we need to significantly increase our revenues or significantly reduce our costs.   We cannot be certain that we will become consistently profitable. The opinion of our independent registered public accountants on our audited financial statements as of and for the year ended December 31, 2013 contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern.  Our ability to continue as a going concern is dependent upon raising capital from financing transactions or consistently obtaining profits from operations.

Our mobile Apps and custom development services are based on new and unproved technologies and are subject to the risks of failure inherent in the development of new products and services.

Because our mobile App and custom development services are and will be based on new technologies, they are subject to risks of failure that are particular to new technologies, including the possibility that:

·our new approaches will not result in any products or services that gain market acceptance;
·our mobile Apps and the technology powering our custom development services may unfavorably interact with other types of commonly used applications and services, thus restricting the circumstances in which they may be used;
·proprietary rights of third parties may preclude us from marketing a new product or service; or
·third parties may market superior or more cost-effective products or services.

As a result, our activities may not result in a broad enough base of commercially viable products or services, which would harm our sales, revenue and financial condition.

If we are unable to maintain a good relationship with the markets where our Apps are distributed, our business will suffer.

Apple’s “App Store” and Google’s “Google Play” are the primary distribution, marketing, promotion and payment platforms for our mobile Apps. We generate substantially all of our revenue from the sale of mobile Apps through these platforms and any deterioration in our relationship with Apple or Google would harm our business and adversely affect the value of our stock.

We are subject to Apple’s and Google’s standard terms and conditions for application developers, which govern the promotion, distribution and operation of mobile Apps on their platforms.

Our business would be harmed if:

·Apple or Google discontinues or limits access to its platform by us and other App developers;
·Apple or Google modifies its terms of service or other policies, including fees charged to, or other restrictions on, us or other application developers, or Apple or Google changes how the personal information of its users is made available to application developers on their respective platforms or shared by users;
·Apple or Google establishes more favorable relationships with one or more of our competitors; or
·Apple or Google develops its own competitive offerings.

We have benefited from Apple and Google’s strong brand recognition and large user base. If Apple or Google loses its market position or otherwise falls out of favor with mobile users, we would need to identify alternative channels for marketing, promoting and distributing our Apps, which would consume substantial resources and may not be effective. In addition, Apple and Google have broad discretion to change their terms of service and other policies with respect to us and other developers, and those changes may be unfavorable to us. Any such changes could significantly alter how our App users experience our Apps or interact within our Apps, which may harm our business.

The mobile application industry is subject to rapid technological change and, to compete, we must continually enhance our mobile Apps and custom development services.

We must continue to enhance and improve the performance, functionality and reliability of our mobile Apps and custom development services. The mobile application industry is characterized by rapid technological change, changes in user requirements and preferences, frequent new product and services introductions embodying new technologies and the emergence of new industry standards and practices that could render our products and services obsolete. In the past, we have discovered that some of our customers desire additional performance and functionality not currently offered by our mobile Apps or by the technology underlying our custom development services. Our success will depend, in part, on our ability to both internally develop and license leading technologies to enhance our existing mobile Apps and custom development services, develop new mobile Apps and services that address the increasingly sophisticated and varied needs of our customers, and respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis. The development of our technology and other proprietary technology involves significant technical and business risks. We may fail to use new technologies effectively or to adapt our proprietary technology and systems to customer requirements or emerging industry standards. If we are unable to adapt to changing market conditions, customer requirements or emerging industry standards, we may not be able to increase our revenue and expand our business. 

6
 

We may face intense competition and expect competition to increase in the future, which could prohibit us from developing a customer base and generating revenue.

 

We face significant competition in every aspect of our business. The mobile application industry is highly competitive, with low barriers to entry and we expect more companies to enter the sector and a wider range of mobile Apps and related products and services to be introduced. Our competitors that develop Apps vary in size and include publicly traded companies such as Electronic Arts Inc., Zynga and The Walt Disney Company and privately-held companies such as Rovio Entertainment Ltd., Crowd Star, Inc., Pocket Gems, Inc., Halfbrick Studios PTY Ltd. and Defiant Development PTY Ltd.   These companies may already have an established market in our industry.  Most of these companies have significantly greater financial and other resources than us and have been developing their products and services longer than we have been developing ours.

Our Hang With subsidiary also faces substantial competition. The mobile video broadcasting market is rapidly developing, and other, larger companies are also releasing mobile video products that, directly or indirectly, compete with Hang With. These other indirect competitors include Instagram, Vine, YouTube and other platforms such as Ustream and Livestream. We also face competition from companies that provide web-based and mobile-based information and entertainment products that are designed to engage users and capture time spent on mobile devices.

Major network failures could have an adverse effect on our business.

 

Our technology infrastructure is critical to the performance of our Apps and customer satisfaction. Our Apps run on a complex distributed system, or what is commonly known as cloud computing. We own, operate and maintain the primary elements of this system, however, some elements of this system are operated by third parties which we do not control and would require significant time to replace. We expect this dependence on third parties to continue. Major equipment failures, natural disasters, including severe weather, terrorist acts, acts of war, cyber attacks or other breaches of network or information technology security that affect third-party networks, communications switches, routers, microwave links, cell sites or other third-party equipment on which we rely, could cause major network failures and/or unusually high network traffic demands that could have a material adverse effect on our operations or our ability to provide service to our customers. These events could disrupt our operations, require significant resources to resolve, result in a loss of customers or impair our ability to attract new customers, which in turn could have a material adverse effect on our business, prospects, results of operations and financial condition.

If we experience significant service interruptions, which could require significant resources to resolve, it could result in a loss of customers or impair our ability to attract new customers, which in turn could have a material adverse effect on our business, prospects, results of operations and financial condition.

In addition, with the growth of wireless data services, enterprise data interfaces and Internet-based or Internet Protocol-enabled applications, wireless networks and devices are exposed to a greater degree to third-party data or applications over which we have less direct control. As a result, the network infrastructure and information systems on which we rely, as well as our customers’ wireless devices, may be subject to a wider array of potential security risks, including viruses and other types of computer-based attacks, which could cause lapses in our service or adversely affect the ability of our customers to access our service. Such lapses could have a material adverse effect on our business, prospects, results of operations and financial condition.

Defects in our mobile Apps and the technology powering our custom development services may adversely affect our business.

Tools, code, subroutines and processes contained within our mobile Apps or the technology powering our custom development services may contain defects when introduced and also when updates and new versions are released. Our introduction of mobile Apps or custom development services with defects or quality problems may result in adverse publicity, product returns, reduced orders, uncollectible or delayed accounts receivable, product redevelopment costs, loss of or delay in market acceptance of our products or claims by customers or others against us. Such problems or claims may have a material and adverse effect on our business, prospects, financial condition and results of operations.

Our mobile Apps and the technology powering our custom development services are complex and may contain unknown defects that could result in numerous adverse consequences, resulting in costly litigation or diverting management's attention and resources.

 

Complex software products such as those associated with our mobile Apps and custom developed products often contain latent errors or defects, particularly when first introduced, or when new versions or enhancements are released. We have experienced and addressed errors and defects in the software associated with our mobile Apps or custom developed products, but do not believe these errors will have a material negative effect in the future on their functionality.  However, there can be no assurance that, despite testing, additional defects and errors will not be found in the current version, or in any new versions or enhancements of our mobile Apps or custom developed products, any of which could result in damage to our reputation, the loss of sales, a diversion of our product development resources, and/or a delay in market acceptance, and thereby materially adversely affecting our business, operating results and financial condition. Furthermore, there can be no assurance that our mobile Apps or custom developed products will meet all of the expectations and demands of our customers. The failure of our mobile Apps or custom developed products to perform to customer expectations could give rise to warranty claims. Any of these claims, even if not meritorious, could result in costly litigation or divert management's attention and resources. Any product liability insurance that we may carry could be insufficient to protect us from all liability that may be imposed under any asserted claims.

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Concerns about health risks associated with wireless equipment may reduce the demand for our services.

Mobile communications devices have been alleged to pose health risks, including cancer, due to radio frequency emissions from these devices.  As our Apps operate on mobile communications devices, the actual or perceived risk of mobile communications devices could adversely affect us through a reduction in mobile communication devise users, thereby reducing potential users of our products and services.

If third parties claim that we infringe their intellectual property, it may result in costly litigation.

We cannot assure you that third parties will not claim our current or future products or services infringe their intellectual property rights. Any such claims, with or without merit, could cause costly litigation that could consume significant management time. As the number of product and services offerings in the mobile application market increases and functionalities increasingly overlap, companies such as ours may become increasingly subject to infringement claims. Such claims also might require us to enter into royalty or license agreements. If required, we may not be able to obtain such royalty or license agreements, or obtain them on terms acceptable to us.

We may not be able to adequately protect our proprietary technology, and our competitors may be able to offer similar products and services, which would harm our competitive position.

Our success depends upon our proprietary technology. We rely primarily on copyright, service mark and trade secret laws, confidentiality procedures and contractual provisions to establish and protect our proprietary rights. As part of our confidentiality procedures, we enter into non-disclosure agreements with our employees and consultants. Despite these precautions, third parties could copy or otherwise obtain and use our technology without authorization, or develop similar technology independently. We also pursue the registration of our domain names, trademarks, and service marks in the United States. We have also filed an application to register a patent. However, we cannot provide any assurance that this application or any future application will ultimately result in an issued patent or, if issued, that it will provide sufficient protections for our technology against competitors. We cannot assure you that the protection of our proprietary rights will be adequate or that our competitors will not independently develop similar technology, duplicate our products and services or design around any intellectual property rights we hold.

We may become subject to government regulation and legal uncertainties that could reduce demand for our products and services or increase the cost of doing business, thereby adversely affecting our financial results.

We are not currently subject to direct regulation by any domestic or foreign governmental agency, other than regulations applicable to businesses generally and laws or regulations directly applicable to Internet commerce. However, due to the increasing popularity and use of mobile applications, it is possible that a number of laws and regulations may become applicable to us or may be adopted in the future with respect to mobile applications covering issues including, but not limited to:

·user privacy;
·taxation;
·right to access personal data;
·copyrights;
·distribution; and
·characteristics and quality of services.

The applicability of existing laws governing issues such as property ownership, copyrights and other intellectual property issues, encryption, taxation, libel, export or import matters and personal privacy to mobile applications is uncertain. For example, laws relating to the liability of providers of online services for activities of their users and other third parties are currently being tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright and trademark infringement, and other theories based on the nature and content of the materials searched, the ads posted or the content provided by users. It is difficult to predict how existing laws will be applied to our business and the new laws to which we may become subject.

If we are not able to comply with these laws or regulations or if we become liable under these laws or regulations, we could be directly harmed, and we may be forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources or to modify our Apps or custom development services, which would harm our business, financial condition and results of operations. In addition, the increased attention focused upon liability issues as a result of lawsuits and legislative proposals could harm our reputation or otherwise impact the growth of our business. Any costs incurred as a result of this potential liability could harm our business and operating results.

It is possible that a number of laws and regulations may be adopted or construed to apply to us in the United States and elsewhere that could restrict the mobile industry, including user privacy, advertising, taxation, content suitability, copyright, distribution and antitrust. Furthermore, the growth and development of electronic commerce and virtual goods may prompt calls for more stringent consumer protection laws that may impose additional burdens on companies such as ours conducting business through mobile devices. We anticipate that scrutiny and regulation of our industry will increase and we will be required to devote legal and other resources to addressing such regulation. Changes to these laws intended to address these issues, including some recently proposed changes, could create uncertainty in the marketplace. Such uncertainty could reduce demand for our services or increase the cost of doing business due to increased costs of litigation or increased service delivery costs.

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Failure to comply with federal and state privacy laws and regulations, or the expansion of current or the enactment of new privacy laws or regulations, could adversely affect our business.

A variety of federal and state laws and regulations govern the collection, use, retention, sharing and security of consumer data. The existing privacy-related laws and regulations are evolving and subject to potentially differing interpretations. In addition, various federal, state and foreign legislative and regulatory bodies may expand current or enact new laws regarding privacy matters. For example, recently there have been Congressional hearings and increased attention to the capture and use of location-based information relating to users of smartphones and other mobile devices. Several Internet companies have incurred penalties for failing to abide by the representations made in their privacy policies and practices. In addition, several states have adopted legislation that requires businesses to implement and maintain reasonable security procedures and practices to protect sensitive personal information and to provide notice to consumers in the event of a security breach. Any failure, or perceived failure, by us to comply with our posted privacy policies or with any data-related consent orders, Federal Trade Commission requirements or orders or other federal, state or international privacy or consumer protection-related laws, regulations or industry self-regulatory principles could result in claims, proceedings or actions against us by governmental entities or others or other liabilities, which could adversely affect our business. In addition, a failure or perceived failure to comply with industry standards or with our own privacy policies and practices could adversely affect our business. Federal and state governmental authorities continue to evaluate the privacy implications inherent in the use of third-party web "cookies" for behavioral advertising. The regulation of these cookies and other current online advertising practices could adversely affect our business. 

Our business will suffer if we are unable to successfully integrate acquired companies into our business or otherwise manage the growth associated with multiple acquisitions.

On February 28, 2012, we acquired Inedible Software LLC (“Inedible”), a developer of mobile apps and mobile app technologies whose principal asset was a customer list. While the acquisition of Inedible was structured as a purchase of an entity, we did not acquire any ongoing business operations and the purpose of the transaction was to acquire Inedible’s customer list as a conduit to Apple for future potential. We intend to continue to pursue acquisitions that are complementary to our existing business and the breadth of our offerings. Our ability to grow through future acquisitions will depend on the availability of suitable acquisition and investment candidates at an acceptable cost, our ability to compete effectively to attract these candidates and the availability of financing to complete larger acquisitions. Since we expect the mobile App industry to consolidate in the future, we may face significant competition in executing this element of our growth strategy. Future acquisitions or investments could result in potential dilutive issuances of equity securities, use of significant cash balances or incurrence of debt, contingent liabilities or amortization expenses related to goodwill and other intangible assets, any of which could adversely affect our financial condition and results of operations. The benefits of an acquisition or investment may also take considerable time to develop, and we cannot be certain that any particular acquisition or investment will produce the intended benefits.

Integration of a new company’s operations, assets and personnel into ours will require significant attention from our management. The diversion of our management’s attention away from our business and any difficulties encountered in the integration process could harm our ability to manage our business. Future acquisitions will also expose us to potential risks, including risks associated with any acquired liabilities, the integration of new operations, technologies and personnel, unforeseen or hidden liabilities and unanticipated, information security vulnerabilities, the diversion of resources from our existing businesses, sites and technologies, the inability to generate sufficient revenue to offset the costs and expenses of acquisitions, and potential loss of, or harm to, our relationships with employees, players, and other suppliers as a result of integration of new businesses.

Fluctuations in operating results could adversely affect the market price of our common stock.

 

Because our revenues and costs may fluctuate significantly, investors should not rely on quarter-to-quarter comparisons of our results of operations or any pro forma financial information that may be released as an indication of future performance. It is possible that, in future periods, results of operations will differ from the estimates of public market analysts and investors. Such a discrepancy could cause the market price of our common stock to decline significantly. 

Failure to manage growth effectively could adversely affect our business, results of operations and financial condition.

 

The success of our future operating activities will depend upon our ability to expand our support system to meet the demands of our growing businesses. Any failure by our management to effectively anticipate, implement, and manage changes required to sustain our growth would have a material adverse effect on our business, financial condition, and results of operations. We cannot assure you that we will be able to successfully operate acquired businesses, become profitable in the future, or effectively manage any other change.

 

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Risks Relating to our Organization and our Common Stock

We are subject to Section 15(d) under the Securities Exchange Act of 1934, which does not require a company to file all the same reports and information required pursuant to Section 12.

We will be subject to the Section 15(d) reporting requirements according to the Securities Exchange Act of 1934 (the “Exchange Act”). As a filer subject to Section 15(d) of the Exchange Act:

·we are not required to prepare proxy or information statements;
·we will be subject to only limited portions of the tender offer rules;
·our officers, directors, and more than ten (10%) percent shareholders are not required to file beneficial ownership reports about their holdings in our company;
·our officers, directors, and more than ten (10%) percent shareholders are not subject to the short-swing profit recovery provisions of the Exchange Act; and
·more than five (5%) percent shareholders are not required to report information about their ownership positions in the securities.

If we have less than 300 shareholders at the end of our next fiscal year, our obligation to file Exchange Act reports under Section 15(d) may lapse.

We are required to file reports with the SEC in the fiscal year in which a Securities Act registration statement is declared effective. If our Section 15(d) filing obligation is suspended, and if a further registration statement has not been declared effective or if we do not register our shares under Section 12 of the Exchange Act, we may not be required to file annual reports on Form 10-K for the fiscal years subsequent to suspension, quarterly reports on Form 10-Q, and current reports on Form 8-K, although contractual provisions of our agreements may obligate us to continue making such filings. Our shareholders may have reduced visibility as to our business and our financial condition if we fail to file such reports, which may negatively impact our shareholders in their ability to monitor our business and activity. 

Our executive officers and directors have the ability to significantly influence matters submitted to our stockholders for approval.

 

As of March 31, 2014 our executive officers and directors, in the aggregate, beneficially own shares representing approximately 42.49% of our common stock. Beneficial ownership includes shares over which an individual or entity has investment or voting power and includes shares that could be issued upon the exercise of options and warrants within 60 days after the date of determination. On matters submitted to our stockholders for approval, holders of our common stock are entitled to one vote per share. If our executive officers and directors choose to act together, they would have significant influence over all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these individuals, if they chose to act together, would have significant influence on the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of our company on terms that other stockholders may desire.

 

Exercise of options and warrants will dilute your percentage of ownership.

As of December 31, 2013, we had options to purchase 5,728,400 shares of our common stock outstanding and may issue additional options to purchase up to an aggregate of 3,746,335 additional shares of common stock under our 2011 Equity Incentive Plan, as amended, as future grants and we have a warrant to purchase 3,000,000 shares of our common stock outstanding. In the future, we may grant additional stock options, warrants and convertible securities. The exercise or conversion of stock options, warrants or convertible securities will dilute the percentage ownership of our other stockholders. The dilutive effect of the exercise or conversion of these securities may adversely affect our ability to obtain additional capital. The holders of these securities may exercise or convert them when we would be able to obtain additional equity capital on terms more favorable than these securities.

We depend on our key personnel to manage our business effectively in a rapidly changing market.  If we are unable to retain our key employees, our business, financial condition and results of operations could be harmed.

 

We believe our future success will depend upon our ability to retain our key management, including Andrew Maltin, our Chief Executive Officer and David Swartz, our President and Secretary.  We may not be successful in attracting, assimilating and retaining our employees in the future.

Our future success depends to a significant degree on the skills, efforts and continued services of our executive officers and other key engineering, manufacturing, operations, sales, marketing and support personnel.  Competition for these types of employees is intense due to the high demand for them, particularly in the Orange County, California, area, where our headquarters is located. We have in the past experienced difficulty in recruiting qualified personnel. Failure to attract, assimilate and retain personnel, particularly engineers and sales and marketing personnel, would have a material adverse effect on our business, prospects and potential growth.

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We are subject to the reporting requirements of federal securities laws which can be expensive and may divert resources from other projects, thus impairing our ability grow.

 

We are subject to the information and reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and other federal securities laws, including compliance with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”). The costs of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders has caused our expenses to be higher than they would have been if MEDL had remained privately held and did not consummate the share exchange.

The Sarbanes-Oxley Act and the Dodd-Frank Act and new rules subsequently implemented by the SEC have required changes in corporate governance practices of public companies. As a public company, these new rules and regulations increased our compliance costs in 2012 and 2013 and have made certain activities more time consuming and costly. We expect these costs to continue to rise in future years. As a public company, we also expect that these new rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance in the future and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. 

If we fail to establish and maintain an effective system of internal control or disclosure controls and procedures are not effective, we may not be able to report our financial results accurately and timely or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price of our common stock.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal controls over financial reporting and, depending on our future growth, may require our independent registered public accounting firm to annually attest to our evaluation, as well as issue their own opinion on our internal controls over financial reporting.  The process of implementing and maintaining proper internal controls and complying with Section 404 is expensive and time consuming.  We cannot be certain that the measures we will undertake will ensure that we will maintain adequate controls over our financial processes and reporting in the future. Furthermore, if we are able to rapidly grow our business, the internal controls that we will need may become more complex, and significantly more resources will be required to ensure our internal controls remain effective. Failure to implement required controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations.  If our auditors or we discover a material weakness in our internal controls, the disclosure of that fact, even if the weakness is quickly remedied, could diminish investors’ confidence in our financial statements and harm our stock price.  In addition, non-compliance with Section 404 could subject us to a variety of administrative sanctions, including the suspension of trading, ineligibility for future listing on one of the Nasdaq Stock Markets or national securities exchanges, and the inability of registered broker-dealers to make a market in our common stock, which may reduce our stock price.

If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operation and access to capital. Management has determined that our internal audit function is significantly deficient due to insufficient qualified resources to perform internal audit functions. During our assessment of the effectiveness of internal control over financial reporting as of December 31, 2013, management identified significant deficiency related to (i) our internal audit functions, and (ii) a lack of segregation of duties within accounting functions. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with any policies and procedures may deteriorate.

 

Our management’s relative lack of public company experience could put us at greater risk of incurring fines or regulatory actions for failure to comply with federal securities laws and could put us at a competitive disadvantage.

Two of our three officers and directors have limited experience in managing and operating a public company.  Any failure to comply or adequately comply with federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, prospects, results of operations and financial condition.  Further, two of our three officers and directors have minimal public company experience so we may have to spend more time and money to comply with legally mandated corporate governance policies than our competitors whose entire management teams have public company experience.

Our stock price may be volatile.

The stock market in general, and the stock prices of publicly traded technology-based and wireless communications companies in particular, have experienced volatility that often has been unrelated to the operating performance of those companies. The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:

·changes in our industry;
·competitive pricing pressures;
·our ability to obtain working capital financing;
·additions or departures of key personnel;
·sales of our common stock;
·our ability to execute our business plan;
·operating results that fall below expectations;
·loss of any strategic relationship;
·regulatory developments;
·economic and other external factors;
·period-to-period fluctuations in our financial results; and
·limited "public float" in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market prices of our common stock.

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.

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We have not paid dividends in the past and do not expect to pay dividends in the future. Any return on investment may be limited to the value of our common stock.

We have never declared or paid a cash dividend on our common stock and we do not expect to pay cash dividends in the foreseeable future.  If we do have available cash, we intend to use it to grow our business.  Our payment of any future dividends will be at the discretion of our board of directors after taking into account various factors, including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at that time. In addition, our ability to pay dividends on our common stock may be limited by Nevada corporate law. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if our stock price appreciates. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize a return on their investment. Investors seeking cash dividends should not purchase our common stock.

The elimination of liability against our directors or officers and employees under Nevada law and the existence of indemnification rights to our directors, officers and employees may result in substantial expenditures by us and may discourage lawsuits against our directors, officers and employees.

 

Our charter documents contain specific provisions that eliminate the liability of our directors and officers for damages to our company and stockholders and permit indemnification of our directors and officers to the extent provided by Nevada law. We may also have contractual indemnification obligations under our employment agreements with our officers. The foregoing indemnification obligations could result in our company incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup.  These provisions and resultant costs may also discourage our company from bringing a lawsuit against directors and officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our stockholders against our directors and officers even though such actions, if successful, might otherwise benefit our company and stockholders.

 

Our shares of common stock are very thinly traded, and the price may not reflect our value and there can be no assurance that there will be an active market for our shares of common stock either now or in the future.

Our shares of common stock are very thinly traded, only a small percentage of our common stock is available to be traded and is held by a small number of holders and the price, if traded, may not reflect our actual or perceived value. There can be no assurance that there will be an active market for our shares of common stock either now or in the future. The market liquidity will be dependent on the perception of our operating business, among other things. We may take certain steps including utilizing investor awareness campaigns, press releases, road shows and conferences to increase awareness of our business and any steps that we might take to bring us to the awareness of investors may require we compensate consultants with cash and/or stock. There can be no assurance that there will be any awareness generated or the results of any efforts will result in any impact on our trading volume. Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business and trading may be at an inflated price relative to the performance of our company due to, among other things, availability of sellers of our shares. If a market should develop, the price may be highly volatile. Because there may be a low price for our shares of common stock, many brokerage firms or clearing firms may not be willing to effect transactions in the securities or accept our shares for deposit in an account. Even if an investor finds a broker willing to effect a transaction in the shares of our common stock, the combination of brokerage commissions, transfer fees, taxes, if any, and any other selling costs may exceed the selling price. Further, many lending institutions will not permit the use of low priced shares of common stock as collateral for any loans.

We anticipate having our common stock continue to be quoted for trading on the OTCQB market, however, we cannot be sure that such quotations will continue. As soon as is practicable, we anticipate applying for listing of our common stock on either the NYSE Amex, The NASDAQ Capital Market or other national securities exchange, assuming that we can satisfy the initial listing standards for such exchange. We currently do not satisfy the initial listing standards, and cannot ensure that we will be able to satisfy such listing standards or that our common stock will be accepted for listing on any such exchange. Should we fail to satisfy the initial listing standards of such exchanges, or our common stock is otherwise rejected for such listing and remains listed on the OTCQB market, or is suspended from the OTCQB market, the trading price of our common stock could suffer and the trading market for our common stock may be less liquid and our common stock price may be subject to increased volatility. Furthermore, for companies whose securities are quoted for trading on the OTCQB market, it is more difficult (1) to obtain accurate quotations, (2) to obtain coverage for significant news events because major wire services generally do not publish press releases about such companies, and (3) to obtain needed capital.

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Our common stock is currently deemed a “penny stock,” which makes it more difficult for our investors to sell their shares.

Our common stock is subject to the “penny stock” rules adopted under Section 15(g) of the Exchange Act. The penny stock rules generally apply to companies whose common stock is not listed on The Nasdaq Stock Market or other national securities exchange and trades at less than $5.00 per share, other than companies that have had average revenue of at least $6,000,000 for the last three years or that have tangible net worth of at least $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities. If our securities are subject to the penny stock rules, investors will find it more difficult to dispose of our securities.

Stockholders should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through pre-arranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities. The occurrence of these patterns or practices could increase the volatility of our share price.

Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

If our stockholders sell substantial amounts of our common stock in the public market upon the expiration of any statutory holding period, under Rule 144, or issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

The SEC often heavily scrutinizes reverse-merger transactions of the type we completed with MEDL in June of 2011 and we may encounter difficulties or delays in obtaining future regulatory approvals, which would negatively impact our financial condition and the value and liquidity of your shares of common stock.

 

Historically, the SEC and Nasdaq have not generally favored transactions in which a privately-held company merges into, or is acquired by a largely inactive company with publicly traded stock, and there is a significant risk that we may encounter difficulties in obtaining the regulatory approvals necessary to conduct future financing or acquisition transactions, or to eventually achieve a listing of shares on one of the Nasdaq stock markets or other national securities exchanges. On June 29, 2005, the SEC adopted rules dealing with private company mergers into dormant or inactive public companies. As a result, it is likely that we will be scrutinized carefully by the SEC and possibly by FINRA or Nasdaq, which could result in difficulties or delays in achieving SEC clearance of any future registration statements or other SEC filings that we may pursue, in attracting FINRA-member broker-dealers to serve as market-makers in our common stock, or in achieving admission to one of the Nasdaq stock markets or any other national securities market. As a consequence, our financial condition and the value and liquidity of your shares of our common stock may be negatively impacted. Securities analysts of major brokerage firms may not provide coverage of us since there is no incentive to brokerage firms to recommend the purchase of our common stock.  No assurance can be given that brokerage firms will, in the future, want to conduct any secondary offerings on our behalf.

 

Investor relations activities, nominal “float” and supply and demand factors may affect the price of our common stock.

We expect to utilize various techniques such as non-deal road shows and investor relations campaigns in order to create investor awareness for our company. These campaigns may include personal, video and telephone conferences with investors and prospective investors in which our business practices are described. We may provide compensation to investor relations firms and pay for newsletters, websites, mailings and email campaigns that are produced by third parties based upon publicly available information concerning us. We do not intend to review or approve the content of such analysts’ reports or other materials based upon analysts’ own research or methods. Investor relations firms should generally disclose when they are compensated for their efforts, but whether such disclosure is made or complete is not under our control. Our investors may be willing, from time to time, to encourage investor awareness through similar activities. Investor awareness activities may also be suspended or discontinued which may impact the trading market of our common stock.

The SEC and FINRA enforce various statutes and regulations intended to prevent manipulative or deceptive devices in connection with the purchase or sale of any security and carefully scrutinize trading patterns and company news and other communications for false or misleading information, particularly in cases where the hallmarks of “pump and dump” activities may exist, such as rapid share price increases or decreases. We and our shareholders may be subjected to enhanced regulatory scrutiny due to the small number of holders who own registered shares of our common stock publicly available for resale, and the limited trading markets in which such shares may be offered or sold which have often been associated with improper activities concerning penny-stocks, such as the OTC Bulletin Board or the OTCQB Marketplace (Pink OTC) or pink sheets. Until such time as ample restricted shares of the Company are registered or available for resale under Rule 144, there will continue to be a small percentage of shares held by a small number of investors, many of whom acquired such shares in privately negotiated purchase and sale transactions that will constitute the majority of the available trading market. The Supreme Court has stated that manipulative action is a term of art connoting intentional or willful conduct designed to deceive or defraud investors by controlling or artificially affecting the price of securities. Often times, manipulation is associated by regulators with forces that upset the supply and demand factors that would normally determine trading prices. Only a small percentage of our outstanding common stock is available for trading, held by a small number of individuals or entities. Accordingly, the supply of common stock for sale may be limited for an indeterminate amount of time, which could result in higher bids, asks or sales prices than would otherwise exist. Securities regulators have often cited thinly-traded markets, small numbers of holders, and awareness campaigns as components of their claims of price manipulation and other violations of law when combined with manipulative trading, such as wash sales, matched orders or other manipulative trading timed to coincide with false or touting press releases. There can be no assurance that our or third-parties’ activities, or the small number of potential sellers or small percentage of stock in the “float,” or determinations by purchasers or holders as to when or under what circumstances or at what prices they may be willing to buy or sell stock, will not artificially impact (or would be claimed by regulators to have affected) the normal supply and demand factors that determine the price of stock. 

 

13
 

ITEM 1B. UNRESOLVED STAFF COMMENTS.

 

None.

 

ITEM 2. PROPERTIES.

 

Our principal executive offices occupy approximately 6,800 square feet in Fountain Valley, California under a non-cancelable sublease agreement through November 2015. The agreement is a sub-lease for approximately 6,800 square feet of space located at 18475 Bandilier Circle, unit A, Fountain Valley, CA.  The term of the lease is from January 1, 2011 and ends on November 30, 2015. In addition, we are party to a non-cancelable lease agreement for approximately 6,034 square feet of space located at 18475 Bandilier Circle, unit B, Fountain Valley, CA.  The term of the lease is from May 1, 2012 and ends on November 30, 2015. We subleased the 6,034 square feet of space located at 18475 Bandilier Circle, unit B, Fountain Valley, CA, with the landlord’s approval, to an independent third party from September 1, 2013 through November 30, 2015. Future minimum rent payments for the two leases are $164,032 in 2014, $161,284 in 2015 and such amounts are offset by future minimum lease rental income from the sublease to the third party of $61,547 in 2014 and $56,418 in 2015. We sublease the 6,800 square feet property from a company that Mr. Maltin, our Chief Executive Officer, and his wife are shareholders.  We believe that our facilities are leased at market rates.

 

ITEM 3. LEGAL PROCEEDINGS

 

From time to time, the Company may become involved in lawsuits and legal proceedings that arise in the ordinary course of business. Litigation is, however, subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe would or could have, individually or in the aggregate, a material adverse effect on us. In addition, we are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are involved in that is adverse to us.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

Market Information

 

Since June 28, 2011 our common stock has been listed on OTCQB market under the symbol MEDL. Prior to June 28, 2011, there was no market for our common stock. The following table sets forth the high and low bid prices for our common stock for the periods indicated, as reported by the OTCQB market, and the high and low sales prices as reported on OTCQB market.

 

Fiscal year 2012       High        Low  
First Quarter   $ 1.15     $ 0.80  
Second Quarter   $ 1.07     $ 0.30  
Third Quarter   $ 0.43     $ 0.17  
Fourth Quarter   $ 0.30     $ 0.07  

 

Fiscal year 2013

      High        Low  
First Quarter   $ 0.51     $ 0.13  
Second Quarter   $ 0.44     $ 0.222  
Third Quarter   $ 0.35     $ 0.26  
Fourth Quarter   $ 0.35     $ 0.235  

 

Fiscal year 2014

      High    Low  
First Quarter   $ 0.51     $ 0.13  

 

On December 31, 2013, the last reported sales price was $0.255 and on March 28, 2014 the last reported sale price was $0.22. According to the records of our transfer agent, as of March 28, 2014, there were approximately 31 holders of record of our common stock, which does not include beneficial owners of shares held in the name of brokers or other nominees.

 

14
 

Penny Stock Regulations

 

The SEC has adopted regulations which generally define "penny stock" to be an equity security that has a market price of less than $5.00 per share. Our common stock falls within the definition of penny stock and subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000, or annual incomes exceeding $200,000, or $300,000 together with their spouse).

   

For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser's prior written consent to the transaction. Additionally, for any transaction, other than exempt transactions, involving a penny stock, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the "penny stock" rules may restrict the ability of broker-dealers to sell our common stock and may affect the ability of investors to sell their common stock in the secondary market.

 

Dividend Policy

 

We have never declared or paid cash dividends on our common stock, and we do not intend to pay any cash dividends on our common stock in the foreseeable future. Rather, we expect to retain future earnings (if any) to fund the operation and expansion of our business and for general corporate purposes. Any payments of cash dividends will be at the discretion of our board of directors, and will depend upon our results of operations, earnings, capital requirements, legal and contractual restrictions, and other factors deemed relevant by our board of directors.

 

Securities Authorized for Issuance under Equity Compensation Plans.

 

The following table sets forth the number of shares of our common stock underlying outstanding options and warrants that have been issued under our equity compensation plans as of December 31, 2013:

 

 

     

Plan Category

 

Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
(a)

 

Weighted-average
exercise price of
outstanding
options, warrants
and rights
(b)

 

Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)

 
Equity compensation plan approved by security holders     5,728,400         $.29        3,746,335
Equity compensation plans not approved by security holders - -            -
 
 
 
 
Total  5,728,400     $.29    3,746,335

 

 

Recent Sales of Unregistered Securities

 

Except as set forth below, there were no sales of unregistered securities during the fiscal year ended December 31, 2013 other than those transactions previously reported to the SEC on the Company’s quarterly reports on Form 10-Q and current reports on Form 8-K:

 

On December 23, 2013, the Company issued 380,000 shares of common stock at $0.25 per share, valued at $95,000, to two (2) individuals as payment for certain outstanding obligations.

On December 31, 2013, in connection with a strategic license agreement with a celebrity, the Company issued 5,000 shares of common stock, valued at $1,300, to the celebrity.

The securities were offered and sold pursuant to an exemption from the registration requirements under Section 4(2) of the Securities Act of 1933, the transactions did not involve a public offering and the securities were acquired for investment purposes only and not with a view to or for sale in connection with any distribution thereof.

 

Re-Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

None.

 

 

15
 

ITEM 6. SELECTED FINANCIAL DATA

 

Not applicable.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and the related notes included elsewhere in this Form 10-K. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Form 10-K, particularly in “Forward-Looking Information” and “Risk Factors.”

 

Historical Overview

 

On June 24, 2011, we acquired MEDL Mobile, Inc., a California corporation (“MEDL”), which became our wholly owned subsidiary.  In connection with this acquisition, we changed our name from Resume in Minutes, Inc. to MEDL Mobile Holdings, Inc., discontinued our former business, and succeeded to the software business of MEDL Mobile, Inc. as our primary line of business.

 

On February 28, 2012, we acquired Inedible Software, LLC (“Inedible”), a developer of mobile apps and related mobile app technologies whose principal asset was a customer list. While the acquisition of Inedible was structured as a purchase of an entity, we did not acquire any ongoing business operations and the purpose of the transaction was to acquire Inedible’s customer list as a conduit to Apple for future potential. As a result, Inedible became a wholly owned subsidiary of the Company. The results of operations of Inedible are included on a going forward basis from the date of acquisition, although Inedible is no longer actively engaged in any business activities.

 

On November 2, 2102, we formed Hang With, Inc. to focus on creating a live social mobile video platform. The App is called “Hang w/” and was approved for release by Apple on March 20, 2013. This new App provides an important new channel of advertising revenue. As of the date of this Report, “Hang w/” is available for download on the Apple App Store. The goal of the platform is twofold: 1) to become the premiere social media network for people around the globe to connect, communicate and share experiences via live streaming broadcasts; and 2) to enable celebrities and public figures to easily monetize their fan bases. “Hang w/” allows live real-time video to be sent from one phone to many. We intend to generate revenues from advertisement seen by the viewer before watching a live video feed sent directly from the broadcaster’s smartphone camera and a post-roll advertisement at the end of the broadcast. Because we want Hang w/ to be adopted by a larger number of users before we implement our advertising strategy, we have not released any such advertisements on Hang w/.

 

Results of Operations

 

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

The following table presents our results of operations for the year ended December 31, 2013 compared to the year ended December 31, 2012.

 

   Year Ended December 31, 2013  Year Ended December 31, 2012  $ Change  % Change
Revenues  $2,310,815   $3,391,182   $(1,080,367)   -32%
                     
Cost of goods sold   1,046,692    2,287,764    (1,241,072)   -54%
                     
Gross profit   1,264,123    1,103,418    160,705    15%
                     
Expenses:                    
Selling, general and administrative   4,522,426    4,432,294    90,132    2%
                     
Loss from operations   (3,258,303)   (3,328,876)   (70,573)   -2%
                     
Other income (expense):                    
Change in fair value of warrants   (57,247)   495,446    (552,693)   -112%
Interest expense   (21,338)   —      21,338    100%
Total other income (expense)   (78,585)   495,446    (574,031)   -116%
                     
Net loss before provision for income taxes   (3,336,888)   (2,833,430)   503,458    18%
Provision for income taxes   —      —      —      -% 
                     
Net loss   (3,336,888)   (2,833,430)   503,458    18%
                     
Less: Net loss attributable to non-controlling interest   444,690    —      444,690    100%
                     
Net loss attributable to MEDL Mobile Holdings, Inc.  $(2,892,198)  $(2,833,430)  $58,768    2%

16
 

Revenues

Revenues primarily consisted of fees we received for developing custom Apps for third parties. Revenues for the year ended December 31, 2013 decreased to $2,310,815 as compared to $3,391,182 for the year ended December 31, 2012, a decrease of $1,080,367 or 32%. The decrease is primarily attributable to a reduction in the development of customized mobile applications for third parties during the year ended December 31, 2013 as compared to the year ended December 31, 2012 due our focus on the development and expansion of the “Hang w/” App in 2013. Hang With pays us for providing product development and maintenance services for live their social mobile video App.

Based on the unpredictability of market and customer demand, we cannot accurately predict revenue trends on a quarter-to-quarter basis. 

 

Cost of Goods Sold 

Cost of goods sold consists primarily of the cost of our employees and the cost of our contractors engaged in developing Apps for our customers. Cost of goods sold for the year ended December 31, 2013 decreased to $1,046,692 as compared to $2,287,764 for the year ended December 31, 2012, a decrease of $1,241,072 or 54%. The decrease is primarily due to the reduction in employees and outside contractors needed because of the reduction in the development of customized mobile applications for third parties in order to focus on the development and expansion of the “Hang w/” App. The costs of goods sold for the development of the Hang w/ App are eliminated in consolidation because we own 75.77% of Hang With as of December 31, 2013.  In addition, having fewer customers in 2013 versus 2012, and having an additional year of experience, allowed us to plan better and more effectively manage the custom development projects. During the year ended 2012, some of our custom development projects required more work than we anticipated when we submitted our bid for the work, which required us to deploy more resources to produce the mobile applications finished product for our customers.

 

Gross Profit 

Gross profit for the year ended December 31, 2013 increased to $1,264,123 as compared to $1,103,418 for the year ended December 31, 2012, an increase of $160,705 or 15%. The gross profit increased due to better planning, bidding and management of our custom development projects. Some of our custom development projects in 2012 required more work than we anticipated when we submitted our bid for the work, which increased our costs to produce the custom mobile applications for our customers. 

 

Selling, general and administrative Expenses 

Selling, general and administrative expenses for the year ended December 31, 2013 increased to $4,522,426 as compared to $4,432,294 for the year ended December 31, 2012, an increase of $90,132 or 2%. The slight increase is primarily attributable to our shift in focus from the development of customized mobile applications for third parties to the development and expansion of the “Hang w/” App. Reducing the number of customized mobile applications we build for third parties, and a focused effort to reduce costs, allowed for various cutbacks resulting in a $1,223,544 decrease in payroll and contract labor costs, a $318,563 decrease in marketing expense, a $102,664 decrease in bad debt expense, a $53,016 decrease in rent expense and a net $7,387 decrease in other general and administrative expenses. In addition, better management of legal and other professional fees resulted in a $407,864 decrease in legal, accounting and other professional fees. These reductions were offset by an increase of $2,202,475 in expenses for our Hang With, Inc. subsidiary, a $39,156 increase in insurance expense and a $59,194 increase in stock option expenses.

Other Income/Expenses

Other expense for the year ended December 31, 2013 was $78,585 as compared to other income of $495,446 for year ended December 31, 2012, a decrease of $574,031 or 116%. $552,692 of the decrease is attributable to the warrants issued in a private placement in March 2012 being valued at $501,588 on the date of issuance but only having a fair value of $6,142 as of December 31, 2102, resulting in other income of $495,446 as of December 31, 2012, and the fair value of the warrants as of December 31, 2013 being $63,389, resulting in other expense of $57,247 for the year ended December 31, 2103. The remaining decrease relates to $21,338 of interest expense on the $500,000 line of credit in 2013. Since the line of credit was not in place in 2012, we did not incur interest expense in 2012.

Net Loss

Net loss for the year ended December 31, 2013 increased to $2,892,198 as compared to $2,833,430 for the year ended December 31, 2012, an increase of $58,768 or 2%. The increased loss was a result of the increase in costs at a faster rate than the revenue growth of the company as discussed above. The slight increase in net loss was primarily the result of our shift in focus from the development of customized mobile applications for third parties to the development and expansion of the “Hang w/” App, as well as the fluctuations in the fair value of warrants, as noted above.

Liquidity and Capital Resources

 

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, the availability of credit facilities, levels of accounts receivable and accounts payable and capital expenditures.

To date we have financed our operations through internally generated revenue from operations, the sale of equity securities, borrowings under a line of credit and shareholder loans.

17
 

At December 31, 2013 and 2012, we had cash of $887,322 and $112,745, respectively and as of December 31, 2013 we had working capital of $653,997 and a working capital deficit of $120,663 as of December 31, 2012.  During 2013 our Hang With, Inc. (“Hang With”) subsidiary raised an aggregate of $2,744,502 from the sale of shares of Hang With common stock to accredited investors. These funds are intended to be used to fund Hang With’s product development and commercialization efforts. Since we are compensated by Hang With for providing services, a portion of these funds have been paid to the Company and used by the Company to support this Company’s liquidity needs. In accordance with GAAP, Hang With’s cash is consolidated with the Company’s cash in the Company’s consolidated financial statements included herein.

 

Net cash used in operating activities for the year ended December 31, 2013 was $2,523,938 compared to net cash used in operating activities of $2,367,792 for the year ended December 31, 2012.  The $156,146 increase in net cash used in operating activities was partially attributable to the $58,768 increase in net loss and primarily attributable to the 347,522 reduction in accounts payable and accrued expenses, offset by various other fluctuations.  Net cash used in investing activities for the year ended December 31, 2013 was $5,649 as compared to $83,045 for the year ended December 31, 2012. The decrease in net cash used in investing activities was due to decreases in the amount of computer equipment purchased. Net cash provided by financing activities for the year ended December 31, 2013 was $3,304,164 as compared to net cash provided by financing activities of $1,448,275 for the year ended December 31, 2012. Net cash provided by financing activities reflects the $2,744,502 raised by our subsidiary, Hang With, Inc., in a private placement, $550,000 of net proceeds from a private placement described below that closed on December 31, 2013 and $9,662 received for the exercise of stock options. Net cash provided by financing activities for the period ended December 31, 2012 was the result of $1,485,000 of net proceeds from a private placement of our common stock that closed on March 28, 2012 and $3,275 received for the exercise of stock options.

To date we have financed our operations through internally generated revenue from operations, the sale of equity, borrowings under a line of credit, the issuance of notes and loans from a shareholder.

On January 17, 2013, we entered into a three-year, $500,000 secured revolving credit agreement (the “Line”) with an investment fund. The Line is a revolving line of credit that allows us to repay principal amounts and re-borrow them at any time during the three-year term. The interest rate on borrowed funds is 10% per annum and the interest rate on undrawn funds is 2.0% per annum. Interest is due within 10 business days following the end of each calendar month. All borrowed funds from the Line are secured by all of our assets. Although we have, from time to time, borrowed funds under the Line, we had fully repaid all such borrowings as of December 31, 2013.

On December 31, 2013, we completed a sale to one (1) investor pursuant to a Securities Purchase Agreement of 2,000,000 shares of the Company’s common stock at a price of $0.275 per share (“Financing”). On December 31, 2013, the Company and the investor also entered into an Amendment and Consent Agreement to amend certain terms of the March 28, 2012 Securities Purchase Agreement and Warrant agreements to, among other things, obtain consent for the Financing and eliminate certain restrictions placed on the Company.   In connection with the Amendment and Consent Agreement, the investor agreed to a warrant reset price of $0.30, instead of a warrant reset price of $.0275 that would have been required due to the Financing. Also in connection with the Amendment and Consent Agreement and the Financing, the Company issued the investor 2,454,545 shares of the Company’s common stock.  

 

We do not have any material commitments for capital expenditures during the next twelve months. Although we believe our net revenues and proceeds from the above described Line of Credit are sufficient to fund our current operating expenses, we may seek to raise additional funds in the future particularly if we are unable to generate positive cash flow as a result of our operations or require additional capital to expand our operations. Therefore our future operations may be dependent on our ability to secure additional financing.  Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we may have to curtail our marketing and development plans and possibly cease our operations.

 

Critical Accounting Policies

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in our consolidated financial statements and related notes. Our significant accounting policies are described in Note 2 to our consolidated financial statements included in our Annual Report for the year ended December 31, 2013. We have identified below our critical accounting policies and estimates that we believe require the greatest amount of judgment. These estimates and judgments have a significant impact on our consolidated financial statements. Actual results could differ materially from those estimates. The accounting policies that reflect our more significant estimates and judgments and that we believe are the most critical to fully understand and evaluate our reported financial results include the following:

·Revenue Recognition
·Intangible Assets
·Fair Value of Financial Instruments
·Good will and other intangible assets
·Stock-Based Compensation

 

18
 

Revenue Recognition

Our main source of revenue is from the development of custom applications or “Apps” for customers. We use a hybrid method for recognizing revenue that includes elements from both ASC 985-605, Software Revenue Recognition and ASC 605-35, Construction-Type and Production-Type Contracts.

We recognize revenues in accordance with ASC 985-605 when persuasive evidence of an agreement exists, delivery of the software has occurred, the fee is fixed or determinable, and collectability is probable. Nonrecurring revenues related to perpetual license sales with multiple elements are recognized in accordance with the guidance on software revenue recognition.

When the arrangement with a customer includes significant production, modification, or customization of the software, we recognize the related revenue using the percentage-of-completion method in accordance with the accounting guidance and certain production-type contracts contained in ASC 605-35.  We use the percentage of completion method provided all of the following conditions exist:

·the contract includes provisions that clearly specify the enforceable rights regarding goods or services to be provided and received by the parties, the consideration to be exchanged and the manner and terms of settlement;
·the customer can be expected to satisfy its obligations under the contract;
·the Company can be expected to perform its contractual obligations; and
·reliable estimates of progress towards completion can be made.

 

We measure completion based on achieving milestones detailed in the agreements with the customers. Costs of providing services, including services accounted for in accordance with ASC 605-35, are expensed as incurred.

The following is an example of how revenue is recognized involving an arrangement with a customer that includes significant production, modification, or customization of the software: a typical project will require between 50-100 working days from beginning to end.  On average 25-50 cumulative working days are expended prior to the start of development and this work typically includes, design, storyboards, and architecture. Prior to developing the App, hard costs are incurred as a number of variables are taken into account for preparation.  Those often include the following:

·understanding the client's business situation and environment, including their competitive landscape;
·researching and establishing the goals of the App;
·understanding and researching the target and potential App use cases;
·developing a monetization strategy;
·determining functionality and articulating the functionality through a storyboard and functional specification document; and
·determining the resources and timeline needed to complete the final work product.

 

Fifty percent (50%) of the work is completed upon completion of these five phases and at that point in time the customer typically signs our contract and makes a nonrefundable 50% payment. We record the 50% nonrefundable payment as revenue at that point in time. When the Beta version of the App is complete, or at such other time as may be specifically agreed to in the contract, the customer is invoiced for an additional 25% of the total contract price and such payment is booked as revenue. When the App is completed and ready for app store release, the customer is invoiced for the final 25% of total contract price and such payment is booked as revenue.

We also generate revenue from in-App advertising and the sale of Apps through the Apple store and other App marketplaces. Revenue from advertising is recognized in the period that the ad impressions are delivered, on an accrual basis. Revenue from the sale of Apps is recognized in the period the App is sold to the end user, on an accrual basis.

Marketable Securities

Marketable securities are investments in publicly traded equity securities and are generally restricted for sale under Federal securities laws. Since these securities are often restricted, the Company is unable to liquidate them until the restriction is removed. Pursuant to ASC Topic 320, “Investments –Debt and Equity Securities” the Company’s marketable securities have a readily determinable and active quoted price, such as from NASDAQ, NYSE Euronext, the Over the Counter Bulletin Board, and the OTC Markets Group.

Marketable securities are carried at fair value, with changes in unrealized gains or losses are recognized as an element of comprehensive income based on changes in the fair value of the security.  Once liquidated, realized gains or losses on the sale of marketable securities will be reflected in the net income (loss) for the period in which the security was liquidated.

19
 

Intangible Assets 

Intangible assets are stated at cost. Expenditures of costs incurred to renew or extend the term of a recognized intangible asset and materially extend the useful life are capitalized. When assets are sold or otherwise written off due to asset impairment, the cost and the related accumulated amortization are removed from the accounts and any realized gain or loss is recognized at that time. Useful lives of intangible assets are periodically evaluated for reasonableness and the assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may no longer be recoverable. 

Amortization is computed primarily on the straight-line method for financial statement purposes over the estimated useful life. Estimated useful lives will vary based on the nature of the intangible asset. 

Fair Value of Financial Instruments 

The Company adopted ASC 820, Fair Value Measurements and Disclosures, for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing US GAAP that requires the use of fair value measurements that establishes a framework for measuring fair value and expands disclosure about such fair value measurements. 

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

  Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities
  Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data
  Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

 The carrying amounts reported in the balance sheet for cash, accounts payable, and accrued liabilities approximate their estimated fair market value based on the short-term maturity of this instrument. 

In addition, FASB ASC 825-10-25, Fair Value Option was effective for January 1, 2008. ASC 825-10-25 expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. 

Goodwill and Other Intangible Assets 

In accordance with ASC 350-30-65 (formerly SFAS 142, Goodwill and Other Intangible Assets), the Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Intangible assets were comprised of website assets. Factors the Company considers to be important which could trigger an impairment review include the following:

1.Significant underperformance relative to expected historical or projected future operating results;

 

2.Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and

 

3.Significant negative industry or economic trends.

 

When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows. The Company did not consider it necessary to record any impairment charges during the period ended December 31, 2013. 

Stock-Based Compensation 

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the reporting date.

20
 

Off Balance Sheet Arrangements

We do not engage in any activities involving variable interest entities or off-balance sheet arrangements.

Recent Accounting Pronouncements

We do not believe that the adoption of any recently issued accounting standards will have a material effect on our financial position and results of operations.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

 

21
 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

MEDL Mobile Holdings, Inc. 

We have audited the accompanying consolidated balance sheets of MEDL Mobile Holdings, Inc. ("the Company") as of December 31, 2013 and 2012 and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2013 and 2012 and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company had a net loss and net cash used in operations of $2,892,198 and $2,523,938, respectively, for the year ended December 31, 2013 and an accumulated deficit of $7,533,214 at December 31, 2013. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans as to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. 

 

/s/ KBL, LLP

New York, NY

March 31, 2014

22
 

 

MEDL MOBILE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
           
    December 31, 2013    December 31, 2012 
           
ASSETS          
Current assets:          
Cash  $887,322   $112,745 
Accounts receivable, net   177,947    411,747 
Prepaid expenses   35,381    85,631 
Total current assets   1,100,650    610,123 
           
Fixed assets, net of depreciation   38,446    106,530 
           
Other assets:          
Security deposits   14,847    21,147 
Investment in marketable securities   50,000    —   
Intangible asset-customer base, net of amortization   78,000    114,000 
Total other assets:   142,847    135,147 
           
Total  assets  $1,281,943   $851,800 
           
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current liabilities:          
Accounts payable and accrued expenses  $262,354   $674,494 
Accrued  compensation expenses   120,910    56,292 
Derivative liability   63,389    6,142 
Total current liabilities:   446,653    736,928 
           
Long term liabilities:          
Deferred lease   26,684    35,317 
Security deposit payable   5,200    —   
Total long term liabilities   31,884    35,317 
           
Total liabilities   478,537    772,245 
           
 Stockholders' equity          
Preferred stock, $0.001 par value; 10,000,000 shares     authorized; none issued and outstanding.   —      —   
Common stock, $0.001 par value, 500,000,000 shares      authorized; 50,021,711 and 43,982,309 issued and      outstanding at December 31, 2013 and December 31, 2012,      respectively   50,022    43,983 
Additional paid-in capital   8,731,288    4,676,588 
Accumulated deficit   (7,533,214)   (4,641,016)
           
Total MEDL Mobile Holdings, Inc. stockholders'  equity   1,248,096    79,555 
           
Non-controlling interest in subsidiary   (444,690)   —   
           
Total stockholders' equity   803,406    79,555 
           
Total liabilities and stockholders' equity  $1,281,943   $851,800 
           
           
The accompanying notes are an integral part of these consolidated financial statements

 

 

23
 

MEDL MOBILE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 
       
   Years ended December 31,
   2013  2012
Revenues  $2,310,815   $3,391,182 
           
Cost of goods sold   1,046,692    2,287,764 
           
Gross profit   1,264,123    1,103,418 
           
Expenses:          
Selling, general  and administrative   4,522,426    4,432,294 
    Total expenses   4,522,426    4,432,294 
           
Net loss before other income (expense)   (3,258,303)   (3,328,876)
           
Other income (expense):          
Change in fair value of warrants   (57,247)   495,446 
Interest expense   (21,338)   —   
Total other income (expense)   (78,585)   495,446 
           
Net loss before provision for income taxes   (3,336,888)   (2,833,430)
Provision for income taxes   —      —   
           
Net loss   (3,336,888)   (2,833,430)
           
Net loss attributable to non-controlling interest   444,690    —   
           
Net loss attributable to MEDL Mobile Holdings, Inc.  $(2,892,198)  $(2,833,430)
           
NET LOSS PER COMMON SHARE          
Basic and Diluted  $(0.06)  $(0.07)
           
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING          
Basic and Diluted   44,570,714    42,720,557 
           
           
The accompanying notes are an integral part of these consolidated financial statements  

 

24
 

MEDL MOBILE HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
                   
              Additional                
       Common Stock         Paid-in    Accumulated    Non-Controlling      
     Shares      Amount      Capital      Deficit      Interest      Total  
                               
Balance at December 31, 2011   40,025,000   $40,025   $3,122,520   $(1,807,586)  $—     $1,354,959 
                               
Proceeds from issuance of common stock   3,000,000    3,000    1,482,000    —      —      1,485,000 
Shares issued for subsidiary acquisition   442,542    443    220,829    —      —      221,272 
Common stock issued for services   501,667    502    129,298    —      —      129,800 
Stock based compensation in connection with options granted   —      —      220,267    —      —      220,267 
Change in derivative liability for value of warrants   —      —      (501,588)   —      —      (501,588)
Common stock issued for options exercised   13,100    13    3,262    —      —      3,275 
Net loss   —      —      —      (2,833,430)   —      (2,833,430)
                               
Balance at December 31, 2012   43,982,309    43,983    4,676,588    (4,641,016)   —      79,555 
                               
Proceeds from issuance of common stock   4,454,545    4,455    545,545    —      —      550,000 
Common stock issued for services   1,385,000    1,385    442,665    —      —      444,050 
Common stock issued for investment   147,692    147    49,853    —      —      50,000 
Common stock issued for options exercised   52,165    52    9,610    —      —      9,662 
Proceeds from issuance of Hang With Common Stock   —      —      2,744,502    —      —      2,744,502 
Stock based compensation in connection with options granted   —      —      262,525    —      —      262,525 
Net loss   —      —      —      (2,892,198)   (444,690)   (3,336,888)
                               
Balance at December 31, 2013   50,021,711   $50,022   $8,731,288   $(7,533,214)  $(444,690)  $803,406 
                               
The accompanying notes are an integral part of these consolidated financial statements       

 

 

25
 

MEDL MOBILE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
       
   Years ended December 31,
   2013  2012
       
Cash flows from operating activities:          
Net loss  $(2,892,198)  $(2,833,430)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   109,733    70,512 
Stock based compensation on options granted   262,525    220,267 
Change in fair value of derivative liability   57,247    (495,446)
Common stock issued for services   444,050    129,800 
Change in allowance for doubtful accounts   8,600    (105,900)
Non-controlling interest   (444,690)   —   
Changes in operating assets and liabilities:          
Accounts receivable   225,200    173,329 
Prepaid expenses   50,250    1,441 
Security deposits   6,300    (1,290)
Accounts payable and accrued expenses   (347,522)   447,857 
Security deposit payable   5,200    —   
Deferred lease   (8,633)   25,068 
Net cash used in operating activities   (2,523,938)   (2,367,792)
           
Cash flows from investing activities:          
Purchase of office equipment   (5,649)   (83,045)
Net cash used in investing activities   (5,649)   (83,045)
           
Cash flows from financing activities:          
Proceeds from exercise of stock options   9,662    3,275 
Proceeds from issuance of common stock   550,000    1,485,000 
Proceeds from issuance of subsidiary common stock   2,744,502    —   
Net cash provided by financing activities   3,304,164    1,488,275 
           
Net increase (decrease) in cash   774,577    (962,562)
           
Cash at beginning of period   112,745    1,075,307 
           
Cash at end of period  $887,322   $112,745 
           
SUPPLEMENTAL CASH FLOW INFORMATION:          
Interest  $21,338   $—   
Income taxes  $800   $800 
           
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:     
Issuance of common stock for investment in marketable securities  $50,000   $—   
Value of shares issued for acquisition  $—     $221,272 
Acquisition of a software company-intangible asset- customer base  $—     $144,000 
Prepaid consulting fees related to acquisition  $—     $77,272 
Derivative liability  $57,247   $6,142 
           
The accompanying notes are an integral part of these consolidated financial statements    

 

26
 

MEDL MOBILE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2013

 

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

 

MEDL Mobile Holdings, Inc. (the “Registrant”) through its wholly owned subsidiary, MEDL Mobile, Inc. (“MEDL” and together with the Registrant, “we”, “our”, “us”, or the “Company”) is a developer, incubator, marketer and aggregator of mobile application software, or “Apps”.

 

The Registrant was incorporated in Nevada on May 22, 2008.  On June 24, 2011, the Registrant acquired MEDL Mobile, Inc. (“MEDL” and together with the Registrant, “we,” “our,” “us,” or the “Company”), a California corporation, and the business of MEDL became the sole line of business of the Registrant.

 

On February 28, 2012, the Registrant acquired Inedible Software, LLC (“Inedible”), a developer of mobile Apps and related mobile App technologies whose principal asset was a customer list. While the acquisition of Inedible was structured as a purchase of an entity, the Registrant did not acquire any ongoing business operations and the purpose of the transaction was to acquire Inedible’s customer list as a conduit to Apple, Inc. for future potential. As a result, Inedible became a wholly owned subsidiary of the Registrant. The results of operations of Inedible are included on a going forward basis from the date of acquisition although Inedible is no longer actively engaged in any business activities.

 

On November 2, 2012, the Company formed Hang With, Inc. (“Hang With”) a Nevada corporation with 75,000,000 authorized shares of common stock with a par value of $0.001 per share. Hang With allows live real-time video to be sent from one phone to many. The goal of the platform is twofold: 1) to become the premiere social media network for people around the globe to connect, communicate and share experiences via live streaming broadcasts; and 2) to enable celebrities and public figures to easily monetize their fan bases. Any user can be a broadcaster and/or a follower. After a follower receives a notification that the broadcaster is live, the follower views a short pre-roll advertisement before watching a live video feed sent directly from the broadcaster’s smartphone camera. The follower is able to chat with the broadcaster and other followers during the broadcast. A post-roll advertisement ends the broadcast. As of December 31, 2013, we own 75.77% of Hang With.

 

Going Concern

The consolidated financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.  The Company incurred a net loss of $2,892,198 for the year ended December 31, 2013, has incurred losses since inception resulting in an accumulated deficit of $7,533,214 as of December 31, 2013, and has had negative cash flows from operating activities since inception.  The Company anticipates further losses in the development of its business.

 

The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The Company’s ability to raise additional capital through the future issuances of common stock is unknown. The obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, or its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of all of the entities that make up the Company.  All significant inter-company balances and transactions have been eliminated.

 

Reclassification

The Company has made certain reclassifications to conform prior periods’ data to the current presentation.  These reclassifications had no effect on reported assets, liabilities or results of operations.

 

27
 

Basis of Accounting 

The accompanying financial statements have been prepared in conformity with U.S generally accepted accounting principles (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (the “Commission”). It is management's opinion, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation.

 

Use of Estimates 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  On an on-going basis, the Company evaluates its estimates, including, but not limited to, those related to investment tax credits, bad debts, income taxes and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments and other short-term investments with maturity of three months or less, when purchased, to be cash equivalents.  The Company maintains cash and cash equivalent balances at one financial institution that is insured by the Federal Deposit Insurance Corporation.  Any amounts of cash in financial institutions over FDIC insured limits, exposes the Company to cash concentration risk. As of December 31, 2013 and 2012, the Company has no cash equivalents.

 

Revenue Recognition

Our main source of revenue is from the development of custom applications or “Apps” for customers. We use a hybrid method for recognizing revenue that includes elements from both ASC 985-605, Software Revenue Recognition and ASC 605-35, Construction-Type and Production-Type Contracts.

 

We recognize revenues in accordance with ASC 985-605 when persuasive evidence of an agreement exists, delivery of the software has occurred, the fee is fixed or determinable, and collectability is probable. Nonrecurring revenues related to perpetual license sales with multiple elements are recognized in accordance with the guidance on software revenue recognition.

 

When the arrangement with a customer includes significant production, modification, or customization of the software, we recognize the related revenue using the percentage-of-completion method in accordance with the accounting guidance and certain production-type contracts contained in ASC 605-35.  We use the percentage of completion method provided all of the following conditions exist:

 

·the contract includes provisions that clearly specify the enforceable rights regarding goods or services to be provided and received by the parties, the consideration to be exchanged and the manner and terms of settlement;
·the customer can be expected to satisfy its obligations under the contract;
·the Company can be expected to perform its contractual obligations; and
·reliable estimates of progress towards completion can be made.

 

We measure completion based on achieving milestones detailed in the agreements with the customers. Costs of providing services, including services accounted for in accordance with ASC 605-35, are expensed as incurred.

 

The following is an example of how revenue is recognized involving an arrangement with a customer that includes significant production, modification, or customization of the software: a typical project will require between 50-100 working days from beginning to end.  On average 25-50 cumulative working days are expended prior to the start of development and this work typically includes, design, storyboards, and architecture. Prior to developing the App, hard costs are incurred as a number of variables are taken into account for preparation.  Those often include the following:

 

·understanding the client's business situation and environment, including their competitive landscape;
·researching and establishing the goals of the App;
·understanding and researching the target and potential App use cases;
·developing a monetization strategy;
·determining functionality and articulating the functionality through a storyboard and functional specification document; and
·determining the resources and timeline needed to complete the final work product.

 

28
 

Fifty percent (50%) of the work is completed upon completion of these five phases and at that point in time the customer typically signs our contract and makes a nonrefundable 50% payment. We record the 50% nonrefundable payment as revenue at that point in time. When the Beta version of the APP is complete, or at such other time as may be specifically agreed to in the contract, the customer is invoiced for an additional 25% of the total contract price and such payment is booked as revenue. When the APP is completed and ready for app store release, the customer is invoiced for the final 25% of total contract price and such payment is booked as revenue.

 

We also generate revenue from in APP advertising and the sale of Apps through the Apple store and other App marketplaces. Revenue from advertising is recognized in the period that the ad impressions are delivered, on an accrual basis. Revenue from the sale of APPs is recognized in the period the App is sold to the end user, on an accrual basis.

 

Accounts Receivable

Accounts receivable are stated at the amounts management expects to collect from outstanding balances.  Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts.  Balances outstanding after management has used reasonable collection efforts are written off through a charge to bad debt expense and a credit to trade accounts receivable.  Management has determined that the allowance for doubtful accounts at December 31, 2013 and 2012 is $10,700 and $2,100, respectively.

 

Accounts receivable are due within 30 to 90 days and collateral is not required.

 

Income Taxes 

The Company accounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income Taxes” (“ASC 740-10”) which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.

 

The Company follows the provision of ASC 740-10 related to Accounting for Uncertain Income Tax Position. When tax returns are filed, there may be uncertainty about the merits of positions taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.

 

Tax positions that meet the more likely than not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.

 

The Company has adopted ASC 740-10-25, “Definition of Settlement”, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion and examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open.  The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they were filed.

 

Uncertainty in Income Taxes

Under ASC 740-10-25 recognition and measurement of uncertain income tax positions is required using a “more-likely-than-not" approach.  Management evaluates its tax positions on an annual basis and has determined that as of December 31, 2013 no additional accrual for income taxes is necessary. The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they were filed.

 

Research and Development 

The Company incurs costs on activities that relate to research and development of new technology and products.  Research and development costs are expensed as incurred. For the years ended December 31, 2013 and 2012, research and development totaled $42,969 and $126,247, respectively.

  

29
 

Fixed Assets

Fixed assets are stated at cost.  Expenditures that materially increase the life of the assets are capitalized.  Ordinary maintenance and repairs are charged to expense as incurred.  When assets are sold or otherwise disposed of, the cost and the related accumulated depreciation and amortization are removed from the accounts and any realized gain or loss is recognized at that time.

 

Depreciation is computed primarily on the straight-line method for financial statement purposes over the following estimated useful lives: 

 

Computer equipment 3-5 years
   
Furniture and fixtures 3-5 years

 

Intangible Assets 

Intangible assets are stated at cost. Expenditures of costs incurred to renew or extend the term of a recognized intangible asset and materially extend the useful life are capitalized. When assets are sold or otherwise written off due to asset impairment, the cost and the related accumulated amortization are removed from the accounts and any realized gain or loss is recognized at that time. Useful lives of intangible assets are periodically evaluated for reasonableness and the assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may no longer be recoverable.

 

Amortization is computed primarily on the straight-line method for financial statement purposes over the estimated useful life. Estimated useful lives will vary based on the nature of the intangible asset.

 

Marketable Securities

Marketable securities are investments in publicly traded equity securities and are generally restricted for sale under Federal securities laws. Since these securities are often restricted, the Company is unable to liquidate them until the restriction is removed. Pursuant to ASC Topic 320,“Investments –Debt and Equity Securities” the Company’s marketable securities have a readily determinable and active quoted price, such as from NASDAQ, NYSE Euronext, the Over the Counter Bulletin Board, and the OTC Markets Group.

 

Marketable securities are carried at fair value, with changes in unrealized gains or losses are recognized as an element of comprehensive income based on changes in the fair value of the security. Once liquidated, realized gains or losses on the sale of marketable securities will be reflected in the net income (loss) for the period in which the security was liquidated.

 

Fair Value of Financial Instruments 

The Company adopted ASC 820, Fair Value Measurements and Disclosures, for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing US GAAP that requires the use of fair value measurements which establishes a framework for measuring fair value and expands disclosure about such fair value measurements.

 

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

 

  Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities
     
  Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data
     
  Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

 

The carrying amounts reported in the balance sheet for cash, accounts payable, and accrued liabilities approximate their estimated fair market value based on the short-term maturity of this instrument.

 

In addition, FASB ASC 825-10-25, Fair Value Option was effective for January 1, 2008. ASC 825-10-25 expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value.

 

30
 

Fair value of financial instruments at December 31, 2013:

 

    Fair Value Measurements Using:  
   

Quoted Prices

in Active

Markets

(Level 1)

   

Significant

Other

Observable

Inputs

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

   
                     
Investment in marketable securities   $ 50,000     $ -     $ -    
Derivative liability   $ -     $ -     $ 63,389    

 

Fair value of financial instruments at December 31, 2012:

 

    Fair Value Measurements Using:  
   

Quoted Prices

in Active

Markets

(Level 1)

   

Significant

Other

Observable

Inputs

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

   
                     
             
Derivative liability   $ -     $ -     $ 6,142    

 

The following table presents a reconciliation of the derivative liability measured at fair value on a recurring basis using significant unobservable input (Level 3) from January 1, 2012 to December 31, 2013: 

 

    Conversion feature derivative liability  
Balance January 1, 2012  $—   
Recognition of derivative liability   501,588 
Change in fair value   (495,446)
Balance December 31, 2012  $6,142 
Change in fair value   57,247 
Balance December 31, 2013  $63,389 

 

Loss Per Share of Common Stock

Basic net loss per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share ("EPS") include additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents, totaling 8,728,400 and 6,497,000   at December 31, 2013 and 2012, respectively, were not included in the computation of diluted earnings per share in 2013 and 2012 on the consolidated statement of operations due to the fact that the Company reported a net loss in 2013 and 2012 and to do so would be anti-dilutive for that period.

 

Goodwill and Other Intangible Assets 

In accordance with ASC 350-30-65 (formerly SFAS 142, Goodwill and Other Intangible Assets), the Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Intangible assets were comprised of website assets. Factors the Company considers to be important which could trigger an impairment review include the following:

 

1.Significant underperformance relative to expected historical or projected future operating results;

 

2.Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and

 

3.Significant negative industry or economic trends.

 

31
 

When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows. The Company did not consider it necessary to record any impairment charges during the period ended December 31, 2013 and 2012.

 

Stock Based Compensation 

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

 

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the reporting date.

 

Recent Accounting Pronouncements

In July 2012, the FASB issued ASU 2012-02, “Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment”, on testing for indefinite-lived intangible assets for impairment. The new guidance provides an entity to simplify the testing for a drop in value of intangible assets such as trademarks, patents, and distribution rights. The amended standard reduces the cost of accounting for indefinite-lived intangible assets, especially in cases where the likelihood of impairment is low. The changes permit businesses and other organizations to first use subjective criteria to determine if an intangible asset has lost value. The amendments to U.S. GAAP will be effective for fiscal years starting after September 15, 2012. The Company’s adoption of this accounting guidance does not have a material impact on the consolidated financial statements and related disclosures.

 

In April 2013, the FASB ASU 2013-07, “Presentation of Financial Statements: Topic Liquidation Basis of Accounting”. ASU 2013-07 requires an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is considered imminent when the likelihood is remote that the organization will return from liquidation and either: (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties; or (b) a plan for liquidation is being imposed by other forces. ASU 2013-07 will be effective for the Company beginning on January 1, 2014. The Company does not expect the adoption of ASU 2013-07 to have a material impact on its financial position, results of operations nor cash flows.

 

In July 2013, the FASB issued ASU 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists". ASU 2013-11 provides guidance on the presentation of unrecognized tax benefits related to any disallowed portion of net operating loss carryforwards, similar tax losses, or tax credit carryforwards, if they exist. ASU 2013-11 is effective for fiscal years beginning after December 15, 2013. The adoption of ASU 2013-11 is not expected to have a material impact on the Company’s consolidated financial statements.

 

There were other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.   

 

32
 

NOTE 3 – FIXED ASSETS

 

Fixed assets as of December 31, 2013 and December 31, 2012 were as follows:

             
    Estimated Useful Lives (Years)  

December 31,

2013

 

December 31,

2012

Computer equipment   3-5   $ 129,132   $ 124,860
Furniture and fixtures   3-5     16,521     15,144
Leasehold improvements   3-5     23,618     23,618
          169,271     163,622
                 
Less: accumulated depreciation         (130,825)     (57,092)
Fixed assets, net       $ 38,446   $ 106,530

  

There was $73,733 and $40,512 charged to operations for depreciation expense for the years ended December 31, 2013 and 2012, respectively.

 

NOTE 4 – INTANGIBLE ASSETS

 

Intangible assets as of December 31, 2013 and 2012 were as follows:

 

   Estimated
Useful Life
(Years)
  December 31,
2013
  December 31,
2012
Intangible asset - customer base   4   $144,000   $144,000 
                
Less: accumulated amortization        (66,000)   (30,000)
Intangible asset - customer base, net of amortization       $78,000   $114,000 

 

There was $36,000 and $30,000 charged to operations for amortization expense for the years ended December 31, 2013 and 2012, respectively.

 

NOTE 5 - PROVISION FOR INCOME TAXES 

 

The provision (benefit) for income taxes for the years ended December 31, 2013 and 2012 differs from the amount which would be expected as a result of applying the statutory tax rates to the losses before income taxes due primarily to changes in the valuation allowance to fully reserve net deferred tax assets.

 

Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carry-forwards are expected to be available to reduce taxable income.  As the achievement of required future taxable income is uncertain, the Company recorded a valuation allowance.

 

  
December 31, 2013
 
December 31, 2012
Deferred tax assets:      
 Net operating loss before non-deductible items  $(6,317,482)  $(3,687,809)
 Tax rate   34%   34%
 Total deferred tax assets   2,147,944    1,253,855 
 Less: Valuation allowance   (2,147,944)   (1,253,855)
           
 Net deferred tax assets  $—     $—   

 

As of December 31, 2013, the Company has a net operating loss carry forward of $6,317,482 expiring through 2033. The Company has provided a valuation allowance against the full amount of the deferred tax asset due to management’s uncertainty about its realization. Furthermore, the net operating loss carry forward may be subject to further limitation pursuant to Section 382 of the Internal Revenue Code. The valuation allowance was increased by $894,089 in fiscal year 2013.

 

33
 

NOTE 6 – INVESTMENT IN MARKETABLE SECURITIES

 

On March 8, 2013, in connection with a strategic license agreement, the Company issued 147,692 shares of common stock, valued at $50,000, to the licensor and the licensor issued to the Company 2,500,000 shares of licensor’s common stock, valued at $50,000. The license gives us the right to sell a limited license for United States Patent Number 7,822,816 to business entities that license or purchase our Apps. Under the license, the Company is required to pay the licensor 12.5% of the gross amounts received from purchasers who acquire the limited license to use the patent.

 

These securities are publicly traded equity securities and are currently restricted for sale under Federal securities laws. Since these securities are restricted, the Company is unable to liquidate them until the restriction is removed. Pursuant to ASC Topic 320, “Investments –Debt and Equity Securities” the Company’s marketable securities have a readily determinable and active quoted price, such as from NASDAQ, NYSE Euronext, the Over the Counter Bulletin Board, and the OTC Markets Group.

 

Marketable securities are carried at fair value, with changes in unrealized gains or losses recognized as an element of comprehensive income based on changes in the fair value of the security. No change in fair value was recorded during the period ended December 31, 2013. Once liquidated, realized gains or losses on the sale of marketable securities will be reflected in the net income (loss) for the period in which the security was liquidated.

 

NOTE 7 - RELATED PARTY TRANSACTIONS

 

The Company has entered into a sublease with a company in which the Company’s CEO and his family are shareholders.  The sublease is for approximately 4,500 square feet.  The term of the sub-lease commenced January 1, 2011 and expires November 30, 2015. In January 2014 we increased the amount of space under this sublease from 4,500 square feet to 6,800 square feet. (See also Note 9)

 

We entered into a consulting agreement with FA Corp, a consulting firm owned and controlled by Mr. Williams, our Chief Financial Officer, for providing financial and bookkeeping related services by FA Corp at the rate of $100 per hour. The consulting agreement commenced on November 26, 2012 and shall continue unless terminated by either party by giving written notice to the other party. For the year ended December 31, 2013, FA Corp performed $114,726 in services, of which $109,049 was paid in 2013 and $5,677 is reflected in accounts payable as of December 31, 2013. For the year ended December 31, 2012, FA Corp performed $8,187 in services and such amount was reflected in accounts payable as of December 31, 2012.

 

NOTE 8 – LINE OF CREDIT

 

On January 17, 2013, the Company entered into a three-year, $500,000 secured revolving credit agreement (the “Line”). The Line is a revolving line of credit that allows the Company to repay principal amounts and re-borrow them at any time during the three-year term. The interest rate on borrowed funds is 10% per annum and the interest rate on undrawn funds is 2.0% per annum. Interest is due within 10 business days following the end of each calendar month. As of December 31, 2013, all amounts borrowed under the Line have been paid back. All borrowed funds from the Line are secured by a lien on all of the Company’s assets. Interest expense for the year ended December 31, 2013 is $21,338.

 

NOTE 9 - COMMITMENTS AND CONTINGENCIES

 

Lease

The Company is party to two non-cancelable lease agreements for office space through 2015. The first lease is a sublease for approximately 6,800 square feet of space located at 18475 Bandilier Circle, unit A, Fountain Valley, CA.  The term of the sub-lease is from January 1, 2011 and ends on November 30, 2015.  The second lease is for approximately 6,034 square feet of space located at 18475 Bandilier Circle, unit B, Fountain Valley, CA.  The term of this lease is from May 1, 2012 and ends on November 30, 2015. The Company was a party to a non-cancelable lease agreement for approximately 4,786 square feet that was located at 18350 Mt. Langley Street, Fountain Valley, CA.  The term of this lease was September 1, 2011 through February 28, 2013.  

 

At December 31, 2013, aggregate future minimum payments under these leases are as follows:

 

2014     164,032
2015     161,284
Total       $  325,316

 

The Company subleased the 6,034 square feet of space located at 18475 Bandilier Circle, unit B, Fountain Valley, CA with its landlord’s approval from September 1, 2013 through November 30, 2015, with an annual base rent of $61,547.

 

34
 

The rents received from this sublease will be used to offset the corresponding rental expense. The total future minimum lease rental income under the rental sublease agreement is as follows:

 

2014     61,547
2015     56,418
Total       $  117,965

 

Litigation 

From time to time, the Company may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. Litigation is, however, subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe would or could have, individually or in the aggregate, a material adverse effect on us.

 

NOTE 10 – STOCKHOLDERS’ EQUITY

 

Preferred Stock

The authorized preferred stock of the Company consists of 10,000,000 shares of preferred stock at a par value of $0.001.  As of December 31, 2013, the Company had no outstanding shares of preferred stock.

 

Common Stock

The authorized common stock of the Company consists of 500,000,000 shares of common stock with a par value of $0.001.

 

On January 2, 2012, the Company issued 41,667 shares of common stock for advisory services at a price per share of $.90 for total expense of $37,500.

 

On February 28, 2012, the Registrant acquired Inedible, a developer of mobile apps and related mobile app technologies whose principal asset was a customer list. While the acquisition of Inedible was structured as a purchase of an entity, the Registrant did not acquire any ongoing business operations and the purpose of the transaction was to acquire Inedible’s customer list as a conduit to Apple for future potential. As a result, Inedible became a wholly owned subsidiary of the Registrant. The purchase consideration paid was 442,542 shares of common stock of the Company to the sellers, half of which are being held in escrow for one year to secure against any claims of indemnification. The Company accounted for the value under ASC 805-50-30-2, Business Combinations whereby if the consideration is not in the form of cash, the measurement is based on either the cost which shall be measured based on the fair value of the consideration given or the fair value of the assets (or net assets) acquired, whichever is more clearly evident and thus more reliably measurable. The fair value of the shares issued amounted to $221,272, which was allocated between intangible assets – customer base for $144,000, and $77,272 to prepaid consulting fees.

 

On March 28, 2012, the Company issued to an accredited investor 3,000,000 shares of common stock and a warrant to purchase 1,000,000 shares of common stock for net proceeds of $1,485,000 after paying $15,000 of the investor’s attorney fees. The warrant has a three year term and may be exercised at an exercise price of $0.90 per share, subject to adjustment in the case of stock splits, distributions, reorganizations, recapitalizations and the like, and may be exercised on a cashless basis under certain circumstances. The warrant contains full ratchet anti-dilution protection in the case of a share issuance for consideration less than the then exercise price of the warrant, subject to customary exceptions. Management estimated the fair value of the warrants to be $501,588 on the inception date, as discussed below. 

 

On May 22, 2012, the Company entered into a consulting agreement for advisory services and agreed to issue up to 200,000 restricted shares of common stock under its 2011 Equity Incentive Plan in two tranches of 100,000 shares each. The issuance of these shares is being made under the Company’s 2011 Equity Incentive Plan. The first tranche of 100,000 shares vests on November 30, 2012, and were valued at the market price on the date of the agreement. The expense for these shares was amortized over the six-month period beginning May 22, 2012, with a total expense of $30,000. The Company had the option to terminate the agreement after six months but opted not to. The second tranche of 100,000 shares became issuable in December 2012 and vests over a six month period beginning November 22, 2012. Those 100,000 shares were valued at the market price on November 22, 2012. The expense for these shares is being amortized over the six-month period beginning November 22, 2012, with a total expense of $15,000. The 200,000 shares were issued on December 28, 2012.

 

On June 28, 2012, options to purchase 5,600 shares of common stock were exercised for a total exercise price of price of $1,400. The options were issued under our 2011 Equity Incentive Plan.

 

35
 

On July 6, 2012, options to purchase 7,500 shares of common stock were exercised for a total exercise price of price of $1,875. The options were issued under our 2011 Equity Incentive Plan.

 

On September 25, 2012, the Company issued under its 2011 Equity Incentive Plan 10,000 shares of common stock for advisory services at a price per share of $0.23 for total expense of $2,300.

 

On November 14, 2012, the Company agreed to issue under its 2011 Equity Incentive Plan 250,000 shares of common stock for accounting services to Murray Williams as the Company's new Chief Financial Officer at a price per share of $0.18 for a total amount of $45,000. The shares vest quarterly over eight (8) quarters with the first traunch of 31,250 shares vesting on Feb 2, 2013. The 250,000 shares were issued on December 28, 2012. The $45,000 amount was recorded as prepaid expense and is being amortized monthly over the 24-month vesting period. As of December 31, 2013, $26,250 has been expensed and $18,750 remains in prepaid expense to be expensed monthly through November 14, 2014.

 

On February 21, 2013, the Company issued 200,000 shares of common stock at $0.50 per share for $100,000 of certain outstanding legal fees.

 

On March 8, 2013, in connection with a strategic license agreement that granted the Company the right to sell a limited license for United States Patent Number 7,822,816, the Company issued 147,692 shares of common stock, valued at $50,000, to the licensor and the licensor issued to the Company 2,500,000 shares of the licensor’s common stock, valued at $50,000.

 

On June 6, 2013, the Company issued 75,000 shares of common stock at $0.50 per share, valued at $37,500, for $24,000 of certain outstanding marketing fees and $13,500 for a 4-month marketing services agreement from June to September 2013. The $13,500 expense for the shares issued for the 4-month marketing agreement was amortized over the four-month period beginning June 6, 2013.

 

On September 11, 2013, in connection with a strategic license agreement with a famous musician, the Company issued 725,000 shares of common stock, valued at $210,250, to the musician and his agents.

 

On September 30, 2013, the Company issued 33,207 shares of common stock for employee stock option exercises resulting in proceeds of $8,316.

 

On October 21, 2013, the Company issued 18,958 shares of common stock for an employee stock option exercise resulting in proceeds of $1,346.

 

On December 23, 2013, the Company issued 380,000 shares of common stock at $0.25 per share, valued at $95,000, for certain outstanding obligations.

 

On December 31, 2013, in connection with a strategic license agreement with a celebrity, the Company issued 5,000 shares of common stock at $.26 per share, valued at $1,300, to the celebrity.

 

On December 31, 2013, the Company issued to an accredited investor 4,454,545 shares of common stock resulting in proceeds of $550,000.

 

As of December 31, 2013, the Company has 50,021,711 shares of common stock issued and outstanding.

 

Warrants

The Company had warrants outstanding to purchase 1,000,000 shares of common stock at $0.90 per share as of December 31, 2012. The warrants are subject to full ratchet anti-dilution protection if the Company sells shares or share equivalents at less than the $0.90 exercise price.  On December 31, 2013, the ratchet anti-dilution provision of those warrants resulted in the Company issuing an additional 2,000,000 warrants and the warrant price was reduced to $0.30. The Company has warrants outstanding to purchase 3,000,000 shares of common stock at $0.30 per share as of December 31, 2013. The warrants do not meet conditions for equity classification and are required to be carried as a derivative liability, at fair value.  Management estimates the fair value of the warrants on the inception date, and subsequently at each reporting period, using the Lattice option-pricing model, adjusted for dilution, because that technique embodies all assumptions (including volatility, expected terms, dilution and risk free rates) that are necessary to determine the fair value of freestanding warrants. This valuation resulted in a derivative liability on the balance sheet in the amount of $63,389 at December 31, 2013. Significant inputs in calculating this valuation using the Lattice option-pricing model are as follows:

 

  December 31, 2013
   
Expected volatility 46.1%
Expected term 1.25 Years
Risk-free interest rate 0.14%
Expected dividend yield 0%

 

 

36
 

Share-Based Compensation and Options Issued to Consultants

 

2011 Equity Incentive Plan 

The board of directors adopted the 2011 Equity Incentive Plan, as amended, (the “Plan”) of MEDL Mobile Holdings, Inc. (Nevada) that provides for the issuance of a maximum of 10,000,000 shares of common stock.   As of December 31, 2013, there were options to purchase 5,728,400 shares outstanding under the plan. Of this amount, there are vested options exercisable into 3,770,322 shares of common stock. As of December 31, 2013, the Company had 3,746,335 shares reserved for future grant under its Plan and there were 52,165 and 13,100 shares exercised during the years ended December 31, 2013 and 2012, respectively.

 

The Company generally grants stock options to employees and directors at exercise prices equal to the fair market value of the Company's stock on the dates of grant. Stock options are typically granted throughout the year and generally vest over four years of service and expire ten years from the date of the award, unless otherwise specified. The Company recognizes compensation expense for the fair value of the stock options over the requisite service period for each stock option award.

 

Total share-based compensation expense included in the consolidated statements of operations for the years ended December 31, 2013 and 2012 is $262,525 and $220,267, respectively. For the years ended December 31, 2013 and 2012, share-based compensation expense equal to $217,928 and $158,734, respectively, is included in selling, general and administration and share-based compensation expense equal to $44,597 and $61,533, respectively, is included in cost of good sold.

 

There was no capitalized share-based compensation cost as of December 31, 2013 and 2012, and there were no recognized tax benefits during the years ended December 31, 2013 and 2012.

 

To estimate the value of an award, the Company uses the Black-Scholes option-pricing model.  This model requires inputs such as expected life, expected volatility and risk-free interest rate.  The forfeiture rate also impacts the amount of aggregate compensation.  These inputs are subjective and generally require significant analysis and judgment to develop.  While estimates of expected life, volatility and forfeiture rate are derived primarily from the Company’s historical data, the risk-free rate is based on the yield available on U.S. Treasury constant maturity rates with similar terms to the expected term of the stock option awards.  The fair value of share-based awards was estimated using the Black-Scholes model with the following weighted-average assumptions for the years ended December 31, 2013 and 2012:

 

Assumptions:

 

  2013   2012
       
Dividend yield 0.00   0.00
Risk-free interest rate .14%   .36%
Expected volatility 46.1%   84%
Expected life (in years) 10   10

 

Share-Based Compensation and Options Issued to Consultants

 

Option activity for the year ended December 31, 2013 was as follows:

 

      Weighted Average  Weighted
Average
   
      Exercise  Remaining  Aggregate
      Price  Contractual  Intrinsic
   Options  ($)  Life (Yrs.)  Value ($)
                     
Options outstanding at December 31, 2012   5,497,000    0.29    8.76    38,315 
Granted   1,176,200    0.29    9.27    15,680 
Exercised   (52,165)   0.19    —      3,653 
Forfeited or cancelled   (892,635)   0.41    —      24,747 
                     
Options outstanding at December 31, 2013   5,728,400    0.29    7.96    82,818 
Options expected to vest in the future as of December 31, 2013   1,958,078    0.28    8.21    30,505 
Options exercisable at December 31, 2013   3,770,322    0.27    7.76    52,313 
Options vested, exercisable and options expected to vest at December 31, 2013   5,728,400    0.29    7.96    82,818 

 

 

37
 

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of our common stock for those awards that have an exercise price currently below the closing price.

 

Unvested share activity for the year ended December 31, 2013 was as follows:

 

    Unvested   Weighted
    Number of   Average Grant
    Options   Fair Value
                          
Unvested balance at December 31, 2012     3,008,333       0.31
Granted     1,176,200     0.29
Vested      (1,372,279)     0.19
Cancelled/Forfeited     (854,176)     0.26
Unvested balance at December 31, 2013     1,958,078     0.28

 

At December 31, 2013 and 2012, there was $397,943 and $420,906, respectively, of unrecognized share-based compensation expense related to unvested share options with a weighted average remaining recognition period of 2.14 years and 3.18 years, respectively.

 

NOTE 11 – SUBSEQUENT EVENTS

 

On January 31, 2014, the Company issued 50,000 shares of common stock for services rendered at a price per share of $.30 for total expense of $15,000.

 

On March 6, 2014, the Company issued 87,165 shares of common stock for an employee stock option exercise resulting in proceeds of $6,102.

 

On March 21, 2014, the Company issued 1,000 shares of common stock for an employee stock option exercise resulting in proceeds of $250.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

There have been no changes in or disagreements with our accountants since our formation required to be disclosed pursuant to Item 304 of Regulation S-K.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of disclosure controls and procedures

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation with the participation of the Company's management, including the Company's Chief Executive Officer ("CEO") and the Company's Chief Financial Officer ("CFO"), of the effectiveness of the Company's disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the year ended December 31, 2013. Based upon that evaluation, the Company's CEO and CFO concluded that the Company's disclosure controls and procedures were not effective as of December 31, 2013 due to the Company’s limited internal resources and lack of ability to have multiple levels of transaction review.

 

Management is in the process of determining how best to change our current system and implement a more effective system to insure that information required to be disclosed in this annual report on Form 10-K has been recorded, processed, summarized and reported accurately. Our management acknowledges the existence of this problem, and intends to developed procedures to address them to the extent possible given limitations in financial and manpower resources. While management is working on a plan, no assurance can be made at this point that the implementation of such controls and procedures will be completed in a timely manner or that they will be adequate once implemented.

  

38
 

Management's annual report on internal control over financial reporting.

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act, as amended). Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework. Based on our assessment, management identified significant deficiencies related to: (i) our internal audit functions, and (ii) a lack of segregation of duties within accounting functions. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with any policies and procedures may deteriorate. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. We are in the process of determining how best to change our current system and implement a more effective system however there can be no assurance that implementation of any change will be completed in a timely manner or that it will be adequate once implemented. To the extent possible, we will implement procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be performed by separate individuals. We believe that the foregoing steps will help remediate the significant deficiencies identified above, and we will continue to monitor the effectiveness of these steps and make any changes that our management deems appropriate.

 

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting since one is not required.

 

Changes in internal control over financial reporting

There have been no changes in our internal control over financial reporting during the year ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

ITEM 9B. OTHER INFORMATION

 

None.

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The following persons are our executive officers and directors and hold the positions set forth opposite their respective names.

 

Name Age Position
Andrew Maltin 43 Chief Executive Officer and Director
David Swartz 44 President, Secretary and Director
Murray Williams 43 Chief Financial Officer

 

The principal occupations for the past five years (and, in some instances, for prior years) of each of our executive officers, directors and key employees are as follows:

 

Andrew Maltin has served as our Chief Executive Officer and director since June 24, 2011. Mr. Maltin co-founded MEDL Mobile, Inc. with Mr. Swartz in March 2009.   Prior to founding MEDL Mobile, Mr. Maltin served as the Chief Executive Officer of Momentum Gaming, Inc., where he led the company's marketing, business development and technology efforts to build a world class online gaming infrastructure which both operated independently and licensed its technology to several of the world's leading gaming sites. He has been featured in Entrepreneur, 944, Success, The Wall Street Journal and The LA Times. He holds a Bachelor of Arts degree in Marketing from California State University, Northridge, and an Entrepreneurial Degree from the University of Southern California. Mr. Maltin was appointed as a director based on his industry knowledge and his experience as the founder of MEDL.

David Swartz has served as our President, Secretary and director since June 24, 2011. Mr. Swartz co-founded MEDL Mobile, Inc. with Mr. Swartz in March 2009 and has served as MEDL’s creative director since its inception.  Mr. Swartz has served as the Chief Executive Officer and Creative Director of 42Doh, Inc. from 2007 to the present, where he worked directly with marketing clients to strategize, create and implement innovative marketing campaigns. Prior to 42Doh, from 2006 until 2007 Mr. Swartz served as the Creative Director of DGWB Advertising, named by Creativity Magazine as one of the top 20 Creative Agencies in the U.S. At DGWB, Mr. Swartz led strategic and creative marketing efforts for regional and national advertising accounts in a variety of industries such as publishing, banking, multi-unit retail, fast food, healthcare and technology.  Mr. Swartz holds a Bachelor of Science in Communications from Boston University. Mr. Swartz was appointed as a director based on his industry knowledge and his experience as the founder of MEDL.

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Murray Williams has served as our Chief Financial Officer since November 14, 2012. Mr. Williams is the founder, President and CEO of FA Corp (“FA”), an independent consulting firm providing accounting and finance services for various companies since August 2001. From March 2008 until September 2011 Mr. Williams served as the Chief Financial Officer, Treasurer and Secretary of GTX Corp, a public company engaged in the commercialization of miniaturized assisted GPS tracking and cellular location-transmitting technologies. From February 2007 until March 2008, Mr. Williams was an independent business and financial consultant to individuals and development stage companies.  From June 2005 to February 2007, Mr. Williams was the Chief Financial Officer of Interactive Television Networks, Inc., a public company and a leading provider of Internet Protocol Television hardware, programming software and interactive networks. Mr. Williams was one of the founding members of Buy.Com, Inc., became an employee in February 1998, was the chief financial officer and worked with the company until August 2001.  During his three and a half year tenure, Buy.com sold over $1 billion in products and Mr. Williams created and developed the finance, legal, business development and H/R departments, raised $225 million in private funding, took the company public in February 2000 with a $2 billion valuation and managed Buy.Com’s expansion into Europe, Canada and Australia.  From January 1993 through January 1998, Mr. Williams was employed with KPMG Peat Marwick, LLP, and last served as a Manager in their assurance practice where he managed a team of over 20 professionals specializing in financial services.  Mr. Williams has helped take seven companies public since February 2000.  Mr. Williams is a CPA and received his license in 1995.  Mr. Williams received degrees in both Accounting and Real Estate from the University of Wisconsin-Madison in 1992.

Board Qualification

The Board believes that each of our directors is highly qualified to serve as a member of the Board. Each of the directors has contributed to the mix of skills, core competencies and qualifications of the Board. When evaluating candidates for election to the Board, the Board seeks candidates with certain qualities that it believes are important, including integrity, an objective perspective, good judgment and leadership skills. Our directors are highly educated and have diverse backgrounds and talents and extensive track records of success in what we believe are highly relevant positions.

Term of Office

Each director is elected until our next annual meeting and until their successor is duly elected and qualified. The Board of Directors may also appoint additional directors up to the maximum number permitted under our by-laws. Each executive officer serves at the discretion of the Board of Directors and holds office until their successor is elected or until their resignation or removal in accordance with our articles of incorporation and by-laws.

Family Relationships

There are no family relationships between or among the above directors and/or executive officers.

Involvement in Certain Legal Proceedings

Except as set forth in the director and officer biographies above, to the Company’s knowledge, during the past ten (10) years, none of the Company’s directors, executive officers, promoters, control persons, or nominees has been: 

·the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
·convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
·subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
·found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law.

Board Independence

We currently have two directors serving on our Board of Directors, Mr. Maltin and Mr. Swartz.  We are not a listed issuer and, as such, are not subject to any director independence standards. Using the definition of “independent director,” as defined by Section 5605(a)(2) of the rules of the Nasdaq Stock Market, neither Mr. Maltin nor Mr. Swartz would be considered an independent director of the Company.

Board Committees

We established an audit committee of the board of directors on June 24, 2011 however there are no members currently serving on the audit committee. We expect to appoint a nominating committee and compensation committee, and to adopt charters relative to each such committee, in the future.  Given our size and the development of our business to date, we believe that the board through its meetings can presently perform all of the duties and responsibilities that might be contemplated by such committees.

Except as may be provided in our bylaws, we do not currently have specified procedures in place pursuant to which whereby security holders may recommend nominees to the Board of Directors.

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Code of Ethics

We have not yet adopted a Code of Ethics although we expect to as we develop our infrastructure and business.

Board Leadership Structure and Role in Risk Oversight

Due to the small size of the Company, we have not adopted a formal policy on whether the Chairman and Chief Executive Officer positions should be separate or combined.

Our Board is primarily responsible for overseeing our risk management processes on behalf of our board of directors. The Board receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our assessment of risks. The Board focuses on the most significant risks facing our company and our company’s general risk management strategy, and also ensures that risks undertaken by our Company are consistent with the Board’s appetite for risk. While the Board oversees our risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing us and that our board leadership structure supports this approach.

ITEM 11. EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The table below sets forth, for our last two fiscal years, the compensation earned by Andrew Maltin, our Chief Executive Officer, Dave Swartz, our President and Secretary, Murray Williams, our current Chief Financial Officer and Paul Caceres, our former Chief Financial Officer. 


 

Name and principal position Year   Salary ($)   Bonus ($)   Stock Awards ($)   Option Awards ($)(5)   Non-Equity Incentive Plan Compensation ($)   Non-Qualified Deferred Compensation Earnings ($)   All Other Compensation    ($)   Total ($)
(a) (b)   (c)   (d)   (e)   (f)   (g)   (h)   (i)   (j)
Andrew Maltin Chief Executive Officer (1)                                  
  2013   200,000   -   -   -   -   -   -   200,000
  2012   200,000   -   -   -   -   -   -   200,000

Dave Swartz

President and Secretary (2)

                                 
  2013   200,000   -   -   -   -   -   -   200,000
  2012   200,000   -   -   -   -   -   -   200,000
Murray Williams Chief Financial Officer (3)                                  
  2013   30,000   -   -   -   -   -   -   30,000
  2012   3,807   -   17,750   -   -   -   -   21,557
                                   
Paul Caceres Former Chief Financial Officer (4)                                  
  2013   -   -   -   -   -   -   -   -
  2012   96,722   -   -   -   -   -   -   96,722

 

  (1) Mr. Maltin is our Chief Executive Officer and is a director.

 

  (2) Mr. Swartz is our President, Secretary and is a director.

 

  (3) Mr. Williams was hired as our Chief Financial Officer effective November 14, 2012.  Mr. Williams was issued 250,000 restricted shares of our common stock under our 2011 Equity Incentive Plan vesting in eight equal quarterly installments over two years with the first vesting on February 2, 2013.  The closing price of our common stock on December 28, 2012, the date the shares were granted and issued to Mr. Williams, was $0.071, resulting in a value of $17,750.  

 

  (4) Mr. Caceres was hired as our Chief Financial Officer effective December 1, 2011 and resigned on November 8, 2012.

 

 

 

(5)

 

The fair value of each stock award was estimated on the grant date using the Black-Scholes option-pricing model. See Note 10 to the financial statements for a description of the assumptions used in estimating the fair value of stock options. Options are awarded by the Board of Directors based upon many factors.  In the case of Mr. Maltin and Mr. Swartz, factors include the role each played in the founding of the Company, below market compensation for executives in their capacities, uncompensated periods of service, length of service and the desire to retain their services. 

 

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Outstanding Equity Awards at Fiscal Year End

 

As of December 31, 2013, the following named executive officers had the following unexercised options, stock that has not vested, and equity incentive plan awards:

                   
Option Awards (1)             Stock Awards
Name

Number of Securities Underlying Unexercised Options

# Exercisable

# Un-

exercisable

Equity

Incentive

Plan

Awards:

Number of

Securities

Underlying

Unexercised

Unearned

Options

Option

Exercise

Price

Option

Expiration

Date

Number

of

Shares

or

Units

of

Stock

Not

Vested

Market

Value

of

Shares

or

Units

Not

Vested

Equity

Incentive

Plan

Awards:

Number of

Unearned

Shares,

Units or

Other

Rights Not

Vested

Value of

Unearned

Shares,

Units or

Other

Rights

Not

Vested

Andrew Maltin 750,000 (1) - - $0.275 6/24/2021 - - - -
Dave Swartz

750,000 (1)

- - $0.275 6/24/2021 - - - -
Murray Williams - - - -       125,000(2) $31,875

 

       
  (1) All options in the table above were granted on June 24, 2011 and vested one-quarter on March 4, 2010 with the balance vesting over two years in equal monthly installments, subject to continued service at each vesting date.  
       
  (2) Mr. Williams was awarded 250,000 restricted shares of our common stock under our 2011 Equity Incentive Plan vesting in eight equal quarterly installments over two years with the first vesting on February 2, 2013.  The $31,875 value of the unearned shares is based on the closing price of the Company’s common stock on December 31, 2013, as reported by the OTCQB.  
             

 

Equity Compensation Plan Information

 

On June 24, 2011, our board adopted the 2011 Equity Incentive Plan, which was subsequently amended on May 1, 2012. The 2011 Equity Incentive Plan reserves 10,000,000 shares of common stock for grant to directors, officers, consultants, advisors or employees of the Company.  As of December 31, 2013, there were outstanding options to purchase 5,728,400 shares under the plan, of this amount there are vested options exercisable into 3,770,322 shares of common stock. As of December 31, 2013, the Company had approximately 3,746,335 shares reserved for future grant under its Plan and there have been 65,265 shares exercised since the plan was adopted.

 

Employment Agreements

 

On June 24, 2011, we entered into an employment agreement with Mr. Maltin and Mr. Swartz to serve as our Chief Executive Officer and President, respectively. The term of each employment agreement is two years renewable for additional one-year periods in accordance with the terms of the employment agreement. Mr. Maltin and Mr. Swartz are each entitled to receive an annual base salary of $200,000, with such upward adjustments to the base salary as shall be determined by the board in its sole discretion.  Mr. Maltin and Mr. Swartz are also each entitled to receive an annual bonus amount that is tied to the attainment of certain financial targets as set forth in the employment agreement. The employment agreement provides for the claw-back of the annual bonus and all stock based compensation under certain conditions.  In the event that Mr. Maltin or Mr. Swartz terminate their respective employment agreements for good reason (which includes under certain circumstances a change of control), or we terminate the employment agreement without cause, they shall be entitled to receive severance equal to their base salary and annual bonus during the prior twelve months, as in effect as of the date of termination.

 

Pursuant to an offer letter entered into on October 24, 2012, Mr. Williams became our Chief Financial Officer on November 14, 2012 for a base amount of $2,500 per month plus $100 per hour for each hour over 25 hours per month that Mr. Williams spends working for us. In addition, we awarded Mr. Williams 250,000 restricted shares of our common stock under our 2011 Equity Incentive Plan vesting in eight equal quarterly installments over two years with the first vesting on February 2, 2013. We also entered into a consulting agreement with FA Corp, a company owned and controlled by Mr. Williams, for the provision of financial and bookkeeping related services by FA Corp at the rate of $100 per hour. The consulting agreement commenced on November 26, 2012 and shall continue unless terminated by either party by giving written notice to the other party.

 

Director Compensation

 

We have not adopted compensation arrangements for members of our board of directors.

 

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth certain information as of March 31, 2014 regarding the beneficial ownership of our common stock by (i) each person or entity who, to our knowledge, owns more than 5% of our common stock; (ii) each executive officer and director; and (iii) all of our executive officers and directors as a group. Unless otherwise indicated in the footnotes to the following table, each person named in the table has sole voting and investment power and that person’s address is c/o MEDL Mobile Holdings, Inc., 18475 Bandilier Circle, Fountain Valley, California. Shares of common stock subject to options, warrants, or other rights currently exercisable or exercisable within 60 days of March 31, 2014, are deemed to be beneficially owned and outstanding for computing the share ownership and percentage of the stockholder holding such options, warrants or other rights, but are not deemed outstanding for computing the percentage of any other stockholder.

 

Name of Beneficial Owner   Number of Shares Beneficially Owned    

Percentage

Beneficially Owned (1)

 
             
Andrew Maltin (2)     10,662,866       20.94 %
David Swartz (3)     10,712,865       21.04 %
Murray Williams (4)     250,000       *  
Alpha Capital Anstalt (5)     6,488,781       9.9 %
All executive officers and directors as a group (3 persons) (6)     21,625,731       42.49 %

 

* Less than 1%

 

(1) Based on 50,159,876 shares of common stock outstanding as of March 31, 2014.

 

(2) Mr. Maltin is our Chief Executive Officer and is a director. Includes 50,000 shares of common stock held by Mr. Maltin's wife and stock options that are currently exercisable to purchase 750,000 shares of common stock.

 

(3) Mr. Swartz is our President, Secretary and is a director. Includes 50,000 shares of common stock held by Mr. Swartz's wife and stock options that are currently exercisable to purchase 750,000 shares of common stock.

 

(4)

Mr. Williams is our Chief Financial Officer. Represents 250,000 restricted shares of our common stock under our 2011 Equity Incentive Plan vesting in eight equal quarterly installments over two years with the first vesting on February 2, 2013.

 

 

 

(5)

Konrad Ackerman (“Mr. Ackerman”) is the director of Alpha Capital Anstalt (“Alpha”) and in such capacity may be deemed to have voting control and investment discretion over the securities held for the account of Alpha. As a result of the foregoing, Mr. Ackerman may be deemed to have beneficial ownership (as determined under Section 13(d) of the Exchange Act) of any shares of our common stock deemed to be beneficially owned by Alpha. The address of Alpha is Pradafant 7, 9490 Furstentums, Vaduz, Lichetenstein. Includes 3,000,000 shares of our common stock issuable upon exercise of warrants at $0.30 per share. We are prohibited from effecting an exercise of the warrants to the extent that, as a result of the exercise, the holder of such shares beneficially owns more than 9.99% in the aggregate of the outstanding shares of our common stock calculated immediately after giving effect to the issuance of shares of common stock upon such exercise, except that the holder may waive such restriction upon sixty-one days prior notice to us. 

 

(6) Includes stock options that are currently exercisable to purchase 1,500,000 shares of common stock. 

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Related party transactions.

 

The Company has entered into a sublease with a company in which the Company’s CEO and his family are shareholders.  The sublease is for approximately 4,500 square feet.  The term of the sub-lease commenced January 1, 2011 and expires November 30, 2015. In January 2014 we increased the amount of space under this sublease from 4,500 square feet to 6,800 square feet.

We entered into a consulting agreement with FA Corp, a company owned and controlled by Mr. Williams, our Chief Financial Officer, for the provision of financial and bookkeeping related services by FA Corp at the rate of $100 per hour. The consulting agreement commenced on November 26, 2012 and shall continue unless terminated by either party by giving written notice to the other party. For the year ended December 31, 2013, FA Corp performed $114,726 in services, of which $109,049 was paid in 2013 and $5,677 is reflected in accounts payable as of December 31, 2013. For the year ended December 31, 2012, FA Corp performed $8,187 in services and such amount was reflected in accounts payable as of December 31, 2012.

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Procedures for Approval of Related Party Transactions

 

Our Board of Directors is charged with reviewing and approving all potential related party transactions.  All such related party transactions must then be reported under applicable SEC rules. We have not adopted other procedures for review, or standards for approval, of such transactions, but instead review them on a case-by-case basis.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Audit Fees

 

The aggregate fees billed for the years ended December 31, 2013 and 2012 for professional services rendered by the principal accountant for the audit of our annual financial statements and quarterly review of the financial statements included in our Form 10-K or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were $41,800 and $57,000, respectively.

 

Audit-Related Fees

 

We did not incur any fees from our independent registered public accounting firm for audit-related services during the years ended December 31, 2013 and 2012.

 

Tax Fees

 

We did not incur any fees from our independent registered public accounting firm for tax compliance or tax consulting services during the years ended December 31, 2013 and 2012.

 

All Other Fees

 

We did not incur any fees from our independent registered public accounting firm for services rendered to us, other than the services covered in "Audit Fees" for the years ended December 31, 2013 and 2012.

 

Pre-Approval Policies and Procedures.

 

We do not have an audit committee and as a result our Board of Directors evaluates the scope and cost of the engagement of an auditor before the auditor renders audit and non-audit services. 

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PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a)   Financial Statements.

 

Included in Item 8

 

(b)   Exhibits required by Item 601.

 

 Exhibit No. Description
   
2.1 Share Exchange Agreement, dated as of June 24, 2011, by and among MEDL Mobile Holdings, Inc., MEDL Mobile, Inc. and the shareholders of MEDL Mobile, Inc. (2)
3.1 Amended and Restated Articles of Incorporation of MEDL Mobile Holdings, Inc. filed June 23, 2011 (1)
3.2 Amended and Restated Bylaws of MEDL Mobile Holdings Inc. (1)
21.1 List of Subsidiaries*
31.1 Certification of Principal Executive Officer Required By Rule 13a-14(A) of the Securities Exchange Act of 1934, As Amended, As Adopted Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002*
31.2 Certification of Principal Financial Officer Required By Rule 13a-14(A) of the Securities Exchange Act of 1934, As Amended, As Adopted Pursuant To Section 302 of the 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 the Sarbanes-Oxley Act of 2002*
32.2 Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101 The following materials from MEDL Mobile Holdings, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2013 are formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) Consolidated Statement of Stockholders' Deficit, (iv) the Consolidated Statements of Cash Flow, and (iv) Notes to Consolidated Financial Statements.(3)

 

*           Filed herewith

_______________

(1) Incorporated by reference to Current Report on Form 8-K filed with the SEC on June 29, 2011

(2) Incorporated by reference to Current Report on Form 8-K filed with the SEC on June 30, 2011

(3)In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Annual Report on Form 10-K shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

 

 

 

 

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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.

 

 

  MEDL Mobile Holdings, Inc.  
  a Nevada corporation  
         
March 31, 2014 By:   /s/ Andrew Maltin    
    Andrew Maltin  
    Chief Executive Officer
    (Principal Executive Officer)  
         
         
         
       
     
     

In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

 

By: /s/ Andrew Maltin   March 31, 2014
  Andrew Maltin        
  Chief Executive Officer (Principal Executive Officer) and Director      
         
             
             
             
By: /s/ Dave Swartz   March 31, 2014
  Dave Swartz        
 

President, Secretary and Director

 

     
         
             
By: /s/ Murray Williams   March 31, 2014
  Murray Williams        
 

Chief Financial Officer (Principal Financial and Accounting Officer)

 

     

 

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