ITEM 1. BUSINESS
MobileBits is a publicly traded company on the OTC Markets (Symbol: MBIT.OB). The Company is the provider of Samy, a leading digital loyalty and marketing solution that drives engagement between brick and mortar stores and consumers. Samy delivers consumer engagement on a Cost-Per-Click “CPC” basis with the tools to create, manage and measure mobile commerce through its proprietary mobile customer relationship management “CRM” software.
MobileBits generates revenue on a CPC basis. Samy CPC is defined as a user (depending on what category of ad they view) who subscribes to a branded mobile store within the Samy network, then selects an ad and clicks on an offer or coupon to learn more, providing the user the ability to immediately purchase the offer in-store, in-app or save for later use.
Business Development, Organization and Acquisition Activities
MobileBits began in 2009 as a development stage mobile content delivery company seeking to connect consumers and marketers around relevant information on mobile devices.
In 2010, MobileBits acquired Pringo Inc., based in Los Angeles California. Pringo Inc. brought the Company a full development platform called Pringo Connect, in development since 2006, as well as its development team. Pringo's business focus was licensing software and selling professional services to enterprises looking to create socially integrated web assets.
In 2011, MobileBits acquired Aixum Tec AG, a European based organization focused on a merchant and consumer loyalty application platform called SAMY4ME which provided an easy to use software interface for both businesses and consumers connecting around loyalty cards and offers.
In 2013, MobileBits acquired Proximus Mobility, LLC. Proximus Mobility is a location-based proximity marketing software company that provides turnkey, end-to-end hyper local geo-fenced marketing solutions to retailers, hotels, casinos, venues, advertising agencies and small to medium sized businesses and 50% ownership of ValuText LLC. In parallel to the Proximus acquisition, the Company also acquired the balance ownership of ValuText LLC from DDR Corp.
MobileBits Acquisition
MobileBits Holdings Corporation, formerly Bellmore Corporation (“BC”) was incorporated in the State of Nevada on July 22, 2008. On January 25, 2010, BC changed its name to MobileBits Holdings Corporation.
MobileBits Corporation (“MBC”) was incorporated in Florida on March 2009. The business was founded with the intention of providing a platform that connected marketers to consumers around meaningful content available on mobile devices.
The Company entered into a Share Exchange Agreement, dated March 12, 2010 (the “ Share Exchange Agreement”) between the Company, MBC and the shareholders of MBC (the “MBC Shareholders”) pursuant to which MB acquired MBC, an early stage software development firm targeting its software at the mobile search market.
The transaction closed on March 12, 2010 and MB acquired 100% of the outstanding shares of common stock of MBC (the “MBC Stock”) from the MBC Shareholders. In exchange for MBC common stock and $275,000, MB issued 18,752,377 shares of its common stock to the MBC Shareholders, which represented approximately 87.9% of MB’s issued and outstanding common stock. Upon closing, MBC became a 100% wholly-owned subsidiary of the Company.
Pringo Acquisition
On December 6, 2011, through MB Pringo Merger Sub, Inc., a Delaware corporation and our wholly-owned subsidiary (“Merger Sub”), MobileBits completed a merger with Pringo, Inc. a Delaware corporation (“Pringo”), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) dated June 23, 2011 (the “Pringo Merger”). As a result of the Merger, Merger Sub merged with and into Pringo, with Pringo surviving the Merger as the Company’s wholly-owned subsidiary.
Pursuant to the Merger Agreement, each share of common stock of Pringo issued and outstanding immediately prior to the effective time, was converted into the right to receive a number of shares of our common stock such that immediately after the Merger, Pringo’s stockholders, and the holders of Pringo’s outstanding options and warrants, owned fifty percent (50%) of our then outstanding shares of common stock on a fully diluted basis (as if all of Pringo’s and Parent’s options and warrants were exercised), and our stockholders, and holders of our outstanding options and warrants, owned fifty percent (50%) of its then outstanding shares of our common stock on a fully diluted basis (as if all of Pringo’s and our options and warrants were exercised). At the closing of the Pringo Merger on December 6, 2011, Pringo’s stockholders immediately prior to the Pringo Merger were issued 29,453,544 shares of common stock of MobileBits.
Pringo is a Delaware “C” Corporation headquartered in Los Angeles, California. Established in 2006, Pringo offers software products that combine multi-lingual enterprise-class portals, content management systems, social collaboration features, and user management tools in open-source development packages. Pringo distinguishes itself from other products in the market in four distinct areas: Pringo products are offered in an open-architecture format; available in 23 languages; Pringo products are easily integrated and deployed by enterprises; and Pringo offers over 400 customizable features.
Aixum Acquisition
On September 28, 2012, the Company completed a share exchange with Aixum Tec AG, a Liechtenstein Company (“Aixum”), pursuant to a Stock Exchange Agreement (the “Stock Exchange Agreement”), dated May 21, 2012 (the “Stock Exchange”). As a result of the Stock Exchange Aixum is a wholly-owned subsidiary of MobileBits.
Pursuant to the Stock Exchange Agreement, at the closing of the Stock Exchange each seller (a “seller”, and collectively, the “Sellers”) sold to the Company its shares of Aixum (the “Transferred Shares”). In consideration for the Transferred Shares, the Company issued to each Seller such seller’s pro rata portion of a number of shares of the Common Stock, par value $0.001 per share, of the Company, equal to (A) 6,666,667 minus (B) the sum of (i) the Liability Shares (as defined in the Stock Exchange Agreement), if any, plus (ii) the Cost Shares (as defined in the Stock Exchange Agreement), if any. On the Closing Date, MobileBits issued an aggregate of 5,803,061 of its Common Stock to the Sellers valued at $2,901,531.
Aixum owns the rights to the propriety network solution known as SAMY4ME which provides a cloud-based software platform making it simple for any business to create their own mobile advertising campaigns and synchronize loyalty cards on smartphones.
Acquisition of MBPM from Proximus Mobility, LLC
On May 2, 2013, the Company and Proximus Mobility, LLC (“Proximus”) formed a Delaware limited liability company named MBPM, LLC (“MBPM”). Pursuant to the operating agreement entered between the parties, the Company initially has a 51% ownership interest in MBPM, and Proximus has a 49% ownership in MBPM. In connection with the formation of MBPM, the Company contributed certain goodwill and management services to MBPM and Proximus contributed all of its assets to the joint venture. On May 2, 2013, the Company entered into Equity Exchange Agreements with the members of Proximus, pursuant to which the members of Proximus agreed to within a two-year period to exchange their membership units in Proximus for shares of the Company’s common stock, valued up to $3,000,000, pursuant to the terms and conditions of the Equity Exchange Agreement.
On, September 30, 2013, LOPAR, LLC (“LOPAR”), Mechael Zeto (“Zeto”) and David Rippetoe (“Rippetoe”) (collectively the “Proximus Plantiffs”. Owner of Proximus Mobility) filed an action with the Superior court of Fulton County, Georgia (the “Georgia Court”, C.A. File No. 2013-CV-237131 (the “Civil Action”).
On December 5, 2013 and upon prior motion of the Proximus Plaintiffs, the Court in the Civil Action entered a Default Judgment against the Company: (i) directing it and its officers, agents, directors and all others acting in concert and participation with the Company to take all steps necessary to issue and effectuate the delivery of the following shares of Mobile-bits stock within fourteen days from the date of entry of the Default Judgment: (a) 13,878,307 shares to LOPAR; (b) 3,064,805 shares to Zeto; and (c) 2,402,568 to Rippetoe; (ii) granting Plaintiffs jointly and severally, a monetary judgment of $44,470 in reasonable attorney's fees and expenses; and (iii) casting the costs of the Civil Action on the Company. The Company has filed motions attacking the Default Judgment in the Superior Court and has also filed a Notice of Appeal on the Default Judgment to the Georgia Court of Appeals.
Proximus Mobility is a location-based proximity marketing software company that provides turnkey, end-to-end hyperlocal geofenced marketing solutions to retailers, hotels, casinos, venues, advertising agencies and small to medium sized businesses.
ValuText LLC Acquisition
On May 7, 2013, the Company purchased JDN Development Company Inc.’s 50% membership interest in Value Text LLC (“ValuText”) for 250,000 warrants to purchase the Company’s common stock at an exercise price of $0.50 per share, of which 205,000 warrants were issued to JDN Development Company Inc. and 45,000 warrants were issued to the J Cohn Marketing Group, a Company that JDN Development Company Inc. owed money to. The remaining 50% interest in ValuText was acquired by the Company in connection with the acquisition of Proximus.
ValuText is a location-based, mobile marketing service specifically designed to drive sales and productivity at the company's prime commercial assets.
Principal Products, Services and Principal Markets
Today, MobileBits develops and delivers Mobile Commerce Network software solutions, best represented in current form by Samy, a leading digital loyalty and marketing solution that drives engagement between brick and mortar stores and consumers. Samy delivers consumer engagement on a Cost-Per-Click (CPC) basis with the tools to create, manage and measure mobile commerce through its proprietary mobile “CRM”.
MobileBits generates revenue on a CPC basis. CPC revenue is generated when a user (depending on what category of ad they view) who subscribes to a branded mobile store within the Samy network, then selects an ad and clicks on an offer or coupon to learn more as well as providing the user the ability to immediately purchase the offer in-store, in-app or save for later use.
MobileBits driven platforms are currently fully available in Switzerland, USA and Canada and promoted and distributed through retail real estate investments “REITS”, private commercial shopping centers, media publishers and large global brands.
Developing New Business Strategies
Over the next twelve months, we intend to continue growing our business by growing our consumer focused Samy network in the existing primary markets. Additionally we plan on expanding the utilization of mobile commerce network technologies into other primary markets, specific verticals and geographic regions through both organic efforts and through the sale of license plus royalty agreements to qualified partners in non-competing markets.
MB currently anticipates the implementation of its business plan will require additional investment capital. The Company hopes to raise up to $10 million in equity to continue funding its network growth and operations. If we are successful in raising the necessary funds, we will use those funds to grow our partner network, white label license partners, and consumer network through increased advertising, sales, and marketing product fulfillment. Additionally, these proceeds will be implemented to fund product development, provide additional product functionality, as well as to provide working capital for strategic acquisitions and for other corporate purposes.
Organization & Subsidiaries
MobileBits owns five subsidiaries as the results of following M&A activities:
As a result of the Stock Exchange Agreement between MobileBits and MobileBits Corporation, closed on March 12, 2010, the Company owns 100% of the outstanding common stock of MobileBits Corporation.
As a result of the Merger Agreement between MobileBits and Pringo Inc., closed on December 6, 2011, the Company owns 100% of the outstanding common stock of Pringo Inc.
As a result of the Share Exchange Agreement between MobileBits and Aixum, closed on September 28, 2012, the Company owns 100% of the outstanding common stock of Aixum, based in Lichtenstein.
As a result of the formation of MBPM on May 2, 2013 and through Equity Exchange Agreements with Proximus members, MobileBits acquired a 51% interest in MBPM.
As a result of the issuance of 250,000 warrants on May 7, 2013 to JDN Development Company Inc. and the J Cohn Marketing Group, the Company acquired a 50% interest in ValuText. The Company acquired the remaining 50% interest in ValuText in connection with its acquisition of Proxiums.
MobileBits does not have any other subsidiaries.
Products & Services
Products
MobileBits technology solutions provide for a proprietary mobile CRM that includes a complete set of cloud based tools to connect with, create and manage mobile campaigns, deals, offers, loyalty and rewards to a subscribed mobile consumer. To businesses, MB provides a single self-serve mobile marketing & loyalty platform and mobile presence without the need to build and manage their own application strategy. MB technology provides businesses the online tools to create, design and publish their offers, coupons, promotions, loyalty cards and gift cards to their own branded mobile storefront within a network framework, or ‘mobile mall’. To consumers, the experiences provide a single utility application and experience where a shopper can quickly and easily view potentially thousands of branded storefronts and be alerted of special offers, purchase products or services, earn rewards, obtain local information and seamlessly integrate their loyalty cards with their mobile devices.
Merchants enroll in MB powered “Mobile Malls” and maintain a branded mobile storefront to connect with targeted local mobile customers (“subscribers”). The technology platform provides partners, brands, merchants, and retailers all the necessary tools to create and capitalize on hyper local marketing and engagement opportunities with customers that are nearby. Unique embedded tools allow for the configuration of:
1. Real-time mobile offers and message campaigns;
2. Integration of loyalty and reward programs;
3. Creation of mobile surveys around new locations, menu items/product lines, and more;
4. Admin dashboard tool for performance, reporting and ROI measurement;
5. Self-serve content management for unique development of mobile application storefront;
6. Integrate mobile commerce functions;
7. Enable targeted offers through GPS geo fencing.
8. Embed social media - YouTube, Twitter, Facebook, plus others
Services
MobileBits offers businesses the following services:
1. Management and support of a cloud mobile application and online mobile CRM software;
2. System integration and customization for larger organizations and partners;
3. Support & Maintenance - technical support and automatic version updates.
Software Architecture
At the foundation of the MobileBits platform is our Pringo Connect development platform, a standard LAMP stack (Linux, Apache, MySQL, and PHP) content management system and a social and development platform. The LAMP structure is scalable, proven and easily updatable. The core codebase is propriety, but any installation can be fully customized based on robust set of abstraction layers. A typical instance is entirely deployed on and leverages the latest cloud computing structure. Pringo Connect facilitates extensibility to third party software systems like point of sale (POS), Gift Cards, Commerce and Loyalty software systems typically installed by a merchant or retailer. Our mobile applications are created in both native OS and HTML5 with native OS wrapper software.
The inherent development platform also provides tools to support any end-to-end digital strategy. The platform provides an open-source format that enables modification of the delivery of each of its 400 plus features.
The platform offers five distinct sections that support mobile and web content delivery:
1. Administration System
2. Content Management System
3. Development System
4. User Management System
5. Social Media based framework
Included is an administration tool allowing for easy administration, moderation, and management of digital assets from a central console.
A native Content Management System (CMS) allows for a best-in-class integration of internal content with external information and provides an easy to use environment that could be utilized by site managers and administrators via permission based administration controls.
An embedded development platform improves the efficiency of software development by simplifying some of the tedious tasks associated with mobile, web and portal development. The extension platform architecture allows for easy integration with any software that provides APIs, XML, and/or SOAP interface capabilities.
Value Proposition of a Mobile Commerce Network Deployment
MobileBits technology extends the same optimal shopping experience of a mall or shopping center into a digital, 'Mobile Mall'. It provides consumers with a single application to connect with any number of their favorite stores, view offers, receive and store coupons, receive promotions and earn rewards. Mobile consumers collect and gather their favorite restaurants, stores, retailers, deals, loyalty programs and more right on their smartphone; resulting in a personalized shopping experience that doesn’t require them to install dozens of individual retail apps
Just as the traditional mall experience provides shoppers with the opportunity to view many different types of vendors all in one place, MobileBits extends the same optimal shopping experience onto a mobile device, i.e. “Mobile Mall”.
Any consumer using a MobileBits powered application can customize their choices to meet their tastes and needs to avoid marketing message fatigue. The consumer can select what type of vendors they are interested in by subscribing to one or many brands. They can easily filter the types of products and services that interest them, while at the same time view everything in the network. All this and more is provided through one application. Businesses benefit through having their own, easily managed, branded storefront.
Revenue Management
MobileBits generates revenue primarily through software licensing and CPC fees. CPC are associated with a user selecting and clicking on content created by merchants who are building ‘storefronts’ in MobileBits’ powered environments.
Legacy Pringo Connect or other license revenue consists principally of revenue earned under software license agreements. License revenue is generally recognized when a signed contract or other persuasive evidence of an arrangement exists, the software has been electronically delivered, the license fee is fixed or is measured on a paid user basis; and collection of the resulting receivable is probable. When contracts contain multiple elements wherein Vendor-Specific Objective Evidence (“VSOE”) exists for all undelivered elements, we account for the delivered elements in accordance with the “Residual Method.” VSOE of fair value for maintenance and support is established by a stated renewal rate, if substantive, included in the license arrangement or rates charged in stand-alone sales of maintenance and support. Revenue from subscription license agreements, which include software, rights to unspecified future products and maintenance, is recognized ratably over the term of the subscription period.
Provided all other revenue criteria are met, the upfront, minimum, non-refundable license fees from customers are generally recognized upon delivery and on-going royalty fees are generally recognized upon reports of new licenses issued. Revenue on sales to resellers is recognized when evidence of an end user arrangement exists and recorded net of related costs to the resellers.
Professional services revenue consists primarily of revenue received for assisting with the functionality of the software based on the nature of our software products. Substantially all of our professional services arrangements that are billed on a time and materials basis are recognized as the services are performed. Contracts with fixed or not-to-exceed fees are recognized on a percentage-of-completion. If there is significant uncertainty about the project completion or receipt of payment for professional services, revenue is deferred until the uncertainty is sufficiently resolved. VSOE of fair value of consulting services is based upon stand-alone sales of those services. Payments received in advance of consulting services performed are deferred and recognized when the related services are performed. Work performed and expenses incurred in advance of invoicing are recorded as unbilled receivables. These amounts are billed in the subsequent month.
Maintenance revenue consists of fees for providing software updates on a when and if available basis and technical support for software products (“post-contract customer support” or “PCS”). Maintenance revenue is recognized ratably over the term of the agreement.
Market Entry Strategy
MobileBits enters regions and markets through the use of an organic strategy in primary markets through the use of a direct sales team, resellers and referral agents representing MobileBits technology in each region and market. MobileBits enters non-primary regions and markets through qualified OEM resellers that acquire a franchise to resell, represent and operate the MobileBits product.
Customers
MobileBits and MobileBits’ reseller partner customers include merchants and their marketing agencies who are tasked with managing advertising and marketing programs on their behalf.
MobileBits has contracted with over 500 shopping centers primarily operated by DDR Corp. and DLC Management to distribute and aid in the sale of the Samy brand and product to merchant tenants in each shopping center.
MobileBits legacy Pringo Connect enterprise clients include Fortune 100 firms as well as mid-sized and smaller businesses operating in a variety of sectors. The more significant customers of the Pringo Connect product currently include: Comcast and Square Enix.
Suppliers
The Company is not dependent upon any particular supplier for its operations.
Pricing Strategy & Structure
Samy Revenue
Samy software is priced on a CPC business model. The standard agreement includes 1 year term automatically renewed for additional terms. The contracts also have an optional 30 day termination provision.
Pringo Connect Revenue
MobileBits also generates legacy revenue from the licensing of Pringo Connect. The standard agreement includes 1 to 3-year terms.
Work-For-Hire
MobileBits also generates revenue from accompanying professional services related to Mobile Commerce Network and Pringo Connect deployments on a per hour basis, this is typically for customization of specific larger implementations.
Competition
MobileBits feels it has a unique advantage in the marketplace due to its technology offering, integrated merchant suite, ease of integration into legacy enterprise software and unique business model.
There are numerous deal engines, gift card solutions and loyalty programs in the marketplace not to mention a growing array of mobile wallet technology solutions. The vast majority of these competitors offer differing solutions to accomplish specific goals. In contrast, the mobile commerce network platform concept seeks to expand on the specific technical solutions to create a more all-encompassing environment for each to be embedded to offer a more complete shopping experience to consumers in the physical world.
The following is an abbreviated list of key competitors:
· Key Ring (recently acquired by Gannett);
· Where (recently acquired by eBay);
· Shop Kick;
· Retail Me Not;
· Foursquare;
· Yelp Inc.;
· Facebook;
· Google;
· eBay;
· Groupon;
· Living Social.
Intellectual Property
All MobileBits’ software and expertise created by the Company is proprietary, intellectual property. The Company anticipates certain processes and methodologies to be patentable. All trademarks, rights and copyrights are owned by MobileBits. Some components of SAMY are patent pending. MobileBits owns all the trademarks associated with SAMY, MobileBits and Pringo.
Properties
MobileBits’ principal office is located at 5901 N. Honore Ave., Suite 110, Sarasota, FL. The rent, for a thirteen month lease period, is $5,414 per month and expires on May 31, 2015.
Employees and Contract Workers
MobileBits currently has three officers managing its day to day operations related to business, accounting, legal, marketing, technology and investor relations. The Company has 9 full-time employees in addition to various contracted firms, supporting legal, investor relations and product development activities.
ITEM 1.A RISK FACTORS
The following risk factors together with other information set forth in this Form 10-K, should be carefully considered by current and future investors in our securities. An investment in our securities involves substantial risks. If any of the following risks actually occur, our financial condition and our results of operations could be materially and adversely affected. Additional risks and uncertainties not presently known to us may also impair our business operations. In any such case, the trading price of our Common Stock could decline, and you could lose all, or a part, of your investment.
Risks Relating to Our Business
OUR LIMITED OPERATING HISTORY MAY NOT SERVE AS AN ADEQUATE BASIS TO JUDGE OUR FUTURE PROSPECTS AND RESULTS OF OPERATIONS.
We have a relatively limited operating history. Such limited operating history makes it difficult for investors to evaluate our business and future operating results. There can be no assurance that we will be able to obtain or sustain profitable operations or that we will even generate significant revenues. An investor in our securities must consider the risks, uncertainties, and difficulties frequently encountered by companies in new and rapidly evolving markets. The risks and difficulties we face include:
● MobileBits products could fail or its performance may not meet our or potential mobile end user expectations.
● Revenues from contemplated distribution of SAMY in new markets and to achieve the broad adoption by both customers and merchants may take longer than expected or not be achieved impacting our ability to achieve meaningful revenue or meet our revenue projections.
WE MAY NOT BE ABLE TO ACHIEVE THE GROWTH THAT WE EXPECT TO REALIZE WITH THE DISTRIBUTION OF SAMY.
Though the Samy revenues in Switzerland have increased substantially since inception, we may not be able to generate revenues in the new countries or regions we intend to distribute the Samy product. We believe that our continued revenue growth will depend, among other factors, on our ability to:
● acquire new customers and retain existing customers;
● expand the number, variety and relevance of deals our merchants offer;
● increase the awareness of our brand domestically and internationally;
● provide a superior customer service experience for our customers and merchant partners;
● respond to changes in consumer and merchant access to mobile devices; and
● react to challenges from existing and new competitors.
OUR BUSINESS COULD SUFFER IF OUR MERCHANT PARTNERS DO NOT MEET THE NEEDS AND EXPECTATIONS OF OUR CUSTOMERS.
Our business depends on our merchant partners providing promotions or offerings that appeal to consumers. Our brand and reputation may be harmed by actions taken by merchant partners that are outside our control. Customer perceived deficiencies in the offerings of one or more of our merchant partners, particularly with respect to an issue affecting the quality of the content offered or the products or services sold, may be attributed by our consumer network users to us, thus damaging our reputation, brand value and potentially affecting our results of operations. In addition, negative publicity and customer sentiment generated as a result of fraudulent or deceptive conduct by our merchant partners could damage our reputation, reduce our ability to attract new customers or retain our current customers, and diminish the value of our brand.
THE DEVELOPMENT OF OUR PRODUCTS MAY BE SLOWER THAN PROJECTED.
The development of our new products and services and the implementation of new versions of our current products may take longer than expected. Any delay in product availability affects the company’s revenue forecasts.
OUR BUSINESS IS AFFECTED BY MANY CHANGING ECONOMIC AND OTHER CONDITIONS BEYOND OUR CONTROL.
The financial success of the Company’s operations may be sensitive to adverse changes in general economic conditions, such as inflation, unemployment, and the cost of borrowing. These changes could cause the cost of the Company’s products to rise faster than it can raise prices. The Company has no control over any of these changes.
WE MAY BE UNABLE TO RETAIN KEY MANAGEMENT PERSONNEL.
Our management and employees can terminate their employment at any time, and the loss of the services of one or more of our executive officers or other key employees could have a material adverse impact on our business. We may be unable to locate and secure and retain talented and qualified employees to implement our plan. If we are unable to attract and retain the necessary technical, sales and other personnel on a cost-effective basis, our business operations and financial performance could be adversely affected.
CURRENT GLOBAL ECONOMIC UNCERTAINTY COULD ADVERSELY AFFECT OUR BUSINESS AND ABILITY TO FINANCE OUR OPERATIONS.
Our operations and performance will depend on worldwide economic conditions, which continue to be uncertain. This could negatively impact consumer spending. Our merchant partners could reduce their willingness to support the Samy network or terminate their relationships with us. Furthermore, during challenging economic times, our merchant partners may face issues gaining timely access to sufficient credit, which could result in their unwillingness to continue with our service or impair their ability to make timely payments to us. As a consequence, we may experience decreased revenue, be required to increase our allowance for doubtful accounts and our days receivables outstanding would be negatively impacted. If we are unable to finance our operations on acceptable terms as a result of renewed tightening in the credit markets, we may experience increased costs or we may not be able to effectively manage our business. We cannot predict the timing, strength or duration of any economic slowdown or subsequent economic recovery. These and other economic factors could have a material adverse effect on our financial condition and operating results.
The current economic uncertainty could affect our ability to continue raising capital. The Company’s ability to implement its business plan is significantly dependent upon raising new capital or financing. If we cannot find adequate capital on reasonable terms, investors will face a significant risk of losing their investments in their entirety.
THE GLOBAL ECONOMIC DOWNTURN HAS RESULTED IN VERY WEAK RISK INVESTMENT ENVIROMENT WHICH COULD HAVE A SIGNIFICANT NEGATIVE IMPACT ON US.
The world continues to face a slowed economic environment. This environment has impacted investor perception of the risk associated with investment in early-stage companies.
WE ARE HIGHLY DEPENDENT ON TECHNOLOGY.
Our business and our results of operations are highly dependent on technology. Our business faces many technology related risks, including, among others:
● Infringements of our intellectual property could adversely affect our ability to compete. Our patents applications may be rejected in hold or in part in the United States or in other jurisdictions around the world.
● We may have to defend ourselves against claims of intellectual property infringement, which could be very expensive for us and harm our business and financial condition.
● We may be a party to lawsuits in the course of our business. Litigation can be expensive, lengthy, and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. An unfavorable resolution of a particular lawsuit could have a material adverse effect on our business, operating results, or financial condition.
OUR ABILITY TO CONTINUE AS A GOING CONCERN IS UNCERTAIN.
We continue to incur operating losses and the costs associated with the continuing development of our products and growth expansion into new markets raises substantial doubt about our ability to continue as a going concern until such time as our revenues exceed our operating costs and capital expenditures on a consistent basis. This going concern uncertainty may make it difficult for us to raise additional debt or equity financing necessary to continue our business operations.
Risks Associated with Our Securities
OUR COMMON STOCK IS QUOTED ON THE OTC MARKETS WHICH MAY HAVE AN UNFAVORABLE IMPACT ON OUR STOCK PRICE AND LIQUIDITY.
Our Common Stock is quoted on the OTC Markets. The OTC Markets is a significantly more limited market than the New York Stock Exchange or NASDAQ system. The quotation of our shares on the OTC Markets may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future.
THERE IS LIMITED LIQUIDITY ON THE OTC MARKETS.
When fewer shares of a security are being traded on the OTC Markets, volatility of prices may increase and price movement may outpace the ability to deliver accurate quote information. Due to lower trading volumes in shares of our Common Stock, there may be a lower likelihood of one’s orders for shares of our Common Stock being executed, and current prices may differ significantly from the price one was quoted at the time of one’s order entry.
OUR COMMON STOCK IS THINLY TRADED, SO YOU MAY BE UNABLE TO SELL AT OR NEAR ASKING PRICES OR AT ALL IF YOU NEED TO SELL YOUR SHARES TO RAISE MONEY OR OTHERWISE DESIRE TO LIQUIDATE YOUR SHARES.
Currently, our Common Stock is quoted in the OTC Markets and the trading volume we will develop may be limited by the fact that many major institutional investment funds, including mutual funds, as well as individual investors follow a policy of not investing in OTC Markets stocks and certain major brokerage firms restrict their brokers from recommending OTC Markets stocks because they are considered speculative, volatile and thinly traded. The OTC Markets is an inter-dealer market much less regulated than the major exchanges and our Common Stock is subject to abuses, volatility and shorting. Thus, there is currently no broadly followed and established trading market for our Common Stock. An established trading market may never develop or be maintained. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders. Absence of an active trading market reduces the liquidity of the shares traded there.
The trading volume of our Common Stock has been and may continue to be limited and sporadic. As a result of such trading activity, the quoted price for our Common Stock on the OTC Bulletin Board may not necessarily be a reliable indicator of its fair market value. Further, if we cease to be quoted, holders would find it more difficult to dispose of our Common Stock or to obtain accurate quotations as to the market value of our Common Stock and as a result, the market value of our Common Stock likely would decline.
RESALE OF OUR SECURITIES IS SUBJECT TO SIGNIFICANT RESTRICTIONS.
Any of our securities that are sold are under exemptions from registration under applicable federal and state securities laws, as none of our securities have been registered under the Securities Act or any state securities laws. Until our securities have been registered, they may not be transferred or resold except in a transaction exempt from or not subject to the registration requirements of the Securities Act and applicable state securities laws. The SEC has broad discretion to determine whether any registration statement will be declared effective and may delay or deny the effectiveness of any registration statement filed by us for a variety of reasons. In the event that the effectiveness of any registration statement relating to resale of the shares of our securities is delayed or denied, or the registration statement, once effective, becomes unavailable for use by selling security holders, the transferability of the shares of Common Stock may be restricted and the value of such securities could be materially adversely affected.
OUR COMMON STOCK IS SUBJECT TO PRICE VOLATILITY UNRELATED TO OUR OPERATIONS.
The market price of our Common Stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of other companies in the same industry, trading volume in our Common Stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our Common Stock.
OUR COMMON STOCK IS CLASSIFIED AS A “PENNY STOCK” AS THAT TERM IS GENERALLY DEFINED IN THE EXCHANGE ACT, TO MEAN EQUITY SECURITIES WITH A PRICE OF LESS THAN $5.00. OUR COMMON STOCK WILL BE SUBJECT TO RULES THAT IMPOSE SALES PRACTICE AND DISCLOSURE REQUIREMENTS ON BROKER-DEALERS WHO ENGAGE IN CERTAIN TRANSACTIONS INVOLVING A PENNY STOCK.
We will be subject to the penny stock rules adopted by the Securities and Exchange Commission that require brokers to provide extensive disclosure to its customers prior to executing trades in penny stocks. These disclosure requirements may cause a reduction in the trading activity of our Common Stock, which in all likelihood would make it difficult for our stockholders to sell their securities.
Rule 3a51-1 of the Securities Exchange Act of 1934 as amended, the (“Exchange Act”), establishes the definition of a “penny stock,” for purposes relevant to us, as any equity security that has a minimum bid price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to a limited number of exceptions which are not available to us. It is likely that our shares will be considered to be penny stocks for the immediately foreseeable future. This classification severely and adversely affects any market liquidity for our Common Stock.
For any transaction involving a penny stock, unless exempt, the penny stock rules require that a broker or dealer approve a person’s account for transactions in penny stocks and the broker or dealer receive from the investor a written agreement to the transaction setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives of the person and make a reasonable determination that the transactions in penny stocks are suitable for that person and that the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, which, in highlight form, sets forth:
●the basis on which the broker or dealer made the suitability determination, and
●that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
IF WE FAIL TO MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROLS, WE MAY NOT BE ABLE TO ACCURATELY REPORT OUR FINANCIAL RESULTS OR DETECT FRAUD. INVESTORS COULD LOSE CONFIDENCE IN OUR FINANCIAL REPORTING AND THIS MAY DECREASE THE TRADING PRICE OF OUR COMMON STOCK.
We must maintain effective internal controls to provide reliable financial reports and detect fraud. We have been assessing our internal controls to identify areas that need improvement. Failure to maintain an effective system of internal controls could harm our operating results and cause investors to lose confidence in our reported financial information. Any such loss of confidence would have a negative effect on the trading price of our Common Stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
We are not required to provide this information as we are a smaller reporting company.
ITEM 2. PROPERTIES
The Company now maintains its principal office in Sarasota, Florida located at 5901 N. Honore Ave, Suite 110. On March 1, 2012, the Company entered into a twelve-month lease for $3,875 per month. On March 1, 2013, the Company entered into a twelve-month lease for $5,275 per month. On May 1, 2014, the Company entered into a thirteen-month lease for $5,414 per month.
ITEM 3. LEGAL PROCEEDINGS
Majid Abai v. MobileBits
Majid Abai, the former CEO of MobileBits Holdings Corporation, MobileBits Corporation and Pringo, Inc. (collectively the “MobileBits Companies”), entered into a written agreement which Mr. Abai alleged requires the MobileBits Companies to pay him severance compensation, reimburse certain of his expenses and furnish other consideration totaling $141,199 which includes $7,450 the Company is contesting. On or about October 3, 2012, Mr. Abai filed an action against the MobileBits Companies in the Superior Court of the State of California, West District, alleging that the MobileBits Companies breached this agreement.
On April 22, 2013, the Company executed a final settlement agreement with Majid Abai that dismissed the above action, released the Company from all claims and obligated the Company to pay Mr. Abai $25,964. Of this amount, $5,964 was paid on April 24, 2013 and the remaining $20,000 is payable on the earlier of receipt of the $200,000 owed the Company on an existing investment agreement or $5,000 on the first of each month beginning on June 1, 2013 with a final payment due on September 1, 2013. Beginning May 7, 2013, interest accrued on the unpaid balance at 10% per annum until the amount owed is paid in full. As of October 31, 2014, no amounts were owed related to this matter.
Majid Abai and the Abai Group, Inc v. MobileBits Holding Corporation
On November 5, 2013, Majid Abai and the Abai Group, Inc. “Plaintiffs” served the Company with a summons and a complaint alleging claims for breach of his employment agreements. Plaintiffs seek to recover the sum of approximately $225,689 plus attorney fees, cost and prejudgment interest. On December 5, 2013, the Company filed a motion to dismiss the complaint. A subsequent amended complaint was filed on June 19, 2014. An Answer to the Amended Complaint was filed on August 25, 2014.
On December 8, 2014, the Company executed a final settlement agreement with the Plaintiffs that dismissed the above action, released the Company from all claims and obligated the Company to pay the Plaintiffs $228,000 in cash and common stock of MobileBits Holdings Corporation as follows:
Stock Consideration: Within 5 business days of December 8, 2014 issue 2,000,000 of common stock at $0.02 per share or the equivalent of $40,000, which the Company issued in December 2014.
Cash Consideration: Within 5 business days from December 8, 2014 the Company is to make a $20,000 payment and additional $20,000 payments on December 24, 2014 and January 24, 2015. The remaining $128,000 shall be paid as follows: If the Company’s total gross monthly revenues exceed $22,500 in any month, commencing with January 2015, the Company shall make a $7,000 payment by the 24th of the following month. If the Company’s total monthly gross revenues do not exceed $22,500 in any month, commencing with January 2015, the Company share make a $2,000 payment by the 24th of the following month. In addition, if the Company receives an equity investment of $500,000 the Company shall make a payment of $10,000 for $500,000 received. The Plaintiff has an option to forego $40,000 of the cash consideration and accept an equivalent amount of the Company’s common stock.
As of October 31, 2014, the Company had accrued approximately $228,000 in accrued expenses related to the settlement of this lawsuit.
LOPAR, LLC; Michael Zeto and David Rippetoe v. Mobilebits Holding Corporation
On September 30, 2013, LOPAR, LLC (“LOPAR”), Michael Zeto (“Zeto”) and David Rippetoe (“Rippetoe”)(collectively the “Proximus Plaintiffs”) filed an action with the Superior court of Fulton County, Georgia (the “Georgia Court”), C.A. File No. 2013-CV-237131 (the “Civil Action”).
On December 5, 2013 and upon prior motion of the Proximus Plaintiffs, the Court in the Civil Action entered a Default Judgment against the Company: (i) directing it and its officers, agents, directors and all others acting in concert and participation with the Company to take all steps necessary to issue and effectuate the delivery of the following shares of the Company’s stock within fourteen days from the date of entry of the Default Judgment: (a) 13,878,307 shares to LOPAR; (b) 3,064,805 shares to Zeto; and (c) 2,402,568 to Rippetoe; (ii) granting the Proximus Plaintiffs jointly and severally, a monetary judgment of $44,470 in reasonable attorney's fees and expenses; and (iii) casting the costs of the Civil Action on the Company. The Company has filed motions opposing the Default Judgment in the Superior Court and has also filed a Notice of Appeal on the Default Judgment to the Georgia Court of Appeals. Subsequently, the Proximus Plaintiffs have filed a Supersedeas Bond Motion seeking an order requiring the Company to post a supersedeas bond with respect to the monetary portion of the Default Judgment and a Contempt Motion seeking a judicial finding against the Company for non-delivery of the Company’s common stock shares as ordered by the Default Judgment. On March 21, 2014, the Company issued share certificates to LOPAR, Zeto and Rippetoe in the shares amounts described above which are being held in escrow by Georgia Court of Appeals pending decisions by the Superior Court on the Company’s motion opposing the Default Judgment and the Court of Appeals on the Company’s Notice of Appeal on the Default Judgment.
Bit By Bit Mobile LLC (“BBBM”), Bit By Bit Holdings LLC (“BBBH”), G Fley Investments LLC (“G Fley”) and SBV Holdings LLC v. MobileBits Holdings Corporation
On January 31, 2014, Bit By Bit Mobile LLC (“BBBM”), Bit By Bit Holdings LLC (“BBBH”), G Fley Investments LLC (“G Fley”) and SBV Holdings LLC (“SBV”) (collectively the “ Bit By Bit Plaintiffs”) filed an action with the District Court of Eastern New York (the “New York Court”), C.A File No. 2014-CV-00678 (the “Civil Action”). The action against the Company alleges breach of certain contracts, unjust enrichment, fraud, misappropriation/conversion and breach of fiduciary duty. The Bit By Bit Plaintiffs seek to recover unspecified damages punitive damages, attorneys’ fees, other costs as well as ownership and title of intellectual property. The Company believes the action has no merit and intends to contest this action as well as countersue for unpaid amounts owing the Company.
On December 5, 2014, the Company executed a final settlement agreement with the Bit by Bit Plaintiffs that dismissed the above action, released the Company from all claims and that the Company would accept Alex Fleyshmakher as a member of the Board of Directors of the Company, provide an exclusive right of first refusal, for 10 years commencing on December 5, 2014 to market, promote, offer for sale, sell, license, distribute, commercialize, and otherwise exploit in Russia and the Ukraine. All revenue from these rights shall first be applied to recoup the Bit by Bit Plaintiffs out-of-pocket costs in connection with establishing the operation. Thereafter, 50% of the annual profits shall be allocated and paid out to the Bit By Bit Plaintiffs. In addition, the Company shall issue 2,000,000 shares of the Company’s common stock at $0.05 per share. With the execution of this agreement, the Company agreed to pay the Bit By Bit Plaintiffs $100,000 no later than three years from this execution of the agreement with the promissory note bearing 5% interest in the second year and 7% in the third year. As of October 31, 2014, the Company had $100,000 recorded in accounts payable and accrued expenses related to this matter. In February 2015 the Company issued 2,000,000 shares of common stock to Bit by Bit LLC.
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
Our common stock is currently quoted on the OTC Markets under the symbol MBIT.OB. There has been limited trading in our common stock.
Holders
As of October 31, 2014, we had 329 shareholders of our Common Stock.
Dividend Policy
The Company has never paid or declared any dividend on its Common Stock and does not anticipate paying cash dividends in the foreseeable future. Holders of common stock are entitled to receive such dividends as the board of directors may from time to time declare out of funds legally available for the payment of dividends. The Company does not anticipate paying any dividends on its common stock in the foreseeable future.
Purchases of Treasury Stock
The Company did not repurchase any of its shares during the fiscal year covered by this report.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Please refer to “ Forward Looking Statements” following the Index in the front of this Form 10-K and Item 1A
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are not required to provide the information required by this Item because we are a smaller reporting company.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
MobileBits Holdings Corporation
Consolidated Financial Statements
As of and for the Years Ended October 31, 2014 and 2013
CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
MobileBits Holdings Corporation
Sarasota, Florida
We have audited the accompanying consolidated balance sheets of MobileBits Holdings Corporation (the “Company”) as of October 31, 2014 and 2013, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity (deficit) and cash flows for each of the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform each audit to obtain reasonable assurance about whether the consolidated 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 consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated 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 consolidated financial position of the Company as of October 31, 2014 and 2013 and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered recurring losses from operations, has a working capital deficit and has not completed its efforts to establish a stable recurring source of revenues sufficient to cover its operating costs for the next twelve months. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also discussed in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ GBH CPAs, PC
GBH CPAs, PC
www.gbhcpas.com
Houston, Texas
February 13, 2015
MobileBits Holdings Corporation
Consolidated Balance Sheets
See accompanying summary of accounting policies and notes to consolidated financial statements.
MobileBits Holdings Corporation
Consolidated Statements of Operations and Comprehensive Loss
See accompanying summary of accounting policies and notes to consolidated financial statements.
MobileBits Holdings Corporation
Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
For the Years Ended October 31, 2014 and 2013
See accompanying summary of accounting policies and notes to consolidated financial statements.
MobileBits Holdings Corporation
Consolidated Statements of Cash Flows
See accompanying summary of accounting policies and notes to consolidated financial statements.
MobileBits Holdings Corporation
Notes to Consolidated Financial Statements
NOTE 1 - ORGANIZATION AND HISTORY
MobileBits Holdings Corporation, formerly Bellmore Corporation (“BC”) was incorporated in the State of Nevada on July 22, 2008. On January 25, 2010, BC changed its name to MobileBits Holdings Corporation (the “Company”, “MobileBits” or “MB”).
MobileBits Corporation (“MBC”) was incorporated in Florida on March 2009. The business was founded with the intention of providing a platform that connected marketers to consumers around meaningful content available on mobile devices.
The Company entered into a Share Exchange Agreement, dated March 12, 2010 (the “ Share Exchange Agreement”) between MB, MBC and the shareholders of MBC (the “MBC Shareholders”) pursuant to which MB acquired MBC, an early stage software development firm targeting its software at the mobile search market.
The transaction closed on March 12, 2010 and MB acquired 100% of the outstanding shares of common stock of MBC (the “MBC Stock”) from the MBC Shareholders. In exchange for MBC common stock and $275,000, MB issued 18,752,377 shares of its common stock to the MBC Shareholders, which represented approximately 87.9% of MB’s issued and outstanding common stock. Upon closing, MBC became a 100% wholly-owned subsidiary of the Company.
Pringo Acquisition
On December 6, 2011, through MB Pringo Merger Sub, Inc., a Delaware corporation and our wholly-owned subsidiary (“Merger Sub”), MobileBits completed a merger with Pringo, Inc. a Delaware corporation (“Pringo”), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) dated June 23, 2011 (the “Pringo Merger”). As a result of the Merger, Merger Sub merged with and into Pringo, with Pringo surviving the Merger as the Company’s wholly owned subsidiary.
Pursuant to the Merger Agreement, each share of common stock of Pringo issued and outstanding immediately prior to the effective time, was converted into the right to receive a number of shares of our common stock such that immediately after the Merger, Pringo’s stockholders, and the holders of Pringo’s outstanding options and warrants, owned fifty percent (50%) of our then outstanding shares of common stock on a fully diluted basis (as if all of Pringo’s and Parent’s options and warrants were exercised), and our stockholders, and holders of our outstanding options and warrants, owned fifty percent (50%) of its then outstanding shares of our common stock on a fully diluted basis (as if all of Pringo’s and our options and warrants were exercised). At the closing of the Pringo Merger on December 6, 2011, Pringo’s stockholders immediately prior to the Pringo Merger were issued 29,453,544 shares of common stock of MobileBits.
Pringo is a Delaware “C” Corporation headquartered in Los Angeles, California. Established in 2006, Pringo offers software products that combine multi-lingual enterprise-class portals, content management systems, social collaboration features, and user management tools in open-source development packages. Pringo distinguishes itself from other products in the market in four distinct areas: Pringo products are offered in an open-architecture format; available in 23 languages; Pringo products are easily integrated and deployed by enterprises; and Pringo offers over 400 customizable features.
Aixum Acquisition
On September 28, 2012, the Company completed a share exchange with Aixum Tec AG, a Liechtenstein Company (“Aixum”), pursuant to a Stock Exchange Agreement (the “Stock Exchange Agreement”), dated May 21, 2012 (the “Stock Exchange”). As a result of the share exchange Aixum is a wholly-owned subsidiary of MobileBits.
Pursuant to the Stock Exchange Agreement, at the closing of the share exchange each seller (a “seller”, and collectively, the “Sellers”) sold to the Company its shares of Aixum (the “Transferred Shares”). In consideration for the Transferred Shares, the Company issued to each Seller such seller’s pro rata portion of a number of shares of the Common Stock, par value $0.001 per share, of the Company, equal to (A) 6,666,667 minus (B) the sum of (i) the Liability Shares (as defined in the Stock Exchange Agreement), if any, plus (ii) the Cost Shares (as defined in the Stock Exchange Agreement), if any. On the Closing Date, MobileBits issued an aggregate of 5,803,061 of its Common Stock to the Sellers valued at $2,901,531.
Aixum owns the rights to the propriety network solution known as SAMY℠4ME which provides a cloud-based software platform making it simple for any business to create their own mobile advertising campaigns and publish to a targeted subscribed mobile audience delivered to smartphones. SAMY4℠ME distinguishes itself by providing a mobile application for consumers and a cloud based campaign manager software for merchants to send coupons and synchronize loyalty card information.
Acquisition of MBPM from Proximus Mobility, LLC
On May 2, 2013, the Company and Proximus Mobility, LLC (“Proximus”) formed a Delaware limited liability company named MBPM, LLC (“MBPM”). Pursuant to the operating agreement entered between the parties, the Company initially has a 51% ownership interest in MBPM, and Proximus has a 49% ownership in MBPM. In connection with the formation of MBPM, the Company contributed certain goodwill and management services to MBPM and Proximus contributed all of its assets to the joint venture. On May 2, 2013, the Company entered into Equity Exchange Agreements with the members of Proximus, pursuant to which the members of Proximus agreed to within a two year period to exchange their membership units in Proximus for shares of the Company’s common stock, valued up to $3,000,000, pursuant to the terms and conditions of the Equity Exchange Agreement. See Footnote 17 for a discussion of the default judgment in connection with this transaction.
Proximus Mobility is a location-based proximity marketing software company that provides turnkey, end-to-end hyperlocal geofenced marketing solutions to retailers, hotels, casinos, venues, advertising agencies and small to medium sized businesses.
ValuText LLC Acquisition
On May 7, 2013, the Company purchased JDN Development Company Inc.’s 50 % membership interest in Value Text LLC (“ValuText”) for 250,000 warrants to purchase the Company’s common stock at an exercise price of $0.50 per share of which 205,000 warrants were issued to JDN Development Company Inc. and 45,000 warrants were issued to the J Cohn Marketing Group, a Company that JDN Development Company Inc. owed money to. The remaining 50% interest in ValuText was acquired by the Company in connection with the acquisition of Proximus.
ValuText is a location-based, mobile marketing service specifically designed to drive sales and productivity at the company's prime commercial assets.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates.
Significant estimates made by the Company in fiscal 2014 and fiscal 2013 included: 1) 100% valuation allowance for deferred taxes due to the Company’s continuing and expected future losses; 2) inputs used in its option-pricing model to calculate the Company share-based compensation arrangements; 3) allowance estimated for doubtful accounts; 4) assumptions used in the valuation models to calculate the fair values of assets acquired and liabilities assumed under acquisitions; and 5) assumptions used in the projections and discounted cash flows analysis to assess asset impairment.
Principles of Consolidation
The consolidated financial statements include the Company’s accounts and those of the Company’s wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated.
Reclassifications
Certain amounts for prior periods have been reclassified to conform to the current period presentation.
Cash and Cash Equivalents
We consider short term, highly liquid investments that have an original maturity of three months or less to be cash equivalents. The Company maintains its cash balances in two financial institutions. The balances are insured by the Federal Deposit Insurance Corporation (“FDIC”). At October 31, 2014, the Company had a $427,152 of which $320,269 is insured. At October 31, 2013, the Company had a negative cash balance of $11,863 which has been reclassified to accounts payable.
Investment in Marketable Securities
The Company determines the appropriate classification of its investments in debt and equity securities at the time of purchase and reevaluates such determinations at each balance sheet date. Debt securities are classified as held to maturity when the Company has the positive intent and ability to hold the securities to maturity. Debt securities for which the Company does not have the intent or ability to hold to maturity are classified as available for sale. Held-to-maturity securities are recorded as either short term or long term on the Balance Sheet, based on contractual maturity date and are stated at amortized cost. Marketable securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and are reported at fair value, with unrealized gains and losses recognized in earnings. Debt and marketable equity securities not classified as held to maturity or as trading, are classified as available for sale, and are carried at fair market value, with the unrealized gains and losses, net of tax, included in the determination of comprehensive income and reported in shareholders’ equity.
The fair value of substantially all securities is determined by quoted market prices. The estimated fair value of securities for which there are no quoted market prices is based on similar types of securities that are traded in the market.
The $222 value of the Company’s investment in marketable securities was written-off during the year ended October 31, 2013.
Accounts Receivable and Allowance for Bad Debt
Accounts receivable are determined during the period based upon invoices and credits issued and reduced by cash collections. Amounts not due within a one year period are recorded as account receivable non-current, net of any discount. As of October 31, 2013, accounts receivable non-current was $287,985, net of a discount of $45,349.
The allowance for doubtful accounts is based on the Company’s past experience and other factors which, in management's judgment, deserve current recognition in estimating bad debts. Such factors include growth and composition of accounts receivable, the relationship of the allowance for doubtful accounts to accounts receivable and current economic conditions. The determination of the collectability of amounts due from customer accounts requires the Company to make judgments regarding future events and trends. Allowance for doubtful accounts is determined based on assessing the Company’s portfolio on an individual customer and on an overall basis. This process consists of a review of historical collection experience, current aging status of the customer accounts, and the financial condition of the Company’s customers. Based on a review of these factors, the Company establishes or adjusts the allowance for specific customers and the accounts receivable portfolio as a whole. At October 31, 2014 and 2013, the allowance for doubtful accounts totaled $22,612 and $119,194, respectively. For the fiscal years ended October 31, 2014 and 2013, the Company recorded bad debt expense of $873,388 and $119,242, respectively.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed over the estimated useful lives of the related assets using the straight-line method for financial reporting purposes.
Expenditures for normal repairs and maintenance are charged to expense as incurred. Significant renewals and improvements are capitalized. The cost and related accumulated depreciation of assets retired or otherwise disposed of are eliminated from the accounts, and any resulting gain or loss is recognized in the year of disposal.
Long-Lived Assets
We review our long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the undiscounted future cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value.
Software Development Costs
Costs of software developed internally for licensing to third parties are expensed until the technological feasibility of the software product has been established. Thereafter, software development costs incurred through the general release of the software products are capitalized and subsequently reported at the lower of unamortized cost or net realizable value. Capitalized software development costs are amortized on a straight-line basis over the products’ respective estimated economic lives, which are typically three years. The amortization of capitalized software development costs, including any amounts accelerated for products that are not expected to generate sufficient future revenue to realize their carrying values, is included in cost of license revenue in the consolidated statements of operations.
Intangible Assets
Intangible assets consist of expenditures for a domain name, the value of trade name, customer relationships, and software, which was initially recorded at the fair value on the acquisition date of Aixum and Pringo. The domain name has an estimated indefinite life, is not subject to amortization, but is reviewed annually for impairment. The identifiable intangibles are amortized over their useful lives of 3 to 10 years and are reviewed annually for impairment.
Goodwill
Costs of investments in excess of the underlying fair value of net assets at the date of acquisition are recorded as goodwill and assessed annually for impairment. The carrying amount of goodwill is not amortized, but we perform an annual assessment of goodwill for impairment by first comparing the book value of net assets to the fair value of the reporting units. If the fair value is determined to be less than the book value or qualitative factors indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value.
The Company evaluates the fair value of its single reporting unit utilizing up to three valuation methods: market capitalization, income approach and market approach. Revenue and expense forecasts used in the evaluation of goodwill were based on trends of historical performance and management’s estimate of future performance.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
● Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
● Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
● Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity's own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
Income Taxes
The Company is a taxable entity and recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect when the temporary differences reverse. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the enactment date of the rate change. A valuation allowance is used to reduce deferred tax assets to the amount that is more likely than not to be realized. Interest and penalties associated with income taxes are included in selling, general and administrative expense.
The Company has adopted ASC Topic 740 “Accounting for Uncertainty in Income Taxes” which prescribes a comprehensive model of how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. ASC 740 states that a tax benefit from an uncertain position may be recognized if it is "more likely than not" that the position is sustainable, based upon its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. As of October 31, 2014 and 2013, the Company had not recorded any tax benefits from uncertain tax positions.
Revenue Recognition
License revenue consists principally of revenue earned under software license agreements or reseller agreements to license the use of SAMY in foreign countries. License revenue is generally recognized when a signed contract or other persuasive evidence of an arrangement exists, the software has been electronically delivered, the license fee is fixed or is measured on a paid user basis; and collection of the resulting receivable is probable. When contracts contain multiple elements wherein Vendor-Specific Objective Evidence (“VSOE”) exists for all undelivered elements, we account for the delivered elements in accordance with the “Residual Method.” VSOE of fair value for maintenance and support is established by a stated renewal rate, if substantive, included in the license arrangement or rates charged in stand-alone sales of maintenance and support. Revenue from subscription license agreements, which include software, rights to unspecified future products and maintenance, is recognized ratably over the term of the subscription period.
Provided all other revenue criteria are met, the upfront, minimum, non-refundable license fees from customers are generally recognized upon delivery and on-going royalty fees are generally recognized upon reports of new licenses issued. Revenue on sales to resellers is recognized when evidence of an end user arrangement exists and recorded net of related costs to the resellers.
Professional services revenue consists primarily of revenue received for assisting with the customization and implementation of our software, on-site support, and other consulting services. Many customers who license our software also enter into separate professional services arrangements with us. We always account for professional services separately from license revenue as professional services are considered essential to the functionality of the software based on the nature of our software products. Substantially all of our professional services arrangements that are billed on a time and materials basis are recognized as the services are performed. Contracts with fixed or not-to-exceed fees are recognized on a percentage-of-completion. If there is significant uncertainty about the project completion or receipt of payment for professional services, revenue is deferred until the uncertainty is sufficiently resolved. VSOE of fair value of consulting services is based upon stand-alone sales of those services. Payments received in advance of consulting services performed are deferred and recognized when the related services are performed. Work performed and expenses incurred in advance of invoicing are recorded as unbilled receivables. These amounts are billed in the subsequent month.
Maintenance revenue consists of fees for providing software updates on a when and if available basis and technical support for software products (“post-contract customer support” or “PCS”). Maintenance revenue is recognized ratably over the term of the agreement.
Hosting revenues are recognized in the month services are delivered.
Payments received in advance of services performed are deferred. Allowances for estimated future returns and discounts are provided for upon recognition of revenue.
Samy provides digital loyalty and marketing solutions that drives engagement between brick and mortar stores and consumers. Samy delivers consumer engagement on a Cost-Per-Click (CPC) basis with the tools to create, manage and measure mobile commerce through its proprietary mobile CRM software.
MobileBits generates revenue on a CPC basis. Samy CPCA is defined as a user (depending on what category of ad they view) who subscribes to a branded mobile store within the Samy network, then selects an ad and clicks on an offer or coupon to learn more providing the user the ability to immediately purchase the offer in-store, in-app or save for later use.
Cost of License, Maintenance, and Hosting Revenues
Cost of license revenue is primarily comprised of the license-based royalties to third parties and production and distribution costs for initial product licenses.
Cost of maintenance revenue is primarily comprised of the costs associated with the customer support personnel that provide maintenance, enhancement and support services to our customers.
Hosting fees are directly related to each client’s hosting requirements and charged by a third party service provider.
The amortization of capitalized software development costs for internally developed products, the amortization of acquired technology for products acquired through business combinations are considered as the periodic operating expense.
Sales Commissions
We pay commissions, including sales bonuses, to our direct sales force related to revenue transactions under sales compensation plans established annually. We defer the portion of commissions that are direct and incremental costs of the license and maintenance revenue arrangements and recognize them as selling and marketing expenses in the statements of operations over the terms of the related customer contracts in proportion to the recognition of the associated revenue. The commission payments are typically paid in full in the month or quarter following execution of the customer contracts.
Share-Based Payments
The Company estimates the fair value of each stock option award at the grant date by using the Black-Scholes option pricing model and common shares based on the last applicable market price of the Company’s common stock on the date of the share grant. The fair value determined represents the cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange for the award. As share-based compensation expense is recognized based on awards ultimately expected to vest, the Company reduces the expense for estimated forfeitures based on historical forfeiture rates. Previously recognized compensation costs may be adjusted to reflect the actual forfeiture rate for the entire award at the end of the vesting period. Excess tax benefits, if any, are recognized as an addition to paid-in capital.
Earnings (Loss) per Common Share
Basic earnings per share (“EPS”) is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all dilutive potential of shares of common stock outstanding during the period including stock options or warrants, using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of stock options or warrants), and convertible debt or convertible preferred stock, using the if-converted method. EPS excludes all potentially dilutive shares of common stock if their potentially dilutive effect is anti-dilutive. As of October 31, 2014 and 2013, there were 30,646,142 units and 24,579,475 units of stock options issued and outstanding, respectively.
Foreign Currency Translation
The functional currency of Aixum is the Swiss Franc (“CHF”). Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income (loss) for the respective periods.
For financial reporting purposes, the financial statements of Aixum are translated into the Company’s reporting currency, United States Dollars (“USD”). Asset and liability accounts are translated using the closing exchange rate in effect at the balance sheet date, equity account and dividend are translated using historical exchange rates and income and expense accounts are translated using the average exchange rate prevailing during the reporting period.
Adjustments resulting from the translation, if any, are included in accumulated other comprehensive income (loss) in stockholder’s equity.
Subsequent Events
The Company has evaluated all transactions occurring between the end of its fiscal year, October 31, 2014, through the date of issuance of the consolidated financial statements for subsequent event disclosure consideration.
Recent Accounting Pronouncements
In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This ASU changes the criteria for determining which disposals can be presented as a discontinued operation and modifies existing disclosure requirements. Under the revised standard, a discontinued operation must represent a strategic shift that has or will have a major effect on an entity’s operations and financial results. This ASU is effective for reporting periods beginning after December 15, 2014 with early adoption permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issue. The Company adopted this pronouncement during the year ended October 31, 2014.
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers: Topic 606 (“ASU 2014-09”). ASU 2014-09 amends the guidance for revenue recognition to replace numerous, industry-specific requirements and converges areas under this topic with those of the International Financial Reporting Standards. The ASU implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendments in this ASU are effective for reporting periods beginning after December 15, 2016, and early adoption is prohibited. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. Management is currently assessing the impact the adoption of ASU 2014-09 will have on the Company’s consolidated financial statements.
In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40); Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which requires management of a company to evaluate whether there is substantial doubt about the company’s ability to continue as a going concern. This ASU is effective for the annual reporting period ending after December 15, 2016, and for interim and annual reporting periods thereafter, with early adoption permitted. The Company is currently assessing the impact that this standard will have on its consolidated financial statements.
NOTE 3 - GOING CONCERN
As reflected in the accompanying consolidated financial statements, the Company has suffered recurring losses from operations. The Company has a net loss of $11,802,694, working capital deficit of $1,249,284 and net cash used in operations of $1,340,476 for the year ended October 31, 2014, and an accumulated deficit of $49,337,719 at October 31, 2014. In addition, the Company has not completed its efforts to establish a stable recurring source of revenues sufficient to cover its operating costs for the next twelve months. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.
The ability of the Company to continue its operations is dependent on the successful execution of management's plans, which include the expectation of raising debt or equity based capital, with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. The Company may need to issue additional equity and incur additional liabilities with related parties to sustain the Company’s existence although no commitments for funding have been made and no assurance can be made that such commitments will be available.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of assets or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
In response to these factors, the management intends to take on the following actions:
● seek additional funding from private placement and public offerings,
● seek additional funding from third party debt financings; and
● continue the implementation of the business plan to increase operating profit, including the distribution of the Samy application in additional regions.
NOTE 4 - ACQUISITIONS
Acquisition of MBPM from Proximus Mobility, LLC
On May 2, 2013, the Company and Proximus Mobility, LLC (“Proximus”) formed a Delaware limited liability company named MBPM, LLC (“MBPM”). Pursuant to the operating agreement entered between the parties, the Company initially has a 51% ownership interest in MBPM, and Proximus has a 49% ownership in MBPM. In connection with the formation of MBPM, the Company contributed certain goodwill and management services to MBPM and Proximus contributed all of its assets to the joint venture. On May 2, 2013, the Company entered into Equity Exchange Agreements with the members of Proximus, pursuant to which the members of Proximus agreed to within a two year period to exchange their membership units in Proximus for shares of the Company’s common stock, valued up to $3,000,000, pursuant to the terms and conditions of the Equity Exchange Agreement. See Footnote 17 for a discussion of the default judgment in connection with this transaction.
The following table summarizes the allocation of the purchase price:
Assets acquired and liabilities assumed are recognized based on an estimate of their fair value as of the acquisition date. The estimated fair values were determined based on management’s best estimates at the time of this filing. Estimates and assumptions are subject to change upon management’s review of the final amounts. Any deferred taxes or deferred tax liabilities will be recognized upon the completion of these valuations, if applicable. This final evaluation of net assets acquired is expected to be completed as soon as a final accounting is performed but no later than one year from the acquisition date. Any future changes in the value of the net assets acquired will be offset by a corresponding change in goodwill.
Goodwill and intangible assets:
Assets acquired and liabilities assumed are currently valued at zero based on an estimate of their fair value as of the acquisition date. The purchase price and costs associated with the acquisition was $3,000,000 on May 2, 2013, of which $2,175,600 was allocated to customer relationships and the remaining $824,400 was assigned to goodwill.
As of October 31, 2014, the Company performed its annual goodwill impairment assessment and concluded that the goodwill balance of $824,735 was impaired and recorded the impairment of goodwill due to the Company’s inability to provide the required financial marketing support for the DDR Corp. (“DDR”) mall locations to increase the number of users and merchants of Samy. For the same reason, the Company concluded that the remaining intangible asset balance related to customer relationships as of October 31, 2014 of $1,522,954 was also impaired and similarly recorded the impairment of intangible assets.
ValuText LLC Acquisition
On May 7, 2013, the Company purchased JDN Development Company Inc.’s 50% membership interest in Value Text LLC (“ValuText”) for 250,000 warrants to purchase the Company’s common stock at an exercise price of $0.50 per share of which 205,000 warrants were issued to JDN Development Company Inc. and 45,000 warrants were issued to the J Cohn Marketing Group, a Company that JDN Development Company Inc. owed money to. The remaining 50% interest in ValuText was acquired by the Company in connection with the acquisition of Proximus.
The following table summarizes the allocation of the purchase price:
Assets acquired and liabilities assumed are recognized based on an estimate of their fair value as of the acquisition date. The estimated fair values were determined based on management’s best estimates at the time of this filing. Estimates and assumptions are subject to change upon management’s review of the final amounts. Any deferred taxes or deferred tax liabilities will be recognized upon the completion of these valuations, if applicable. This final evaluation of net assets acquired is expected to be completed as soon as a final accounting is performed but no later than one year from the acquisition date. Any future changes in the value of the net assets acquired will be offset by a corresponding change in goodwill.
Goodwill and intangible assets:
Assets acquired and liabilities assumed are currently valued at zero based on an estimate of their fair value as of the acquisition date. The purchase price and costs associated with the acquisition was $60,528 on May 7, 2013, of which $44,735 was allocated to customer relationships and the remaining $15,793 was assigned to goodwill.
As of October 31, 2014, the Company performed its annual goodwill impairment assessment and concluded that the goodwill balance of $15,793 was impaired and recorded the impairment of goodwill due to the Company’s inability generate future cash flows from this entity. For the same reason, the Company concluded that the remaining intangible asset balance related to customer relationships as of October 31, 2014, of $31,314 was also impaired and similarly recorded the impairment of intangible assets.
NOTE 5 - AIXUM TEC AG BANKRUPTCY
On December 17, 2013, Aixum filed for bankruptcy in Liechtenstein. Creditors had until February 17, 2014 to make a payment of 15,000 CHF (approximately $16,690 USD) to file their claim with the court and have a receiver appointed to distribute any remaining net assets. On March 4, 2014, the Company received notice from the Liechtenstein District Court that it dismissed the application to begin bankruptcy proceedings and ordered deletion of Aixum from the Liechtenstein Public Register. The assets and liabilities of Aixum were written off as of March 4, 2014 resulting in a net gain of $556,800.
NOTE 6 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment the Company had at October 31, 2014 and 2013:
For the years ended October 31, 2014 and 2013, the Company recognized depreciation expense of $21,610 and $27,619, respectively.
NOTE 7 - SOFTWARE DEVELOPMENT COSTS
The following is a summary of the Company’s software development costs at October 31, 2014 and 2013:
For the years ended October 31, 2014 and 2013, total amortization expense was $280,102 and $168,005, respectively.
NOTE 8 - INTANGIBLE ASSETS AND GOODWILL
The following is a summary of the Company’s intangible assets at October 31, 2014 and 2013:
For the years ended October 31, 2014 and 2013, the Company recognized amortization expense of $2,293,982 and $1,963,055, respectively. During the year ended October 31, 2014, the Company recorded impairment expense of $2,178,443 on its customer relationships and $448,875 on its trade name.
The Company’s recorded the following impairments during the year ended October 31, 2014:
This combined charge of $2,627,318 reflects the impact of the Company’s inability to demonstrate positive future estimated cash flows from these intangible assets.
The Company’s annual assessment of goodwill as of October 31, 2014 concluded that the remaining balance of goodwill including Aixum’s balance of $542,666, Proximus Mobility LLC’s balance of $824,734 and ValuText LLC’s balance of $15,793 were impaired. This combined charge of $1,383,193 charge reflects the impact of the Company’s inability to provide the required financial marketing support for the DDR mall locations to increase the number of users and merchants of Samy.
The Company’s annual assessment of goodwill as of October 31, 2013 concluded that the value of Pringo’s remaining goodwill balance of $15,564,369 was impaired. This charge reflects the impact of the continuing decline in the Company’s common stock price as well as an evaluation of the present value of Pringo’s future net cash flows.
NOTE 9 - NOTES PAYABLE - RELATED PARTY
The Company assumed a related party promissory note in the amount of $110,000 in the Pringo Merger, accruing interest at 10% per annum. On February 1, 2012, the note was extended through June 30, 2012 with the full balance of the $110,000 to be repaid by June 30, 2012. The principal and accrued interest on the note as of October 31, 2014 and 2013 was $71,725 and $65,758, respectively. The note is currently in default and the Company is negotiating a payment plan with the promissory note holder to pay off the balance.
NOTE 10 - RELATED PARTY TRANSACTIONS
As of October 31, 2014, the Company had outstanding payables to related parties of the Company in the amount of $300,081. Walter Kostiuk, the former CEO, is owed $164,381 primarily for commissions on sale of the Company’s common stock and unpaid salary. In addition, Hussein Abu Hassan is entitled to a guaranteed bonus of $150,000 and a tax gross up on his total compensation. His accrued bonus for fiscal year 2014 is $75,000 and the tax gross up on fiscal year total compensation is $60,700.
As of October 31, 2013, $228,000 was owed to The Abai Group, Inc. for the services performed and $350 for accrued interest; $164,381 was owed to Walter Kostiuk primarily for commissions on sale of the Company’s common stock and unpaid salary $223,767 was owed to Andrew Marshall for unpaid salary and expenses. During the year ended October 31, 2013, the Company paid Walter Kostiuk $25,000 related to a Market Capitalization Bonus pursuant to his employment agreement. In January 2013, the Company engaged Andrea Kostiuk, wife of Walter Kostiuk, as an independent contractor to provide marketing support services. The contract provides for her to receive $2,240 per month which was increased to $2,800 as of September 1, 2013. For the year ended October 31, 2013, her fees totaled $21,280 and there were no unpaid fees as of October 31, 2013.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Majid Abai and the Abai Group, Inc v. MobileBits Holding Corporation
On November 5, 2013, Majid Abai and the Abai Group, Inc. (“Abai Plaintiffs”) served the Company with a summons and a complaint alleging claims for breach of his employment agreements. Abai Plaintiffs seek to recover the sum of approximately $226,000 plus attorney fees, cost and prejudgment interest. On December 5, 2013, the Company filed a motion to dismiss the complaint. The Company is contesting the Abai Plaintiffs’ claims. A subsequent amended complaint was filed on June 19, 2014. An Answer to the Amended Complaint was filed on August 25, 2014. At October 31, 2014, the Company had recorded approximately $228,000 in accounts payable and accrued liabilities related to this matter.
See Note 19 for terms of the settlement with the Abai Plaintiffs.
LOPAR, LLC; Michael Zeto and David Rippetoe v. Mobilebits Holding Corporation
On September 30, 2013, LOPAR, LLC (“LOPAR”), Michael Zeto (“Zeto”) and David Rippetoe (“Rippetoe”)(collectively the “Proximus Plaintiffs”) filed an action with the Superior court of Fulton County, Georgia (the “Georgia Court”), C.A. File No. 2013-CV-237131 (the “Civil Action”).
On December 5, 2013 and upon prior motion of the Proximus Plaintiffs, the Court in the Civil Action entered a Default Judgment against the Company: (i) directing it and its officers, agents, directors and all others acting in concert and participation with the Company to take all steps necessary to issue and effectuate the delivery of the following shares of the Company’s stock within fourteen days from the date of entry of the Default Judgment: (a) 13,878,307 shares to LOPAR; (b) 3,064,805 shares to Zeto; and (c) 2,402,568 to Rippetoe; (ii) granting Proximus Plaintiffs jointly and severally, a monetary judgment of $44,470 in reasonable attorney's fees and expenses; and (iii) casting the costs of the Civil Action on the Company. The Company has filed motions opposing the Default Judgment in the Superior Court and has also filed a Notice of Appeal on the Default Judgment to the Georgia Court of Appeals. Subsequently, the Proximus Plaintiffs have filed a Supersedeas Bond Motion seeking an order requiring the Company to post a supersedeas bond with respect to the monetary portion of the Default Judgment and a Contempt Motion seeking a judicial finding against the Company for non-delivery of the Company’s common stock shares as ordered by the Default Judgment. On March 21, 2014, the Company issued share certificates to LOPAR, Zeto and Rippetoe in the shares amounts described above and are being held in escrow by Georgia Court of Appeals pending decisions by the Superior Court on the Company’s motion opposing the Default Judgment and the Court of Appeals on the Company’s Notice of Appeal on the Default Judgment.
Bit By Bit Mobile LLC (“BBBM”), Bit By Bit Holdings LLC (“BBBH”), G Fley Investments LLC (“G Fley”) and SBV Holdings LLC v. MobileBits Holdings Corporation,
On January 31, 2014, Bit By Bit Mobile LLC (“BBBM”), Bit By Bit Holdings LLC (“BBBH”), G Fley Investments LLC (“G Fley”) and SBV Holdings LLC (“SBV”) (collectively the “ Bit by Bit Plaintiffs”) filed an action with the District Court of Eastern New York (the “New York Court”), C.A File No. 2014-CV-00678 (the “Civil Action”).
The action against the Company alleges breach of certain contracts, unjust enrichment, fraud, misappropriation/conversion and breach of fiduciary duty. The Bit by Bit Plaintiffs seek to recover unspecified damages punitive damages, attorneys’ fees, other costs as well as ownership and title of intellectual property. The Company believes the action has no merit and has filed an answer to the complaint contesting the allegations as well as countersuing the plaintiffs for unpaid amounts owing the Company.
As of October 31, 2014, the Company had $100,000 recorded in accounts payable and accrued liabilities relating to this matter, which represented the Company’s best estimate of its obligation as of October 31, 2014. In February 2015 the Company issued 2,000,000 shares of common stock to Bit by Bit LLC.
See Note 19 for terms of the settlement with the Bit By Bit Plaintiffs.
Majid Abai v. MobileBits
Majid Abai, the former CEO of MobileBits Holdings Corporation, MobileBits Corporation and Pringo, Inc. (collectively the “MobileBits Companies”), entered into a written agreement which Mr. Abai alleged requires the MobileBits Companies to pay him severance compensation, reimburse certain of his expenses and furnish other consideration totaling $141,199 which includes $7,450 the Company is contesting. On or about October 3, 2012, Mr. Abai filed an action against the MobileBits Companies in the Superior Court of the State of California, West District, alleging that the MobileBits Companies breached this agreement.
On April 22, 2013 the Company executed a final settlement agreement with Majid Abai that dismissed the above action, released the Company from all claims and obligated the Company to pay Mr. Abai $25,964. Of this amount, $5,964 was paid on April 24, 2013 and the remaining $20,000 is payable on the earlier of receipt of the $200,000 owed the Company on an existing investment agreement or $5,000 on the first of each month beginning on June 1, 2013 with a final payment due on September 1, 2013. Beginning May, 7, 2013 interest accrued on the unpaid balance at 10% per annum until the amount owed is paid in full. As of October 31, 2013, the outstanding amount owed was $350 of accrued interest. As of October 31, 2014, no amounts were owed related to this matter.
NOTE 12 - INCOME TAXES
Reconciliation between actual tax expense (benefit) and income taxes computed by applying the U.S. federal income tax rate and state income tax rate to income from continuing operations before income taxes are as follows:
For both years, the components of the permanent differences relate to stock based compensation, intangible asset amortization, and intangible asset and goodwill impairment.
Tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred liabilities are presented below:
At October 31, 2014, the Company had a net operating loss carry-forwards for federal and state income tax purposes of approximately $8,672,200 and $8,140,693, respectively, which will begin to expire, if unused, beginning in 2029. The valuation allowance increased approximately $873,734 and $139,118 for the years ended October 31, 2014 and 2013, respectively.
The above estimates are based upon management's decisions concerning certain elections which could change the relationship between net income and taxable income. Management decisions are made annually and could cause the estimates to vary significantly.
NOTE 13 - STOCK PAYABLE
In connection with the acquisition of Proximus Mobility, LLC, there is a current disagreement over the number of shares to be issued for the $3,000,000 purchase of the underlying assets. The Company believes that the total shares to be issued is 12,000,000 of which 6,000,000 is based on reaching certain milestones outlined in the agreement. As described in Note 13, 19,345,680 common shares, valued at $0.133 per share have been issued in the names of the Proximus Plaintiffs and are held in escrow. The remaining Proximus unit-holders have 3,196,624 with a total value of $425,151 remaining in stock payable as of October 31, 2014.
As of October 31, 2013, the Company had a stock payable balance of $4,309,000. Excluding the 19,345,680 common shares issued to the Proximus Plaintiffs, share certificates totaling 3,166,000 common shares were issued as of October 31, 2014.
NOTE 14 - REDEEMABLE COMMON STOCK
On August 1, 2014, a Stock Purchase Agreement dated June 24, 2014 by and between the Company and Najak Investment Company (“Najak”), a Jordanian exempted company (“Najak”) became binding and effective.
Pursuant to the Stock Purchase Agreement, at the closing of the stock purchase, Najak purchased from the Company 24,000,000 shares of the Company’s common stock, par value $0.001 per share (the “Initial Purchased Shares”), for a total purchase price of $1,200,000. Pursuant to the Stock Purchase Agreement, Najak has the right to purchase an additional 40,000,000shares of the Company’s common stock (the “Additional Purchased Shares” and, collectively with the Initial Purchased Shares, the “Purchased Shares”) at 0.05 per share on or before the date which is 210 days after the closing date with respect to the Initial Purchased Shares.
The Stock Purchase Agreement contains certain covenants and obligations of the Company including: (i) to commit to consummating an underwritten public offering of its common stock resulting in a per share price to the public reflecting a pre-offering valuation of the common stock of at least 20,000,000 or, at Najak’s election, to either pay Najak $0.30 per Purchased Share or redeem the Purchased Shares for $0.50 per Purchased Share; (ii) to deliver unaudited quarterly financial statements, prepared in accordance with U.S. GAAP within forty-five (45) days after the end of each first through third quarter; (iii) to obtain Najak’s consent prior to taking any of the following actions within two years of August 1, 2014: (x) changing the Company’s OTC Bulletin Board quoted company status (until the Company’s common stock is listed on a national securities exchange); (y) entering into any material contract or business transaction, merger or business combination, or incurring any further debts or obligations; and (z) amending or changing its Articles of Incorporation or Bylaws, or issuing any additional shares or creating any other class of shares; (iv) to notify Najak ninety (90) days prior to issuing any stock options, warrants or other rights or interests in the Company’s shares or raising additional capital; (v) to elect two designees of Najak to the boards of directors (or similar governing bodies) of the Company and each subsidiary of the Company and to appoint them to any committees of such boards; (vi) to amend the Company’s Articles of Incorporation to provide for the election described in clause (v) above and certain related governance mechanisms within 60 days of August 1, 2014 or to redeem the Purchased Shares at a purchase price of $0.25 per share; and (vii) to keep available adequate current public information as required in SEC Rule 144 and to use commercially reasonable efforts to timely file all SEC reports and to certify to that effect and provide supporting documentation to Najak upon request.
The Stock Purchase Agreement also grants to Najak registration rights specifically with respect to the Purchased Shares, general piggyback registration rights and a right of first refusal in connection with any proposed issuance by the Company of any Equity Securities (as defined in the Stock Purchase Agreement) of the Company.
The Stock Purchase Agreement also provides that within twelve months of August 30, 2014 the Company shall consummate an underwritten public offering of its common stock pursuant to an effective registrations statement under the Securities Act or other applicable securities laws which (1) the per share price to the public reflects a pre-offering valuation of at least $20,000,000 and (2) the Company common stock is listed for trading on the NASDAQ or New York Stock Exchange. If the Company fails to achieve an initial public offering meeting the criteria above, the Purchaser shall have the right at its election: (1) receive a payment equal to $0.30 per Purchased Share within 30 days of the receipt of written demand therefor, or (2) to put all or any portion of the Purchased Shares held by the Purchaser to the Company and the Company shall have the obligation to redeem such Purchased Share put to the Company in exchange for a cash payment of $0.50 per Purchased Share to be paid within 30 days of the receipt of the written notice therefor.
The $1,200,000 purchase price includes the following components: Najak provided the Company $885,281 in cash, and paid legal fees of $46,680 on the Company’s behalf. In addition, Najak forgave $112,166 of advances and the $155,873 promissory note payable to Najak was cancelled. Because these redemption clauses are outside of the Company’s control the $1,200,000 purchase of common stock is classified as redeemable common stock in the consolidated financial statements at October 31, 2014. The Company will recognize changes in the redemption value of the redeemable common stock immediately as they occur.
NOTE 15 - STOCKHOLDERS’ EQUITY
The Company recorded amortization of stock-based compensation of $2,926,042 for the year ended October 31, 2014 for options and warrants.
During the year ended October 31, 2014, the Company issued 12,342,000 of its common stock to investors for $2,280,649, of which $150,000 was included in stock payable as of October 31, 2013. Excluded from the 12,342,000 common shares issued is the 24,000,000 of common stock purchased by Najak for $1,200,000 which has been reclassified as redeemable common stock. In connection with the issuance of the Company’s common stock, the Company also issued warrants to purchase 3,000,000 shares of the Company’s common stock valued at $157,732. The warrants were valued using the Black-Scholes pricing model and the following parameters: (1) a risk free rate of 0.37% - 2.31%, (2) expected volatility of 149% - 260%, (3) expected dividends of $0, (4) expected terms of 3-7 years, (5) and stock price on measurement date of $0.04 - $0.13. The Company also issued 1,000,000 shares of its common shares with a fair market value of $60,000 in exchange for services rendered.
In addition, the Company issued 19,345,680 shares of its common stock to the Proximus Plaintiffs in connection with the lawsuit and is held in escrow pending resolution of the matter.
During the year ended October 31, 2013, the Company issued 9,135,049 shares of common stock for net proceeds of $971,500. The proceeds were received by the Company as of October 31, 2014. In connection with the share issuance, The Company issued warrants to purchase 700,000 shares of the Company’s common stock. $81,868 of the proceeds were allocated to the value of the warrant instruments and recorded as additional paid-in capital.
On May 7, 2013, the Company issued 250,000 warrants with a fair value of $60,528 in connection with the acquisition of ValuText LLC. The fair value was recorded as additional paid in capital.
On August 13, 2013, the Company issued 89,472 shares of common stock valued at $0.25 per share in exchange for outstanding amounts owed for services rendered.
NOTE 16 - STOCK OPTION AND WARRANT ACTIVITIES
Stock Option Activities
From time to time, the Company issues options to its employees and directors, for their services.
The Company issued 15,375,000 stock options to officers and several employees and 3,000,000 stock options to a shareholder in connection with the purchase of the Company’s common shares during the year ending October 31, 2014. Of these options, 15,000,000 options vest immediately and are exercisable at $0.08 per share in 7 years, 3,000,000 options are exercisable at $0.25 in two years, 375,000 vest in 1 to 3 years and are exercisable at $0.15 - $0.25. These options were valued at $1,478,279 on the grant dates using the Black-Scholes model with the following assumptions: (1) 0.37% - 2.31% discount rates, (2) expected volatilities of 149% - 260%, (3) no expected dividends; and (4) expected terms of 2 to 7 years.
In fiscal year 2013, the Company issued 337,500 stock options to employees. These options vest in 3 years and are exercisable between $0.25 and $0.51 per share within 5 to 7 years. These options were valued at $134,769 on the grant date using the Black-Scholes model with the following assumptions: (1) 0.77% - 1.53% discount rates, (2) expected volatilities of 188.41% - 217.08%, (3) no expected dividends; and (4) an expected terms of 5 and 7 years.
In fiscal year 2013, the Company issued 1,000,000 options with fair value of $136,632 to directors. The directors’ options were fully vested at the date of the grant. These options were valued using the Black-Scholes option-pricing model and the following parameters on the grant date: (1) 1.35% risk-free discount rate, (2) expected volatility of 201.81% (3) $0 expected dividends, and (4) an expected term of 5 years.
Warrant Activities
The Company issued 1,800,000 warrants with an exercise price between $0.50 - $1.50 per share during the fiscal year ended October 31, 2013, of which 850,000 were issued to DDR Property Management LLC related to the Strategic Marketing Agreement dated May 7, 2013, 250,000 warrants issued in connection with the acquisition of ValuText LLC to JDN Development Company (205,000 warrants) and J Cohn Marketing Group Inc. (45,000 warrants) and 700,000 warrants to a private investor.
The warrants granted in the fiscal year ended October 31, 2013 were valued using the Black-Scholes option-pricing model and the following parameters: (1) 0.82% to 1.21% risk-free discount rate, (2) expected volatility of 191.24% to 198.72%, (3) $0 expected dividends, and (4) an expected term of 5 to 7 years for each grant based on term of the warrant.
The following is a summary of the activity of stock options and warrants for the each of the two years ended October 31, 2014:
The Company recorded option and warrant expense of $2,926,042 and $2,566,061 for options and warrants vested during the years ended October 31, 2014 and 2013, respectively.
The following is a summary of outstanding stock options and warrants at October 31, 2014:
All options and warrants issued and outstanding are being amortized over their respective vesting periods. The unrecognized compensation expense at October 31, 2014 and 2013 was $1,300,156 and $2,892,962, respectively.
NOTE 17 - NONMONETARY TRANSACTION
During the fiscal year ended October 31, 2013, the Company exchanged Samy subscription services for advertising. Barter transactions are recorded at the estimated fair value of the product or service received or the estimated fair value of the service surrendered, whichever is more readily determinable. The Company would otherwise have paid cash for such advertising. For the fiscal year ended October 31, 2013, revenues and advertising expenses of $413,121 recorded were related to the barter arrangements. There were no barter arrangement transactions recorded during the year ended October 31, 2014.
NOTE 18 - CONCENTRATION
A substantial portion of the Company revenues were related to one customer (72%) in fiscal year 2014 totaling $304,386 and two customers (76%) in fiscal year 2013 totaling $1,408,624. As of October 31, 2014 and 2013, amounts due from these customers included in accounts receivable, both current and non-current was $0 and $829,541, respectively. The loss of one of these significant customers or the failure to attract new customers could have a material adverse effect on our business, results of operations and financial condition.
NOTE 19 - SUBSEQUENT EVENTS
Legal Proceedings
Majid Abai and the Abai Group, Inc v. MobileBits Holding Corporation
On December 8, 2014, the Company executed a final settlement agreement with the Plaintiffs that dismissed the above action, released the Company from all claims and obligated the Company to pay the Plaintiffs $228,000 in cash and common stock of MobileBits Holdings Corporation as follows:
Stock Consideration: Within 5 business days of December 8, 2014 issue 2,000,000 of common stock at $0.02 per share or the equivalent of $40,000, which the Company issued in December 2014.
Cash Consideration: Within 5 business days from December 8, 2014 the Company is to make a $20,000 payment and additional $20,000 payments on December 24, 2014 and January 24, 2015. The remaining $128,000 shall be paid as follows: If the Company’s total gross monthly revenues exceed $22,500 in any month, commencing with January 2015, the Company shall make a $7,000 payment by the 24th of the following month. If the Company’s total monthly gross revenues do not exceed $22,500 in any month, commencing with January 2015, the Company share make a $2,000 payment by the 24th of the following month. In addition, if the Company receives an equity investment of $500,000 the Company shall make a payment of $10,000 for $500,000 received. The Plaintiff has an option to forego $40,000 of the cash consideration and accept an equivalent amount of the Company’s common stock.
As of October 31, 2014, the Company had accrued approximately $228,000 in accrued expenses related to the settlement of this lawsuit. As of February 13, 2015, the Company has paid $67,000 of the amount owed.
Bit By Bit Mobile LLC (“BBBM”), Bit By Bit Holdings LLC (“BBBH”), G Fley Investments LLC (“G Fley”) and SBV Holdings LLC v. MobileBits Holdings Corporation
On December 5, 2014 the Company executed a final settlement agreement with the Bit by Bit Plaintiffs that dismissed the above action, released the Company from all claims and that the Company would accept Alex Fleyshmakher as a member of the Board of Directors of the Company, provide an exclusive right of first refusal, for 10 years commencing on December 5, 2014 to market, promote, offer for sale, sell, license, distribute, commercialize, and otherwise exploit in Russia and the Ukraine. All revenue from these rights shall first be applied to recoup the Bit by Bit Plaintiffs out-of-pocket costs in connection with establishing the operation. Thereafter, 50% of the annual profits shall be allocated and paid out to the Bit By Bit Plaintiffs. In addition, the Company shall issue 2,000,000 shares of the Company’s common stock at $0.05 per share. With the execution of the agreement, the Company agreed to pay the Bit By Bit Plaintiffs $100,000 no later than three years from this execution of the agreement with the promissory note bearing 5% interest in the second year and 7% in the third year. As of October 31, 2014, the Company had $100,000 recorded in accounts payable and accrued expenses related to this matter. In February 2015 the Company issued 2,000,000 shares of common stock to Bit by Bit LLC.
Sale of Common Stock
During the period from November 1, 2014 to February 9, 2015, the Company issued 2,000,000 shares of Common Stock in exchange for a $40,000 reduction in amount due a creditor.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure controls and procedures.
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Management's Annual Report on Internal Control Over Financial Reporting.
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Our internal control system was designed to, in general, provide reasonable assurance to the Company’s management and board regarding the preparation and fair presentation of published financial statements, but because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, 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 the policies or procedures may deteriorate.
Our management assessed the effectiveness of the Company’s internal control over financial reporting as of October 31, 2014. The framework used by management in making that assessment was the criteria set forth in the document entitled “ Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, our chief executive officer and chief financial officer have determined and concluded that, as of October 31, 2014, the Company’s internal control over financial reporting was not effective.
Management’s assessment identified several material weaknesses in our internal control over financial reporting. These material weaknesses include lack of segregation of duties and a lack of adequate documentation of our system of internal control.
To address these weaknesses, management hired a full time Chief Financial Officer who is familiar with the Public Company reporting rules and has established an Audit Committee. Due to the Company’s small number of employees, the lack of segregation of duties continues to exist. The Company during fiscal year 2014 has continued the process of documenting the system of internal control.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.
Changes in internal control over financial reporting.
There were no changes that occurred during the fourth quarter of the fiscal year covered by this Annual Report on Form 10-K that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
Each director of our Company serves for a term of one year or until the successor is elected at the Company’s annual shareholders’ meeting and is qualified, subject to removal by the Company’s shareholders. Each officer serves, at the pleasure of the board of directors, for a term of one year and until the successor is elected at the annual meeting of the board of directors and is qualified.
(1)Effective as of May 30, 2014, Walter Kostiuk no longer served as an officer or employee of MobileBits Holdings Corporation, a Nevada corporation (the “Company”), or any of its affiliates.
(2)On May 27, 2014, Matthew Mountain, Greg Goldberg and Glenda Glover resigned as members of the Board of Directors of the Company.
Set forth below is the name, age and present principal occupation or employment, and material occupations, positions, offices or employments for the past five years of our directors and executive officers.
Kent Kirschner, Interim Chief Executive Officer
Mr. Kent Kirschner joined the Company in January 2011 as Senior Director of Sales and in 2013 was promoted to Vice President Global Business Development at the Company, with responsibility managing the growth of Samy through retail, media and reseller partners. In June 2014, Mr. Kirschner was promoted to Interim Chief Executive Officer. Mr. Kirschner brings two decades of experience working in the media, production and advertising industries. Mr. Kirschner began his career as a production manager working on National Geographic films in remote countries around the world. Since 1998, Mr. Kirschner has worked in a variety of roles with several major companies that are focused on publishing, digital advertising and social media.
Qualifications: Mr. Kirschner as Director of Latin America for Universal Press, a leading provider and syndicator of editorial content, Mr. Kirschner grew the Latin America business unit by 80%. From there he went on to build and manage a chain of Hispanic newspapers that grew to be published in more than 30 U.S. markets. Moving from print media to digital, Mr. Kirschner joined Neighborhood America, a leading provider of enterprise social media platforms, and was charged with building an advertising and media business unit which included projects with AMEX, Scripps Networks (HGTV), Rodale and Kodak. He then went on to join Traffiq, one of the first demand side platform's (DSP) in the digital advertising industry as its Director for Latin America. While there, he built a publisher network of 300+ ad networks and independents generating almost 100 million monthly unique visitors.
Hussein Abu Hassan, President, Chief Operating Officer and Vice Chairman of the Board of Directors
Mr. Abu Hassan has been our President, Chief Operating Officer and Vice Chairman of the Board of Directors since April 2014. He is an entrepreneur with diverse background in building businesses from ground up. Mr. Abu Hassan started his business career in 2000 in the Shipping and Trading. Then he started focusing on the trading and leasing of heavy machinery and construction equipment and materials, in Dubai and Qatar. Later on, Mr. Abu Hassan has ventured into a production facility for Elevators and Escalators and Construction Hoist in Shanghai, China. Mr. Abu Hassan has started different Real Estate portfolios in United States and Canada markets. Over the past 14 years, Mr. Abu Hassan has attended many regional and international exhibitions, workshops, seminars, and business rounds in different industries, from construction, shipping, trading, IT, social media and real estate.
Qualifications: Mr. Abu Hassan has been a Managing Director for several companies in his career, overseeing all aspects of operations including strategy development, full profit and loss management and responsibility, as well as team development for various enterprises of between 25 and 150 employees Mr. Abu Hassan serves as Chairman of the Board of Orix Investments Corp since March 2013, a member of the board of directors of Najak Investments Int. since June 2012, which is a private equity group focused on emerging digital marketing technology and biotech sectors, and an Executive Director and board member of Orient Shipping & Trading Co. since June 2000. He was previously serving as the Chief Executive Officer and Chairman of Pioneers Holding Ltd. from 2009 to 2013 and is now an active board member.
James Burk, Chief Financial Officer
James Burk has been Chief Financial Officer since May 2012. Mr. Burk has held high-level finance positions within various public and private organizations and industries for the past 33 years. Most recently, Mr. Burk served as Chief Financial Officer of Nero AG, a global consumer software company, from May 2010 through March 2012. He was responsible for the finance, accounting, legal, treasury, planning and forecasting functions. Prior to that, Mr. Burk served as Chief Financial Officer for Youbet.com, an online gaming company, from July 2007 through March 31, 2009, where he was responsible for finance, accounting, treasury, planning and forecasting, human resources and facilities as well as compliance with financial reporting requirements of the Securities and Exchange Commission (the “SEC”). Prior to joining Youbet, Mr. Burk served as Chief Financial Officer of Palace Entertainment Holdings, Inc., an operator of water parks and family entertainment centers, where he managed finance, treasury, information systems, business development analysis, planning and forecasting, as well as compliance with financial reporting requirements of the SEC.
He is a Certified Public Accountant (currently inactive). Mr. Burk started his career at PriceWaterhouseCoopers and earned his degree in Business Administration from the University of Southern California.
Qualifications: Mr. Burk brings extensive experience as a CFO with both public and private companies as well as a recently working for software and internet companies.
Ian Lambert, Director
Mr. Lambert has been our director and a member of the audit committee since December 2011. Mr. Lambert's broad exposure to a wide range of business activities includes experience in oil & gas development, marketing, manufacturing, data processing operations and software development, and precious metals and mineral exploration and development. His current and recent positions include: COO Grizzly Discoveries Inc. (mineral exploration) March 2013 to present, CEO/President/Director, Trade Winds Ventures Inc., (mineral exploration) April 1990 to December 2011; Director, North Sea Energy Inc., (oil and gas production), Sept. 2007 to present; Director, Sunorca Development Corp. (energy, oil & gas projects) December, 2000 to June 2014; Director, Strategic Mining Corp., (mineral exploration) March 2010 to December 2012; Advisory Board/Director, MobileBits Corp. (wireless mobile technology) November, 2009 to present. Prior to becoming an Officer and Director of public companies, he served several years each as Manager, Systems Consulting for Deloitte Haskins & Sells Associates, Manager Systems Development for Cominco Ltd. and MacMillan Bloedel Ltd., and Systems Analyst, Mobil Oil Canada.
Qualifications: Mr. Lambert has over forty years of experience in the management and financing of public companies and had over twenty one years with Trade Winds Ventures Inc. (TWD). He holds a Bachelor of Commerce degree in quantitative analysis and computer science from the University of Saskatchewan. His strengths are in the areas of corporate structuring and strategic planning, regulatory compliance with both the SEC and Canadian regulatory authorities, public financing arrangements and investor and institutional marketing activities. He recently led a transaction to sell Trade Winds Ventures to Detour Gold Corporation, valued at $84 million. Trade Winds Ventures is a TSX Venture Top 50 Company. He is an active Director and Chair of the Audit Committee for North Sea Energy Inc. (NUK), a publicly traded North Sea oil producer.
Code of Ethics
The Company adopted a Code of Ethics policy in December 2012.
Audit Committee Financial Expert
The Board of Directors has established an audit committee and has an audit committee financial expert, Ian Lambert.
Committees and Procedures
The registrant has standing Audit, Nominating and Compensation Committees of the Board of Directors. We have not formed a corporate governance committee as of the filing of this Annual Report. However, we intend to implement a comprehensive corporate governance program, including establishing a Corporate Governance Committee. The Company adopted a Code of Ethics policy in December 2012. In reviewing nominations, some members of the Board are not independent, pursuant to the definition of independence of a national securities exchange registered pursuant to Section 6(a) of the Act (15 U.S.C. 78f(a). We have no policy with regard to the consideration of any director candidates recommended by security holders, but the committee will consider director candidates recommended by security holders. The Board considers candidates recommended by security holders, and by security holders in submitting such recommendations. There are no specific, minimum qualifications that the Board of Directors believes must be met by a nominee recommended by security holders except to find anyone willing to serve with a clean background. The Board’s process for identifying and evaluation of nominees for director, including nominees recommended by security holders, is to find qualified persons willing to serve with a clean backgrounds. There are no differences in the manner in which the Board evaluates nominees for director based on whether the nominee is recommended by a security holder, or found by the board.
The Compensation Committee, with three independent members, is responsible for the approval and implementation of the Company’s compensation plans and benefit programs.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who beneficially own more than ten percent of a registered class of our equity securities (referred to as “reporting persons”), to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of common stock and other MobileBits equity securities. Reporting persons are required by Commission regulations to furnish us with copies of all Section 16(a) forms they file. We believe, based solely on our review of the copies of such forms and other written representations to us, that during the fiscal year ended October 31, 2014, all reporting persons have complied with all applicable Section 16(a) filing requirements.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named executive officer during the years ended October 31, 2014 and 2013 in all capacities for the accounts of our executive, including the Chief Executive Officer (CEO), Chief Operating Officer and Chief Financial Officer (CFO):
SUMMARY COMPENSATION TABLE
(1)Mr. Kirschner was promoted to Interim CEO on June 19, 2014.
(2)Mr. Abu Hassan was hired as President and Chief Operating Officer on April 21, 2014.
(3) Mr. Burk was hired as CFO on May 1, 2012.
(4) Chief Executive Officer and Chief Financial Officer as of October 31, 2011. Mr. Kostiuk resigned from his position as CEO on the closing of the Merger which took place on December 6, 2011 and was reinstated as CEO upon the resignation of Mr. Abai on August 1, 2012. Mr. Kostiuk resigned from his position as CFO upon the hiring of Mr. Burk on May 1, 2012. Mr. Kostiuk resigned as CEO on May 30, 2014.
(5) Mr. Marshall was appointed COO on October 1, 2012 and resigned on May 15, 2013.
(6) Company paid health insurance premiums.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table provides information regarding unexercised stock options and unvested stock awards held by our named executive officers as of October 31, 2014.
(1) Mr. Kirschner was promoted to Interim Chief Executive Officer on June 19, 2014.
(2) Mr. Hassan joined the Company as President and Chief Operating Officer on April 21, 2014.
(3) Mr. Burk was hired as CFO on May 1, 2012. Unvested options of James Burk are 1,000,000.
Long-Term Incentive Plan Awards
The Company has no long-term incentive plans.
Compensation of Directors
Director Agreements with Kent Kirschner (employee director)
On September 8, 2014 Kent Kirschner entered into a Director Agreement with the Company, and its two wholly-owned subsidiaries, Pringo and MobileBits Corporation. Pursuant to the Director Agreements of our non-employee directors agreed to act as directors of the Company, and its subsidiaries Pringo and MobileBits Corporation. Pursuant to the Director Agreement, the Company agreed to Mr. Kirschner to the fullest extent that would be permitted by law or by the organizational documents of the Company for certain liabilities arising by reason of his directorship with the Company, excluding liabilities resulted from fraud, gross negligence or willful misconduct of such director. Mr. Kirschner is also subject to a non-disclosure covenant and a non-solicitation covenant.
Pursuant to the Director Agreement, Mr. Kirschner is entitled to receive an option to purchase a total of 150,000 shares of common stock of the Company at an exercise price of $0.15 per share and after eighteen months’ service on the Board, the Director shall have the option to purchase an additional 180,000 shares of the Company’s common stock at $0.15 per share for the Director’s services rendered hereunder for all three entities, subject to the vesting schedule provided in the Director Agreements. Each director is also entitled to receive $300 for each Board meeting he attended in person and $150 for each Board meeting he remotely attended. During the directorship term, the Company shall reimburse the directors for all reasonable out-of-pocket expenses incurred by the directors in attending any in-person meetings, provided that the director complies with the generally applicable policies, practices and procedures of the Company for submission of expense reports, receipts or similar documentation of such expenses.
Director Agreement with Hussein Abu Hassan (employee director)
On April 21, 2014 Hussein Abu Hassan entered into a Director Agreement with the Company, and its two wholly-owned subsidiaries, Pringo and MobileBits Corporation. Pursuant to the Director Agreements of our non-employee directors agreed to act as directors of the Company, and its subsidiaries Pringo and MobileBits Corporation. Pursuant to the Director Agreement, the Company agreed to Mr. Abu Hussein to the fullest extent that would be permitted by law or by the organizational documents of the Company for certain liabilities arising by reason of his directorship with the Company, excluding liabilities resulted from fraud, gross negligence or willful misconduct of such director. Mr. Abu Hussein is also subject to a non-disclosure covenant and a non-solicitation covenant.
Pursuant to the Director Agreement, Mr. Abu Hassan is entitled to receive an option to purchase a total of 150,000 shares of common stock of the Company at an exercise price of $0.05 per share for the Director’s services rendered hereunder for all three entities, subject to the vesting schedule provided in the Director Agreements. Each director is also entitled to receive $300 for each Board meeting he attended in person and $150 for each Board meeting he remotely attended. During the directorship term, the Company shall reimburse the directors for all reasonable out-of-pocket expenses incurred by the directors in attending any in-person meetings, provided that the director complies with the generally applicable policies, practices and procedures of the Company for submission of expense reports, receipts or similar documentation of such expenses.
Our employee directors Mr. Abu Hassan and Mr. Kirschner are not compensated for being directors.
Director Agreement with, Ian Lambert (non-employee director)
On December 7, 2011 Ian Lambert entered into a Director Agreement with the Company, and its two wholly-owned subsidiaries, Pringo and MobileBits Corporation. Pursuant to the Director Agreement of our non-employee director agreed to act as directors of the Company, and its subsidiaries Pringo and MobileBits Corporation. Pursuant to the Director Agreement, the Company agreed to Mr. Lambert to the fullest extent that would be permitted by law or by the organizational documents of the Company for certain liabilities arising by reason of his directorship with the Company, excluding liabilities resulted from fraud, gross negligence or willful misconduct of such director. Mr. Lambert is also subject to a non-disclosure covenant and a non-solicitation covenant.
Pursuant to the Director Agreement, Mr. Lambert is entitled to receive an option to purchase a total of 150,000 shares of common stock of the Company at an exercise price of $0.51 per share for the Director’s services rendered hereunder for all three entities, subject to the vesting schedule provided in the Director Agreements. In October 2013, the Board agreed to issue Mr. Lambert 250,000 options of the Company’s common stock at an exercise price of $0.15, vested immediately, for his continuing service as a board member. Each of the three directors is also entitled to receive $300 for each Board meeting he attended in person and $150 for each Board meeting he remotely attended. During the directorship term, the Company shall reimburse the directors for all reasonable out-of-pocket expenses incurred by the directors in attending any in-person meetings, provided that the director complies with the generally applicable policies, practices and procedures of the Company for submission of expense reports, receipts or similar documentation of such expenses.
Employment Contracts
Employment Agreement with Kent Kirschner
On June 19, 2914 Kent Kirschner accepted the appointment to Interim Chief Executive of MobileBits Holding Corporation, MobileBits Corporation and Pringo, Inc. Mr. Kirschner’s annual base salary is $90,000 as well as 7% commission on cash receipts on revenues of customers for which he is identified as the originating sales person as for up to two years as long as he is employed by the company. He is also entitled to Company paid health insurance.
Employment Agreement with Hussein Abu Hassan
On April 21, 2014 the Company executed an employment agreement with Hussein Abu Hassan. This agreement was subsequently amended on July 2, 2014. Under the amended agreement, Mr. Abu Hassan will serve as the Company’s President and Chief Operating Officer for an initial term of three years, which term shall automatically renew for successive one year periods after the initial term unless either party gives the other at least thirty (30) days’ written notice of non-renewal. Mr Abu Hassan’s basic annualized salary shall be at least $150,000.00, subject to an increase from time to time as mutually agreed between the Company and Mr. Abu Hassan. Mr. Abu Hassan shall be eligible to receive incentive annual bonus compensation with a target equal to 100% of his annual base salary. The Company’s Board also has discretion to award an additional bonus or bonuses to Mr. Abu Hassan.
Mr. Abu Hassan received non-qualified stock options to purchase an aggregate of Fifteen Million (15,000,000) shares of the Company’s common stock. These options are non-transferable and vested immediately. These options have a term of seven (7) years and the exercise price of the options shall be equal to the fair market value of the stock on the date of grant which the parties mutually agreed was $0.08. Mr. Abu Hassan shall also be eligible to receive additional stock options as determined by the Board in accordance with the Company’s practices applicable to senior employees of the Employer.
The Company agreed to make such additional payments to Mr. Abu Hassan as are necessary to provide him with enough funds to pay any and all taxes attributable to or resulting from the payment of his base salary, bonus and any other compensation paid to him under the amended agreement, including without limitation to any and all income tax arising under the Internal Revenue Code, and state, Canadian and provincial laws. The Company shall make any tax gross up payments required no later than 105 days after the last day of each taxable year.
During the term, Mr. Abu Hassan shall be provided with the health insurance equivalent to that provided to other executives of the Company, disability insurance and such other benefits as may be offered by the Company to executive level employees and shall be reimbursed for all reasonable expenses incurred in the performance of his duties, including without limitation, all travel expenses related to his duties on behalf of the Company and for all membership fees and related costs in connection with his membership in approved professional and civic organizations.
The amended agreement contains customary indemnification provisions for Mr. Abu Hassan as an executive officer of the Company and subjects Mr. Abu Hassan to a non-disclosure covenant.
The amended agreement may be terminated voluntarily by Mr. Abu Hassan upon at least ten business days’ notice, terminated for Good Reason (as defined in the amended agreement) by Mr. Abu Hassan (in which case Mr. Abu Hassan will be entitled to receive his base salary and other compensation and employee benefits for a period of twelve months), terminated by the Company for Good Cause (as defined in the amended agreement) or terminated by the Company without Good Cause (in which case Mr. Abu Hassan will be entitled to receive his base salary and other compensation and employee benefits for a period of twelve months). The amended agreement also terminates upon Mr Abu Hassan’s death, disability, illness or incapacity.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A. The following table lists, as of February 13, 2015, the number of shares of common stock of our Company that are beneficially owned by (i) each person or entity known to our Company to be the beneficial owner of more than 5% of the outstanding common stock; (ii) each officer and director of our Company; and (iii) all officers and directors as a group. Information relating to beneficial ownership of common stock by our principal shareholders and management is based upon information furnished by each person using “beneficial ownership” concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except as noted below, each person has sole voting and investment power.
The percentages below are calculated based on 135,094,389 shares of our common stock issued and outstanding as of February 13, 2015. Unless otherwise indicated, the address of each person listed is c/o MobileBits Holdings Corporation, 5901 N. Honore Ave, Suite 110, Sarasota, Florida 34243.
(1) Unless otherwise indicated, each person named in the above-described table has the sole voting and investment power with respect to his shares of the Common Stock beneficially owned.
(2) Unless otherwise provided, the calculation of percentage ownership is based on 135,094,389 shares of our common stock issued and outstanding as of February 13, 2015, any shares of the Common Stock which are not outstanding as of such date but are subject to options, warrants, or rights of conversion exercisable within 60 days of February 13, 2013 shall be deemed to be outstanding for the purpose of computing percentage ownership of outstanding shares of the Common Stock by such person but shall not be deemed to be outstanding for the purpose of computing the percentage ownership of any other person.
(3) Includes shares issuable pursuant to options that are currently exercisable (or may become exercisable on or before January29, 2015) as follows: Mr. Abu Hassan, 15,000,000, Mr. Kirschner, 1,135,387, Mr. Burk, 833,333 Mr. Lambert, 441,667 and warrants to Mr. Fleyshmakher, 300,000; and for all directors and executive officers as a group, 17,710,387.
(4) Includes 2,200,000 Common Stock held by Bit by Bit Holdings of which Alex Fleyshmakher is a principal owner.
B. Persons Sharing Ownership of Control of Shares
Except as set forth in footnote 3 above, there are no persons sharing ownership or control of shares.
C. Non-voting Securities and Principal Holders Thereof
The Company has not issued any non-voting securities.
D. Preferred Stock
The Company has 10,000,000 shares of $0.001 par value preferred stock authorized with $0.001 par value. No preferred shares have been issued.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Related Persons.
As of October 31, 2013, the Company had outstanding payables to related parties of the Company in the amount of $616,499. $228,000 was owed to The Abai Group, Inc. for the services performed and Majid Abai $350 for accrued interest; $164,381 was owed to Walter Kostiuk primarily for commissions on sale of the Company’s common stock and unpaid salary and $223,768 was owed to Andrew Marshall for unpaid salary and expenses. During the year ended October 31, 2013, the Company paid Walter Kostiuk $25,000 related to a Market Capitalization Bonus pursuant to his employment agreement. In January 2013, the Company engaged Andrea Kostiuk, wife of Walter Kostiuk, as an independent contractor to provide marketing support services. The contract provides for her to receive $2,240 per month which was increased to $2,800 as of September 1, 2013. For the year ended October 31, 2013, her fees totaled $21,280 and there were no unpaid fees as of October 31, 2013.
As of October 31, 2012, the Company had outstanding payables to related parties of the Company in the amount of $630,878. $227,154 was owed to The Abai Group, Inc. for the services performed and $110,173 for accrued severance benefits; $164,380 was owed to Walter Kostiuk primarily for commissions on sale of the Company’s common stock and unpaid salary and $129,171 was owed to Andrew Marshall for unpaid salary and expenses. During the year ended October 31, 2012, the Company paid Walter Kostiuk $20,000 primarily related to salary owed.
In January 2013, the Company engaged Andrea Kostiuk, wife of Walter Kostiuk, as an independent contractor to provide marketing support services. The contract provides for her to receive $2,240 per month which was increased to $2,800 as of September 1, 2013. For the year ended October 31, 2014, her fees totaled $11,420 and there were no unpaid fees as of October 31, 2014. For the year ended October 31, 2013, her fees totaled $21,280 and there were no unpaid fees as of October 31, 2013.
The Officers and Directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, such persons may face a conflict in selecting between the Company and their other business interests. The Company has not formulated a policy for the resolution of such conflicts.
Parents of Issuer. The Company has no parents.
Promoters and Control Persons. The Company has not had a promoter at any time since inception.
Director Independence
Because our common stock is not currently listed on a national securities exchange, we have used the definition of “independence” of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the Company or any other individual having a relationship which, in the opinion of the Company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent if:
· the director is, or at any time during the past three years was, an employee of the company;
· the director or a family member of the director accepted any compensation from the company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service);
· a family member of the director is, or at any time during the past three years was, an executive officer of the company;
· the director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the company made, or from which the company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions);
· the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the company served on the compensation committee of such other entity; or the director or a family member of the director is a current partner of the company’s outside auditor, or at any time during the past three years was a partner or employee of the company’s outside auditor, and who worked on the company’s audit.
We have 2 independent directors.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The aggregate fees billed by our independent auditors, GBH CPAs, PC, for professional services rendered for the audit of our annual financial statements included for the years ended October 31, 2014 and 2013 were $72,000 and $88,700, respectively.
Audit-Related Fees
For the years ended October 31, 2014 and 2013, there were no fees billed for assurance and related services by our auditor relating to the performance of the audit of our financial statements which are not reported under the caption “Audit Fees” above.
Tax Fees
We do not use our auditors for tax compliance, tax advice and tax planning.
All Other Fees
None
The Board of Directors has considered the nature and amount of fees billed by our auditors and believes that the provision of services for activities unrelated to the audit is compatible with maintaining GBH CPAs, PC’s independence.
Policy on pre-approval of audit and permissible non-audit services
Our Board of Directors unanimously approved 100% of the fees paid to the principal accountant for audit-related, tax and other fees. Our Board of Directors pre-approves all non-audit services to be performed by the auditor. The percentage of hours expended on the principal accountant’s engagement to audit our financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees was 0%.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
In reviewing any agreements incorporated by reference in this Form 10-K or filed with this 10-K, please remember that such agreements are included to provide information regarding their terms. They are not intended to be a source of financial, business or operational information about MobileBits or any of its subsidiaries or affiliates. The representations, warranties and covenants contained in these agreements are made solely for purposes of the agreements and are made as of specific dates; are solely for the benefit of the parties; may be subject to qualifications an limitations agreed upon by the parties in connection with negotiating the terms of the agreements, including being made for the purpose of allocating contractual risk between the parties instead of establishing matters as facts; and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors or security holders. Investors and security holders should not rely on the representations, warranties and covenants or any description thereof as characterizations of the actual state of facts or condition of MobileBits or any of its subsidiaries or affiliates or, in connection with acquisition agreements, of the assets to be acquired. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the agreements. Accordingly, these representations and warranties alone may not describe the actual state of affairs as of the date they were made or at any other time.
† Filed herein.
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MOBILEBITS HOLDINGS CORPORATION
Date: February 13, 2015 By: /s Kent Kirschner
Kent Kirschner, Interim Chief Executive Officer, (Duly Authorized Officer and Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed as of February 13, 2015 by the following persons on behalf of the registrant in the capacities indicated:
Signature
Title
/s/ Hussein Abu Hassan
Vice Chairman of the Board, President and
Chief Operating Officer
Hussein Abu Hassan
/s/ James Burk
Chief Financial Officer
James Burk
/s/ Kent Kirschner
Director
Kent Kirschner
/s/ Ian Lambert
Director
Ian Lambert
/s/ Alex Fleyshmakher
Director
Alex Fleyshmakher