UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

 

x

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

 

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2014

 

OR

 

 

o

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

 

For the transition period from _______________________ to _____________

 

Commission file number 001-31590

 

ProText Mobility, Inc.

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

 

Delaware

11-3621755

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

 

22 S.E. 2nd Avenue

 

Delray Beach, FL

33444

(Address of principal executive offices)

(Zip Code)

 

Issuer's telephone number, including area code (800) 215-4212

 

 

 

 

 (Former name or former address, if changed since last report)

16885 River Birch Circle

 

Delray Beach, FL

33445



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  o  No  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):

 

 

 

 

 

 

 

 

 

 

 

 

 

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company x

 

 

(Do not check if a smaller

 

 

 

reporting company)

 

                        

 

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

 

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

The outstanding number of the issuer's common stock, par value $.00001, as of August 13, 2014 is 112,068,328 shares.

 

 





PROTEXT MOBILITY, INC. AND SUBSIDIARIES

 

INDEX

 

 

 

 

 

 

 

 

 

 

Page No.

 

 

Forward-Looking Statements

12

 

 

PART I FINANCIAL INFORMATION

 

 

 

ITEM 1 – Financial Statements:

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2014 (Unaudited) and December 31, 2013

3

 

 

Condensed Consolidated Statements of Operations For the Three and Six Months ended June 30, 2014 and 2013 (Unaudited)

4

 

 

Condensed Consolidated Statements of Cash Flows For the Six Months ended June 30, 2014 and 2013 (Unaudited)

5

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

6 - 11

 

 

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

12

 

 

ITEM 3 – Quantitative and Qualitative Disclosure about Market Risk

16

 

 

ITEM 4 –Controls and Procedures

16

 

 

PART II:

 

 

 

Item 1 – Legal Proceedings

17

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

17

Item 3 – Defaults upon Senior Securities

17

Item 4 – Mine Safety Disclosures

17

Item 5 - Other Information

17

Item 6 – Exhibits

17

Signature Page

18

 

 

 
















PROTEXT MOBILITY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 June 30,

 

 December 31,

ASSETS

 

2014

 

2013

 

 

 (Unaudited)

 

 

Current Assets:

 

 

 

 

  Cash

 

$

11,403 

 

$

41 

  Inventory

 

9,730 

 

  Prepaid expenses and other assets

 

4,500 

 

4,500 

    Total current assets

 

25,633 

 

4,541 

 

 

 

 

 

     Total assets

 

$

25,633 

 

$

4,541 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

  Accounts payable and accrued expenses

 

$

2,476,053 

 

$

2,406,430 

  Accounts payable-related parties

 

34,632 

 

11,850 

  10% Convertible notes payable

 

114,034 

 

114,034 

  Convertible notes payable, other, net of debt discount

 

1,168,257 

 

1,193,460 

  Convertible notes payable, other, net of debt discount-related parties

 

122,000 

 

122,000 

  Loans payable

 

12,500 

 

  Derivative liabilities

 

870,729 

 

345,857 

    Total current liabilities

 

4,798,205 

 

4,193,631 

 

 

 

 

 

    Dividends payable

 

1,737,175 

 

1,505,215 

    Convertible notes payable, other, net of debt discount

 

 

4,331 

  Total liabilities

 

6,535,380 

 

5,703,177 

 

 

 

 

 

Stockholders' Deficit:

 

 

 

 

  Preferred Stock -$0.0001 par value, authorized 25,000,000 shares

 

 

 

 

  Series A Preferred Stock, $2.62 liquidation value,

 

 

 

 

  1,526,718 designated, issued and outstanding- 28,968 and 28,968

 

 

  Series B Preferred Stock, $9.09 liquidation value,

 

 

 

 

  1,000,000 designated, issued and outstanding- 511,551 and 511,511

 

51 

 

51 

  Series C Preferred Stock - $0.001 par value, 3,900,000 designated;

 

 

 

 

  issued and outstanding, 3,650,000 and 3,650,000

 

100,000 

 

100,000 

  Common stock; $0.00001 par value; 10,000,000,000 shares authorized;

 

 

 

 

     52,706,574 and 1,733,570 issued and outstanding

 

527 

 

17 

  Additional paid-in capital

 

46,096,246 

 

45,548,849 

  Accumulated deficit

 

(52,706,574)

 

(51,347,556)

 

 

 

 

 

     Total stockholders’ deficit

 

(6,509,747)

 

(5,698,636)

 

 

 

 

 

     Total liabilities and stockholders’ deficit

 

$

25,633 

 

$

4,541 

 

 

 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

 

-3-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 





PROTEXT MOBILITY, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

 

 

Three-Month Periods Ended

 

Six-Month Periods Ended

 

 

June 30,

 

June 30,

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

Revenues:

 

$

 

$

377 

 

$

 

$

642 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

  Research and development

 

37,200 

 

 

37,200 

 

 Selling, general and administrative

 

211,428 

 

191,266 

 

431,820 

 

386,268 

    Total operating expenses

 

248,628 

 

191,266 

 

469,020 

 

386,268 

 

 

 

 

 

 

 

 

 

 Operating loss

 

(248,628)

 

(190,889)

 

(469,020)

 

(385,626)

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

  Changes in fair value of derivative liability

 

(130,028)

 

(41,699)

 

(124,092)

 

(81,241)

  Interest expense-related parties

 

(3,074)

 

(2,925)

 

(6,150)

 

(5,850)

  Interest expense

 

(316,560)

 

(124,608)

 

(527,796)

 

(224,994)

 

 

(449,662)

 

(169,232)

 

(658,038)

 

(312,085)

 

 

 

 

 

 

 

 

 

Net loss

 

(698,290)

 

(360,121)

 

(1,127,058)

 

(697,711)

 

 

 

 

 

 

 

 

 

Less dividends series  B preferred stock

 

(117,002)

 

(117,542)

 

(231,960)

 

(232,500)

 

 

 

 

 

 

 

 

 

Net loss attributable to common stock

 

$

(815,292)

 

$

(477,663)

 

$

(1,359,018)

 

$

(930,211)

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic and diluted

 

 

 

 

 

 

 

 

  Net loss per share

 

$

(0.17)

 

$

(0.68)

 

$

(0.28)

 

$

(1.61)

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted weighted average

common shares outstanding

 

24,583,687 

 

705,930 

 

36,558,358 

 

                 577,082

 

 

 

 

 

 

 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

-4-




 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PROTEXT MOBILITY, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

Six-Month Periods Ended

 

 

June 30,

 

 

2014

 

2013

Cash flows from operating activities:

 

 

 

 

Net loss

 

$

(1,127,058)

 

$

(697,711)

Adjustments to reconcile net loss  to

 

 

 

 

 net cash used in operating activities:

 

 

 

 

 

 

 

 

 

  Amortization of debt discount

 

446,364 

 

96,027 

  Original issue discount

 

 4,500 

 

  Common stock issued for services

 

18,817 

 

36,200 

  Common stock issued for directors compensation

 

80,000 

 

80,000 

  Common stock issued for interest

 

 

6,918 

  Debt modification

 

 

58,049 

  Change in fair value of derivative liability

 

124,092 

 

81,241 

Changes in operating assets and liabilities:

 

 

 

 

  Deposit

 

 

2,700 

  Inventory

 

(9,730)

 

  Accounts payable and accrued expenses-related parties

 

6,150 

 

3,074 

  Accounts payable and accrued expenses

 

94,057 

 

167,101 

Net cash used in operating activities

 

(362,808)

 

(166,401)

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Proceeds from sale of common stock

 

 

20,848 

Proceeds from issuance of convertible notes payable

 

436,500 

 

180,500 

Principal repayments of convertible notes payable

 

(74,830)

 

(25,000)

Principal repayments of loan payable

 

(12,250)

 

Proceeds from issuance of loans payable

 

24,750 

 

6,000 

 

 

 

 

 

Net cash provided by financing activities

 

374,170 

 

182,348 

 

 

 

 

 

 Net increase  in cash

 

11,362 

 

15,947 

 

 

 

 

 

Cash, beginning of period

 

41 

 

349 

 

 

 

 

 

Cash, end of period

 

$

11,403 

 

$

16,296 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

  Cash paid for interest

 

$

13,552 

 

$

  Cash paid for income taxes

 

$

 

$

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

 

Common stock issued pursuant to conversion of convertible debt

 

$

212,368 

 

$

142,210 

Common stock issued to satisfy accrued interest

 

$

 

$

3,900 

Restricted stock issued in connection with issuance of bridge loans

 

$                       - 

 

$

3,965 

Embedded conversion features

 

$

644,736 

 

$

10,000 

Beneficial conversion features

 

$                    - 

 

$

87,920 

Reclassification of liability contracts to equity

 

$

244,406 

 

$

Deemed dividends- Series B preferred Stock

 

$

231,960 

 

$

232,500

Common stock issued pursuant to conversion of loans payable

 

$

 

$

11,000 

 

 

 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

-5-




PROTEXT MOBILITY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014 and 2013

 

NOTE 1 - DESCRIPTION OF BUSINESS AND GOING CONCERN

 

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

 

ProText Mobility, Inc. develops, markets and sells software solutions for the mobile communications market primarily aimed at protecting children from dangers derived from mobile communications and mobile device use. The Company has evolved its business plan from developing software solely for personal computers (“PCs”) to developing software for products designed for the mobile industry. The Company’s offerings include solutions for both the consumer and enterprise markets, with downloadable applications for mobile communications devices: SafeText, DriveAlert & CompliantWireless.   

 

SafeText is a service for mobile devices that provides parents a tool to help manage their children’s mobile communication activities.  DriveAlert is a virtual "lock-box" designed to help mitigate the risk of driving while distracted. Compliant Wireless is a proprietary mobile platform designed for small to large companies to manage employee’s use of mobile devices for business by providing insight into the content and activity generated within their mobile work environment.


The consolidated balance sheet presented as of December 31, 2013 has been derived from our audited consolidated financial statements. The unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been omitted pursuant to those rules and regulations, but we believe that the disclosures are adequate to make the information presented not misleading. The unaudited consolidated financial statements and notes included herein should be read in conjunction with the annual financial statements and notes for the year ended December 31, 2013 included in our Annual Report on Form 10-K/A filed with the SEC on May 9, 2014.  In the opinion of management, all adjustments, consisting of normal, recurring adjustments and disclosures necessary for a fair presentation of these interim statements have been included. The results of operations for the three and six-month period ended June 30, 2014 are not necessarily indicative of the results for the year ending December 31, 2014.


The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  To date, the Company has generated minimal revenue and has a history of net losses. As reflected in the consolidated financial statements, the Company incurred net losses of approximately $1.1 million and $700,000 for the six months ended June 30, 2014 and 2013, respectively.  In addition, the Company had a working capital deficiency of approximately $4.8 million and an accumulated deficit of approximately $52.7 million at June 30, 2014.


As noted in the Company’s auditor report for the year ended December 31, 2013, these circumstances raise substantial doubt about the Company's ability to continue as a going concern.  The unaudited consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.  Management's efforts have been directed towards the development and implementation of a plan to generate sufficient revenues to cover all of its present and future costs and expenses. This plan is to address mobile messaging market opportunities with novel, comprehensive and robust solutions for the consumer and enterprise market.

 

If the Company does not generate sufficient revenues from the sales of its products in an amount necessary to meet its cash needs, the Company will need additional financing to continue to operate. There are no assurances that the Company can continue to successfully raise additional financing.  If the Company fails to raise additional financing, it might have to file for reorganization under bankruptcy laws to satisfy its outstanding liabilities.  


The accompanying unaudited consolidated financial statements have been prepared, in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).  The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation.




6





  

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

  

Basis of Presentation:

 

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

 

Revenue Recognition:

 

The Company recognizes revenues in accordance with authoritative guidance when services have been rendered, the sales price is determinable and collectability is reasonably assured.


The Company has launched DriveAlert, one of the Company’s products, with certain U.S. auto dealerships during the second quarter of 2014.  Revenue from DriveAlert, consists of fees charged for the use of car device with downloadable software.  The terms with the end-users range between one to seven years and are payable upfront to the dealerships, which then remits the proceeds, net of their commissions to the Company.


The Company sells hardware containing software components that are essential to the overall functionality of the products. The Company recognizes revenue recognition to remove tangible products containing software components and non-software components that function together to deliver the product’s essential functionality from the scope of industry-specific software revenue recognition guidance.

 

For multiple element arrangements that include software and non-software related elements, the Company allocates revenue to each software and non-software element as a group based upon the relative selling price of each in accordance with the selling price hierarchy, which includes VSOE if available, third-party evidence (“TPE”), if VSOE is not available, and estimated selling price, if VSOE or TPE are not available.  Revenue allocated to each element is then recognized when the basic revenue recognition criteria are met for each element.

 

In unique circumstances, we are unable to establish VSOE for all deliverables in a multiple-element arrangement.  This is due to an infrequent requested item from a customer.  When VSOE cannot be established, we attempt to establish a selling price based on TPE, which is primarily based on competitor prices for similar deliverables.  TPE and ESP are rarely used and mostly on insignificant items.


Revenue from online Internet sales is recognized upon the settlement of credit card charges, typically within three days of the sale.  

 

Use of Estimates:

 

The preparation of unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 reporting amounts of revenues and expenses during the reported period. Actual results will differ from those estimates. Included in these estimates are assumptions about collection of accounts receivable, useful life of fixed assets and intangible assets, and assumptions used in the valuation of derivative liability using the binomial method, such as expected volatility, risk-free interest rate, and expected dividend rate.

 

Earnings Per Share:

 

The Company utilizes the guidance per FASB Codification “ASC 260 "Earnings Per Share". Basic earnings per share is calculated on the weighted effect of all common shares issued and outstanding, and is calculated by dividing net income available to common stockholders by the weighted average shares outstanding during the period. Diluted earnings per share, which is calculated by dividing net income available to common stockholders by the weighted average number of common shares used in the basic earnings per share calculation, plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities outstanding, is not presented separately as it is anti-dilutive. Such securities, shown below, presented on a common share equivalent basis and outstanding as of June 30, 2014 and 2013 have been excluded from the per share computations as their effect would be anti-dilutive:

 

Anti-dilutive common share equivalents at June 30:

  June 30,                June 30,

 

 2014

 

2013

Stock options

22,428

 

23,772

Convertible Preferred Stock

64,306

 

64,306

Convertible Notes Payable

646,636,756

 

610,977

Warrants

40,912

 

41,161

 

646,764,644

 

740,216

 

Stock Based Compensation:

 

The Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation-Stock Compensation, or ASC 718. Under the fair value recognition provisions of this topic, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, which is the vesting period.

 

The Company has elected to use the BSM option-pricing model to estimate the fair value of its options, which incorporates various subjective assumptions including volatility, risk-free interest rate, expected life, and dividend yield to calculate the fair value of stock option awards. Compensation expense recognized in the statements of operations is based on awards ultimately expected to vest and reflects estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.


Research and Development Costs:

 

Costs incurred in the research and development of software products and significant upgrades and enhancements thereto during the preliminary project stage and the post-implementation operation stage are expensed as incurred. Costs incurred for maintenance and relatively minor upgrades and enhancements are expensed as incurred. Costs associated with the application development stage of new software products and significant upgrades and enhancements thereto are capitalized when 1) management implicitly or explicitly authorizes and commits to funding a software project and 2) it is probable that the project will be completed and the software will be used to perform the function intended.


Research and development costs were expensed as incurred. The Company’s research and development costs amounted to $37,200 during the six months ended June 30, 2014 and 2013.

 

Inventory

Inventory at June 30, 2014 consists of units of DriverAlert held at the Company’s premises and at auto dealerships which have not been seen sold yet.  The inventory is stated at the lower of cost or market.  Cost is determined using the first-in, first-out method.

 

7

 

 

 

 

Derivative Liabilities:

 

The Company assessed the classification of its derivative financial instruments as of June 30, 2014, which consist of convertible instruments and rights to shares of the Company’s common stock, and determined that such derivatives meet the criteria for liability classification under ASC 815.

 

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

 

During the six months ended June 30, 2014 and 2013, the Company had notes payable outstanding in which the conversion rate was variable and the embedded conversion feature was not clearly and closely related to the economic characteristics and risks of the host contract.  Accordingly, the Company has recognized a derivative liability in connection with such instruments. The Company uses judgment in determining the fair value of derivative liabilities at the date of issuance at every balance sheet thereafter and in determining which valuation is most appropriate for the instrument (e.g., Binomial), the expected volatility, the implied risk free interest rate, as well as the expected dividend rate.

 

 

Cash Equivalents:

 

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

 

Fair Value of Financial Instruments:

 

ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value: 

   

 Level 1 - Quoted prices in active markets for identical assets or liabilities.

 

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.


To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement. Items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements consisted of the following items as of June 30, 2014 and December 31, 2013:

 

 

 

 

 

 

Fair Value Measurements at June 30, 2014 using:

 

 

 

June 30,

 2014

 

 

Quoted Prices

 in Active

 Markets for

 Identical

 Assets

 (Level 1)

 

 

Significant

 Other

 Observable

 Inputs (Level 2)

 

 

Significant

 Unobservable

 Inputs

 (Level 3)

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Derivative liabilities

 

$

870,729

 

 

$

-

 

 

   $

-

 

 

$

870,729

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

Fair Value Measurements at December 31, 2013 using:

 

 

 

December 31,

 2013

 

 

Quoted Prices

 in Active

 Markets for

 Identical

 Assets

 (Level 1)

 

 

Significant

 Other

 Observable

 Inputs (Level 2)

 

 

Significant

 Unobservable

 Inputs

 (Level 3)

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Derivative liabilities

 

$

345,857

 

 

$

-

 

 

   $

-

 

 

$

345,857

 


The debt derivative  and warrant liabilities are measured at fair value using quoted market prices and estimated volatility factors based on historical prices for the Company’s common stock and are classified within Level 3 of the valuation hierarchy.

 

8

 

The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of and for the periods ended June 30, 2014 and December 31, 2013, respectively.


 

 

Debt Derivative

 Liability

Balance, January 1, 2013

 

$

Initial fair value of embedded conversion features at note issuances

 

 

379,952 

Reclassification of liability contract to equity

 

 

Changes in fair value between measurement dates

 

 

(34,095)

Balance, December 31, 2013

 

$

345,857 

 

 

 

 

 

 

Debt Derivative

 Liability

Balance, January 1, 2014

 

$

345,857 

Initial fair value of embedded conversion features at note issuances

 

 

644,736 

Reclassification of liability contract to equity

 

 

(244,406)

Changes in fair value between measurement dates

 

 

124,092 

Balance, June 30, 2014

 

$

870,279 

 

 

 

 

 

Level 3 Liabilities are comprised of our bifurcated convertible debt features on Companies our convertible notes.


The Company’s financial instruments are cash and cash equivalents, accounts payable, accrued expenses, notes payable. The carrying amounts of accounts payable and accrued expenses approximate fair value due to the short term nature of these financial instruments. The recorded values of notes payable and obligations under capital leases approximate their fair values, based on the Company’s incremental borrowing rate.

 


Concentration of Credit Risk:

 

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

 

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

 

Recently Issued Accounting Pronouncements:


We have reviewed accounting pronouncements issued during the past two years and have adopted any that are applicable to our company. We have determined that none had a material impact on our unaudited consolidated financial position, results of operations, or cash flows for the six months ended June 30, 2014 and 2013.

 

  

NOTE 3 - STOCK COMPENSATION

 

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

 

The Company’s 2009 Incentive Stock Plan, (the “2009 Plan”), which is Board of Director approved, permits the grant of share options and shares to directors, executives and selected employees and consultants for up to 25,000,000 shares of Common Stock as stock compensation.

 

Accounting for Employee Awards:

 

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

 

As a result of the adoption of the provision of Share Based Compensation, the Company's results for the six months ended June 30, 2014 and 2013 include share-based compensation expense for employees and board of directors totaled approximately $80,000 and $80,000, respectively, which have been included in the general and administrative expenses line item in the accompanying consolidated statement of operations. No income tax benefit has been recognized in the income statement for share-based compensation arrangements as the Company has provided a 100% valuation allowance on its’ net deferred tax asset. Stock option compensation expense is the estimated fair value of options granted amortized on a straight-line basis over the requisite service period for the entire portion of the award. The Company has not adjusted the expense by estimated forfeitures, as required for employee options, since the forfeiture rate based upon historical data was determined to be immaterial.

 

Accounting for Non-employee Awards:

 

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

 

Stock compensation expense related to non-employee options was $18,817 and $36,200 for the six-month periods ended June 30, 2014 and 2013, respectively.  The amounts of stock compensation expense included in research development amounted to $3,200 during the six-month ended June 30, 2014.  The amounts of stock compensation expense included in selling, general, and administrative expenses amounted to $15,317 and $36,200 during the six-month ended June 30, 2014 and 2013, respectively.

 

There were no options granted to non-employees during the six months ended June 30, 2014 and 2013.

 

As of June 30, 2014, $0 of compensation cost related to non-vested stock options was unrecognized.

 

9

 

 

 

 

 

 

 

 

 

NOTE 4 - CONVERTIBLE NOTES AND LOANS PAYABLE

 

 

December 31,

 

2014

2013

10% Convertible notes, issued prior to January 1, 2012,  bears interest at a rate of 12% ( default rate), past due, payable on demand, convertible at $320 per share

$       114,034 

                      $        114,034 

Convertible notes, bear interest at rates ranging between 10% and 15%, maturing between March 2012 and September 2015, convertible at variable rates ranging between50% to 65% of a prince ranging from the volume weighted-average price for the ten days prior to conversion (highest) to the average of the 2 lowest closing bids of the 15 days prior to conversion (lowest)

         872,752 

                                  534,188 

 

 

 

 

Convertible notes, past due, convertible at fixed rates ranging between $56 and $112 per share

         865,749 

          909,455 

Loan payable, interest bearing at 10%, payable on demand

           12,500 

                     -

       1865,035 

       1,516,777 

Unamortized debt discount

       (447,244)

         (245,852)

$    1,416,791 

$   1,4291,494 

The loans mature during the following fiscal years

2014

$   1,679,842 

2015

         185,193 

$   1,865,035 



The Company generated proceeds of $436,500 and $180,500 from the issuance of convertible notes payable during the six-month period ended June 30, 2014 and 2013, respectively.

The Company generated proceeds of $24,750 and $6,000 from the issuance of loans payable during the six-month period ended June 30, 2014 and 2013, respectively.

The Company made principal repayments of $74,830 and $12,250 of the convertible notes payable and loans payable during the six-month period ended June 30, 2014.


The Company issued 42,396,446 and 348,427 shares of its common stock to satisfy its obligations under an aggregate principal of $212,368 and $142,000 of convertible promissory notes and loans payable during the six-month period ended June 30, 2014 and 2013, respectively.   Additionally, upon conversion of such promissory notes during the six month period ended June 30, 2014, the Company reclassified embedded conversion features associated with the promissory notes amounting to $236,722 from liability contracts to equity, which is recorded in the Company’s additional paid-in capital.

 

The Company satisfied its obligations accrued interest aggregating $3,900 by issuing 10,050 shares of its common stock during the six-month period ended June 30, 2013.

 

The Company issued 125,000 shares of its common stock in connection with the issuance of two notes payable during the six-month period ended June 30, 2014. 

 

During the six-month period ended June 30, 2014, certain holders of convertible notes aggregating $276,312 in principal assigned their rights to certain investors.  Contemporaneously to the assignment, the Company restructured certain terms of the convertible notes, primarily as they related to the conversion terms.  The revised conversion terms provide for conversion rates ranging from 50% to 65% of  a price ranging from the average of the lowest closing price of the 45 days days prior to conversion ( highest conversion ratio) to the average of the two lowest closing bids of the 15 days prior to conversion ( lowest conversion ratio).  This change in terms resulted in embedded conversion features and debt discount amounting to approximately $276,000 recognized at the date of restructure and were recognized as derivative liabilities during the six-month period ended June 30, 2014.

 

During the six-month period ended June 30, 2013, the Company and a holder of three convertible notes payable and accrued interest aggregating $45,861 restructured such notes to a non-convertible loan amounting to $55,000.  The Company recorded an additional $9,139 as interest expense pursuant to this restructure.

 

The Company recognized amortization of debt discount amounting to $446,364 and $96,027 for the six-month period ended June 30, 2014 and 2013, respectively, which are included in the Company’s interest expense of approximately $528,000 and $225,000, respectively.


The aggregate amount of outstanding principal under convertible notes payable which have matured at June 30, 2014 amounts to $1,119,832.



Other terms- Revenue Linked Convertible Notes Payable:

 

During 2012, the Company entered in to several short term convertible notes totaling $401,000. These noninterest bearing notes are in default and convertible at a rate of $56 at maturity.  The Company is unable to assert that it will generate revenue relating to third party managed carrier branded corporate websites, as well as through the sales of its products, and through the proposed test and launch of a national direct response marketing and distribution campaign for its products. The noteholders, upon repayment in full, will be entitled to 10%, on a pro-rated basis, of the aforementioned gross revenue, as adjusted, over a 12 month period following the repayment.

 

10


NOTE 5 - DERIVATIVE LIABILITIES

 

The following table provides a summary of changes in fair value of the Company’s derivative liabilities as of and for the periods ended June 30, 2014 and December 31, 2013, respectively.

 

 

 

Debt Derivative

 Liability

Balance, January 1, 2013

 

$

Initial fair value of embedded conversion features at note issuances

 

 

379,952 

Reclassification of liability contract to equity

 

 

Changes in fair value between measurement dates

 

 

(34,095)

Balance, December 31, 2013

 

$

345,857 

 

 

 

 

 

 

Debt Derivative

 Liability

Balance, January 1, 2014

 

$

345,857 

Initial fair value of embedded conversion features at note issuances

 

 

644,736 

Reclassification of liability contract to equity

 

 

(244,406)

Changes in fair value between measurement dates

 

 

124,092 

Balance, June 30, 2014

 

$

870,279 

 

 

 

 

 

The fair values of the embedded conversion features were determined using Binomial Lattice  based on the following assumptions (1) dividend yield of 0%, (2) expected volatility of 200 to 323% (3) weighted average risk free rate of 0.11% to 0.14%, expected life of 0.04 to 0.5 years and (5) estimated fair value of the Company’s common stock of $0.003 to $0.08 and $1 to $1.20 during the six-month period ended June 30, 2014 and 2013, respectively.

 

 

NOTE 6 -    EQUITY TRANSACTIONS

 

Common Stock:


Services Rendered

 

The Company issued 1,862,500 and 27,438 shares of its common stock (valued at $18,817 and $36,200, respectively) for services rendered by consultants during the six-month period ended June 30, 2014 and 2013, respectively.


The Company issued 6,614,209 and 75,476 shares of its common stock (valued at $80,000 for both periods) as payment for services to the Board of Directors during the six-month period ended June 30, 2014 and 2013, respectively.

 

 

Debt Conversion and related interest

 

The Company issued 42,396,446 and 133,120 shares of its common stock to satisfy its obligations under an aggregate principal of $212,368 and $64,000 of convertible promissory notes and loans payable during the six-month period ended June 30, 2014 and 2013, respectively.   Additionally, upon conversion of such promissory notes during the six month period ended June 30, 2014, the Company reclassified embedded conversion features associated with the promissory notes amounting to $244,406 from liability contracts to equity, which is recorded in the Company’s additional paid-in capital.


The Company satisfied its obligations accrued interest aggregating $3,900 by issuing 10,050 shares of its common stock during the six-month period ended June 30, 2013.

 

The Company issued 125,000 shares of its common stock in connection with the issuance of two notes payable during the six-month period ended June 30, 2014.  The fair value of the shares of common stock amounted to $10,000 and was recorded as interest expense.


 

Issuance of Common Stock as a Result of Sale of Securities

 

The Company issued 23,435 shares of common stock for proceeds from the sale of the Company’s common stock of $20,848 during the six month period ending June 30, 2013.

 


NOTE 7 - RELATED PARTY TRANSACTIONS

The Company had outstanding obligations under certain convertible notes payable certain related parties at June 30, 2014 and 2013.

The Company had senior secured convertible notes payable to one of its directors, amounting to $25,000 at June 30, 2014 and December 31, 2013.  This class of notes bears interest at 10% and is convertible at the lesser of 1) 60% of the weighted-average price for the 5-day immediately prior to the conversion or 2) the lowest conversion price of the 120-day period prior to conversion, but no less than the par value.  The accrued interest under such notes amounted to $7,604 at June 30, 2014, respectively and the interest expense amounted to $1,250 during the six-month period ended June 30, 2014 and 2013, respectively. The notes are currently due.

The Company had senior secured convertible notes payable to the father of one of the directors, amounting to $92,000 at June 30, 2014 and December 31, 2013.  This class of notes bears interest at 10% and is convertible at the lesser of 1) 60% of the weighted-average price for the 5-day immediately prior to the conversion or 2) the lowest conversion price of the 120-day period prior to conversion, but no less than the par value.  The accrued interest under such notes amounted to $26,525 at June 30, 2014 and the interest expense amounted to $4,600 during the six-month period ended June 30, 2014 and 2013, respectively.  The notes are currently due.

The Company had a convertible note payable of $5,000 to the son of the Company’s chief executive officer at June 30, 2014 and December 31, 2013.  The note bears interest at 12% and matured in January 2014.  The accrued interest under such notes amounted to $503 at June 30, 2014 and the interest expense amounted to $300 during the six-month period ended June 30, 2014. 

  


NOTE 8 - SUBSEQUENT EVENTS

 

Since July 1, 2014, the Company issued 59,461,603 shares of its common stock pursuant to the conversion of convertible notes payable.   


 

11



 

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

 

The following is a discussion of our results of operations and current financial position.  This discussion should be read in conjunction with our unaudited consolidated financial statements and related notes included elsewhere in this report, as well as our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K/A for the year ended December 31, 2013.

 

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

 

Forward Looking Statements

 

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

 

General

 

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

 

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

 

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

 

Comprehensive Feature Set Include:

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

 

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

 

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

 

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


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


12




Consumer Market:

 

SafeText: 

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

 

DriveAlert:

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

 

Enterprise Market:

 

Compliant Wireless

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

 

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

 

The report of our independent registered public accounting firm on our consolidated financial statements for the year ended December 31, 2013 contains an explanatory paragraph regarding our ability to continue as a going concern. The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  To date, the Company has generated minimal revenue and has a history of net losses. As reflected in the unaudited consolidated financial statements, the Company incurred net losses of approximately $1.1 million and $700,000 for the six months ended June 30, 2014 and 2013, respectively.  In addition, the Company had a working capital deficiency of approximately $4.8 million and an accumulated deficit of approximately $52.7 million at June 30, 2014.


These circumstances raise substantial doubt about the Company's ability to continue as a going concern.  The unaudited consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.  Management's efforts have been directed towards the development and implementation of a plan to generate sufficient revenues to cover all of its present and future costs and expenses. This plan is to address mobile messaging market opportunities with novel, comprehensive and robust solutions for the consumer and enterprise market.

 

If the Company does not generate sufficient revenues from the sales of its products in an amount necessary to meet its cash needs, the Company will need additional financing to continue to operate. There are no assurances that the Company can continue to successfully raise additional financing.  If the Company fails to raise additional financing, it might have to file for reorganization under bankruptcy laws to satisfy its outstanding liabilities.  

 

13





Results of Operations

 

PROTEXT MOBILITY, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED RESULTS OF OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase/

 

Increase/

 

 

 

 

 

Increase/

 

Increase/

 

Three-Month Period Ended

 

(Decrease)

 

(Decrease)

 

Six-Month Period Ended

 

(Decrease)

 

(Decrease)

 

June 30,

 

in $ 2014

 

in % 2014

 

June 30,

 

in $ 2014

 

in % 2014

 

2014

 

2013

 

vs 2013

 

vs 2013

 

2014

 

2013

 

vs 2013

 

vs 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

$

 

$

377 

 

(377)

 

-100.0%

 

$

 

$

642 

 

(642)

 

-100.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

  Research and development

37,200 

 

 

37,200 

 

NM

 

37,200 

 

 

37,200 

 

NM

 Selling, general and administrative

211,428 

 

191,266 

 

20,162 

 

10.5%

 

431,820 

 

386,268 

 

45,552 

 

11.8%

    Total operating expenses

248,628 

 

191,266 

 

57,362 

 

30.0%

 

469,020 

 

386,268 

 

82,752 

 

21.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Operating loss

(248,628)

 

(190,889)

 

(57,739)

 

30.2%

 

(469,020)

 

(385,626)

 

(83,394)

 

21.6%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair value of derivative liability

(130,028)

 

(41,699)

 

88,329 

 

211.8%

 

(124,092)

 

(81,241)

 

42,851 

 

52.7%

  Interest expense-related parties

(3,074)

 

(2,925)

 

149 

 

5.1%

 

(6,150)

 

(5,850)

 

300 

 

5.1%

  Interest expense

(316,560)

 

(124,608)

 

191,952 

 

154.0%

 

(527,796)

 

(224,994)

 

302,802 

 

134.6%

 

(449,662)

 

(169,232)

 

280,430 

 

165.7%

 

(658,038)

 

(312,085)

 

345,953 

 

110.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(698,290)

 

$

(360,121)

 

338,169 

 

93.9%

 

$

(1,127,058)

 

$

(697,711)

 

429,347 

 

61.5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NM: Not Meaningful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Comparison of the Results for the Three- and Six- Months Ended June 30, 2014 and 2013

 

The increase in research and development expenses during the three- and six- month period ended June 30, 2014, when compared to the prior year periods, are primarily due to costs associated with the development of DriverAlert , which was launched in the second quarter of 2014, heavier emphasis on developing relationships to market our products.


The increase in Sales, general and administrative expenses during the three- and six- month periods ended June 30, 2014, when compared to the prior year periods, are primarily due to increased costs associated with heavier emphasis on developing relationships to market our products.


The increase in interest expense during the three- and six-month period ended June 30, 2014, when compared to the prior periods, is primarily due to increased amortization of our debt discount, which increased from approximately $48,000 and $96,000 during the three- and six-month period ended June 30, 2013 to approximately $288,000 and$446,000 during the three- and six-month period ended June 30, 2014.  The increase in amortization of debt discount is primarily due greater amounts of embedded conversion and beneficial conversion features given to noteholders in debt financing during the last quarter of fiscal 2013 and the first half of fiscal 2014, which resulted in greater amount of debt discount.


The change in fair value of derivative liability is primarily due to the differences in fair value of derivative liabilities between measurement dates.  The change in fair value is primarily due to a decrease in our stock prices, one of the main driver assumptions in our valuation of derivative liabilities, between measurement dates.


14
 

Liquidity and Capital Resources

 

The Company's liquidity and capital needs relate primarily to working capital and other general corporate requirements.  To date, the Company has funded its operations with stockholder loans, by issuing notes and by the sale of common and preferred stock.  Since inception, the Company has not generated any significant cash flows from operations.  At June 30, 2014, the Company had cash and cash equivalents of approximately $11,000 and a working capital deficiency of approximately $4.8 million.  If the Company does not generate sufficient revenues from the sales of its products in an amount necessary to meet its cash needs, the Company will need additional financing to continue to operate. There are no assurances that the Company can continue to successfully raise additional financing.  If the Company fails to raise additional financing, it might have to file for reorganization under bankruptcy laws to satisfy its outstanding liabilities.

 

Net cash used in operating activities for the six month period ended June 30, 2014 consists of our net loss of approximately $1.1 million adjusted for certain non-cash expenses which are as follows:


·

Aforementioned debt discount of approximately $446,000;

·

Fair value of shares of common stock for services issued to consultants and directors of $99,000;


Changes in the fair value of derivative liabilities of approximately $124,000.


Additionally, our accounts payable and accrued expenses (including related parties) increased by approximately $94,000 between June 30, 2014 and December 31, 2013, which is primarily due to an increase in accrued interest.


Our cash flows provided by financing activities during the six-month period ended June 30, 2014 amounted to approximately $374,000, which consists of proceeds from the issuance of convertible promissory notes and loans payable of approximately $461,000 offset by principal repayments on such convertible promissory notes and loans payable of approximately $87,000.


Net cash used in operating activities for the six month period ended June 30, 2013 consists of our net loss of approximately $700,000 adjusted for certain non-cash expenses which are as follows:


·

Aforementioned debt discount of approximately $96,000;

·

Fair value of shares of common stock for services issued to consultants and directors of $116,000.



Additionally, our accounts payable and accrued expenses (including related parties) increased by approximately $167,000 between June 30, 2013 and December 31, 2012, which is primarily due to an general increase in accounts payable resulting from our inability to generate enough funds to pay such liabilities during that period.


Our cash flows provided by financing activities during the six-month period ended June 30, 2013 amounted to approximately $183,000, which consists of proceeds from the issuance of convertible promissory notes and loans payable of approximately $201,000 offset by principal repayments on such convertible promissory notes and loans payable of approximately $25,000.


 

  


15



Critical Accounting Policies:

 

There have been no changes to our accounting principles set forth in our Annual Report on Form 10-K/A for the year ended December 31, 2013 filed with SEC. Refer to such report for a listing of all such accounting principles.

 

 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Not Applicable

 

Item 4T.  Controls and Procedures.

 

 

 

 

 

 

 

 

 

 

 

 

(a)

Evaluation of Disclosure Controls and Procedures. The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. The Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of June 30, 2014 and have concluded that, as of such date, our disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported with the time periods specified in the Commission's rules and forms.

 

 

 

 

 

 

 

 

 

 

 

(b)

Changes in Internal Controls.  There were no changes in our internal controls over financial reporting that occurred during the quarter ended June 30, 2014 that have materially affected, or are reasonably like to materially affect, our internal controls over financial reporting.

 

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

 

 

 

 

16

 
















PART II

 

Item 1.  Legal Proceedings.

 

None.


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

 

The Company issued 1,800,000 shares of its common stock (valued at $13,513) for services rendered by four consultants during the three-month period ended June 30, 2014.


The Company issued 6,080,166 shares of its common stock ( valued at $40,000 ), in aggregate, to its two Board members,  as payment for services to the Board of Directors during the three-month period ended June 30, 2014.

 

The Company issued 36,459,704 shares of its common stock to satisfy its obligations under an aggregate principal of $103,824 of convertible promissory notes during the three-month period ended June 30, 2014.    The shares issued upon conversion of the notes payable were issued in reliance upon Section 3 (a)(9) of the Securities Act of 1933.

 

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

 

During the three-month period ended June 30, 2014, one of the Company’s note holders assigned a portion of its interest in a note to certain investors.  Pursuant to the assignments, the Company agreed to restructure the terms of the notes as follows:

 

New Note Principal

Annual Interest Rate

Maturity

Conversion Rate (1)

Assignment1

   $21,500

$21,500

   8%

April 8, 2015

50% of the average of two lowest closing bids for ten-day period prior to conversion

Assignment2

 

      12,500

 

  12,500

 

   8%

May 7, 2015

65% of the lowest closing price for 45-day period prior to conversion

Assignment3

      10,000

  10,000

   8%

May 29, 2015

65% of the lowest closing price for 45-day period prior to conversion

Assignment4

      10,000

  10,000

   8%

May 29, 2015

65% of the lowest closing price for 45-day period prior to conversion

Assignment5

 

        3,000

 

    3,000

 

   8%

June 4, 2015

65% of the lowest closing price for 45-day period prior to conversion

Assignment6

 

      46,834

 

  46,834

 

   8%

June 4, 2015

50% of the average of two lowest closing bids for 15-day period prior to conversion

 

 

 

 

 

 

 

 

 

(1)  at the holder’s  option

 

 

The new note holders are non-affiliate accredited investors and these transactions are exempt from registration pursuant to Section 4.2 of the Securities Act.

 

 

 

Item 3.  Defaults upon Senior Securities.

 

The Company is currently in default on the 10% convertible notes totaling $114,034 of principal as of June 30, 2014.

 

Item 4.  Mine Safety Disclosures.

 

N/A

 

Item 5.  Other Information.


None.

 

 

 

 

 

 

 

 

 

 

 

Item 6.

Exhibits.

 

 

 

 

 

 

 

 

 

 

31.1

 

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

32.1+

 

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes Oxley Act of 2002

101.INS *

 

XBRL Instance Document

101.SCH* 

 

XBRL Taxonomy Schema 

101.CAL *

 

XBRL Taxonomy Calculation Linkbase

101.DEF*

 

XBRL Taxonomy Definition Linkbase 

101.LAB *

 

XBRL Taxonomy Label Linkbase

101.PRE*

 

XBRL Taxonomy Presentation Linkbase 


* Furnished herewith. XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

+ In accordance with SEC Release 33-8238, Exhibits 32.1 is furnished and not filed.

 

17



 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


 

ProText Mobility, Inc.

 

(Registrant)

 

 

 

 

By:

/s/ Steve Berman

 

 

Steve Berman, Interim Chief Executive Officer

 

 

 

 

Date: August 19, 2014

 



 

18







EXHIBIT 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002


I, Steve Berman, certify that:


1.

I have reviewed this Quarterly Report on Form 10-Q of Protext Mobility, Inc.;

 

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


 

a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


 

b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


 

c)

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


 

d)

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


 

a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


 

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


/s/ Steve Berman

Steve Berman

Interim CEO and Principal Financial Officer

August 19, 2014






EXHIBIT 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002


I, Steve Berman, certify that:


1.

I have reviewed this Quarterly Report on Form 10-Q of Protext Mobility, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


 

a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


 

b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


 

c)

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


 

d)

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


 

a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


 

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Steve Berman

Steve Berman

Interim CEO, Principal Executive Officer

August 19, 2014






EXHIBIT 32.1


CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Quarterly Report of Protext Mobility, Inc. (the “Company”) on Form 10-Q for the quarter  ended June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steve Berman, Interim CEO of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:



(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and


 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



/s/ Steve Berman

Steve Berman

Interim CEO and Principal Executive Officer

August 19, 2014




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