PINX:MBIT MobileBits Holdings Corp Quarterly Report 10-Q Filing - 7/31/2012

Effective Date 7/31/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
_______________
 
(Mark One)
x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended July 31, 2012
 
or
 
o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

MobileBits Holdings Corporation
(Exact name of registrant as specified in its charter)

Nevada
 
000-156062
 
26-3033276
(State or other jurisdiction of incorporation or organization)
 
(Commission File Number)
 
(I.R.S. Employer Identification No.)
 
11835 W. Olympic Boulevard, Suite 855
Los Angeles, California 
 
90064
(Address of principal executive offices)
 
 (Zip Code)
______________
 
(310) 775-8077
(Registrant’s telephone number, including area code)
_______________
 
Not applicable
(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x 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.

Large Accelerated Filer
o
Accelerated Filer
o
Non-Accelerated Filer
(Do not check if a smaller reporting company)
o
Smaller Reporting Company
x

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock: As of September 13, 2012, the Company had 58,897,627 shares of common stock issued and outstanding.
 
 
 

 
 
MobileBits Holdings Corporation
FORM 10-Q
For period ended July 31, 2012

INDEX

PART I-- FINANCIAL INFORMATION
Item 1.
Financial Statements
3
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
17
Item 3
Quantitative and Qualitative Disclosures About Market Risk
22
Item 4.
Controls and Procedures
22
PART II-- OTHER INFORMATION
Item 1
Legal Proceedings
23
Item 1A.
Risk Factors
23
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
23
Item 3.
Defaults Upon Senior Securities
23
Item 4.
Mine Safety Disclosures
23
Item 5.
Other Information
23
Item 6.
Exhibits
23
SIGNATURES
 
 
-2-

 
 
PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

MobileBits Holdings Corporation
Consolidated Financial Statements
July 31, 2012
(Unaudited)

CONTENTS
 
Page(s)
Consolidated Financial Statements:
 
   
Consolidated Balance Sheets - As of July 31, 2012 and October 31, 2011
4
   
Consolidated Statements of Operations - For the three and nine months ended July 31, 2012 and 2011
5
   
Consolidated Statements of Cash Flows - For the nine months ended July 31, 2012 and 2011,
6
   
Notes to Consolidated Financial Statements
7-16
 
   
 
-3-

 
 
MobileBits Holdings Corporation
Consolidated Balance Sheets
(Unaudited)


   
July 31,
   
October 31,
 
   
2012
   
2011
 
ASSETS
 
Current assets:
           
  Cash
  $ 387,140     $ 1,330,166  
  Investments in marketable securities
    222       -  
  Accounts receivable, net
    258,637       -  
  Notes receivable, net
    153,390       -  
  Prepaid expenses and other current assets
    18,242       44,455  
Total current assets
    817,631       1,374,621  
                 
Property and equipment, net
    30,113       10,674  
Software development costs, net
    204,499       -  
Software license costs, net
    21,490       -  
Intangibles assets, net
    3,212,392       -  
Goodwill
    11,303,803       -  
                 
TOTAL ASSETS
  $ 15,589,928     $ 1,385,295  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
               
  Accounts payable and accrued expenses
  $ 153,379     $ 70,749  
  Accounts payable and accrued expenses – related parties
    391,965       197,881  
  Stock payable
    125,750       -  
  Short-term debt – related party
    53,000       -  
  Deferred revenues
    118,963       -  
Total current liabilities
    843,057       268,630  
                 
Commitments and contingencies
    -       -  
                 
Stockholders’ equity:
               
  Preferred stock, $0.001 par value; 10,000,000 shares
               
    authorized; none issued and outstanding
    -       -  
  Common stock, $0.001 par value; 250,000,000 shares
               
    authorized; 58,897,627 and 29,051,616 shares issued and outstanding, respectively
    58,898       29,052  
  Additional paid-in capital
    33,291,697       5,731,518  
  Subscriptions receivable
    (15,760 )     -  
  Accumulated deficit
    (18,587,964 )     (4,643,905 )
Total stockholders' equity
    14,746,871       1,116,665  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 15,589,928     $ 1,385,295  
 
See accompanying summary of accounting policies and notes to consolidated financial statements.

 
-4-

 
 
MobileBits Holdings Corporation
Consolidated Statements of Operations
(Unaudited)
 
    For the Three Months Ended     For the Nine Months Ended  
    July 31,     July 31,  
   
2012
   
2011
   
2012
   
2011
 
                         
REVENUES
  $ 97,907     $ -     $ 386,887     $ -  
COST OF REVENUES
    88,052       -       195,786       -  
                                 
GROSS PROFIT
    9,855       -       191,101       -  
                                 
OPERATING EXPENSES:
                               
  Selling, general and administrative
    2,024,204       582,230       13,215,833       1,608,546  
  Depreciation and amortization
    292,000       1,121       783,120       3,363  
Total operating expenses
    2,316,204       583,351       13,998,953       1,611,909  
                                 
LOSS FROM OPERATIONS
    (2,306,349 )     (583,351 )     (13,807,852 )     (1,611,909 )
                                 
OTHER INCOME (EXPENSE):
                               
  Gain on lawsuit settlement
    -       -       88,801       -  
  Unrealized loss on foreign currency exchange
    (10,262 )     -       (12,462 )     -  
  Interest expense, net
    (1,012 )     -       (212,546 )     -  
                                 
NET LOSS
  $ (2,317,623 )   $ (583,351 )   $ (13,944,059 )   $ (1,611,909 )
                                 
Net loss per common share - basic and diluted
  $ (0.04 )   $ (0.02 )   $ (0.26 )   $ (0.06 )
                                 
Weighted average number of common shares outstanding during the period - basic and diluted
    58,014,568       26,123,159       53,305,399       25,007,258  
 
See accompanying summary of accounting policies and notes to consolidated financial statements.
 
 
-5-

 
 
MobileBits Holdings Corporation
Consolidated Statements of Cash Flows
(Unaudited)
 
   
For the Nine Months Ended
 
   
July 31,
 
   
2012
   
2011
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net loss
  $ (13,944,059 )   $ (1,611,909 )
Adjustments to reconcile net loss to net cash
               
used in operating activities:
               
  Bad debt expense
    79,400       -  
  Gain on lawsuit settlement
    (88,801 )     -  
  Common shares issued for interest expense
    200,872       -  
  Stock-based compensation
    11,320,352       437,772  
  Depreciation and amortization
    783,120       3,363  
  Unrealized loss on foreign currency exchange
    12,462       -  
Changes in operating assets and liabilities:
               
    Increase in accounts receivable
    (214,077 )     -  
    Decrease (increase) in prepaid expenses
    32,940       (2,384 )
    Decrease in accounts payable
    34,839       (168,451 )
    Decrease in accounts payable – related parties
    (74,466 )     (198,934 )
    Increase in deferred revenues
    109,810       -  
Net cash used in operating activities
    (1,747,608 )     (1,540,543 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
  Advances paid on notes receivable
    (165,852 )     -  
  Software development costs incurred
    (164,737 )     -  
  License costs incurred
    (24,956 )     -  
  Purchases of property and equipment
    (16,623 )     -  
Net cash used in investing activities
    (372,168 )     -  
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
  Payments on notes payable
    (57,000 )     -  
  Proceeds from issuances of common stock, net
    1,233,750       2,442,909  
Net cash provided by financing activities
    1,176,750       2,442,909  
Net increase (decrease) in cash
    (943,026 )     902,366  
Cash at beginning of period
    1,330,166       64,295  
Cash at end of period
  $ 387,140     $ 966,661  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
         
Cash paid for:
               
  Interest
  $ 13,577     $ -  
 
               
NON-CASH INVESTING AND FINANCING ACTIVITIES
         
  Common shares issued for interest
  $ 23,288     $ -  
  Common shares issued for accounts payable
    93,980       -  
  Common shares issued for stock payable
    -       171,000  
  Common shares issued for notes payable
    81,000       -  
  Commissions due on common stock sales - related party
    -       105,489  
  Cancellation of shares
    3,000       -  
  Subscription receivable
    15,760       -  
  Fair value of common shares issued to acquire Pringo, Inc.
    14,726,772       -  
 
See accompanying summary of accounting policies and notes to consolidated financial statements.
 
 
-6-

 
 
   MobileBits Holdings Corporation
Notes to Consolidated Financial Statements
(Unaudited)

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements of MobileBits Holdings Corporation (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. In management's opinion, all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The interim results for the period ended July 31, 2012 are not necessarily indicative of results for the full fiscal year.

The unaudited interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and footnotes, which are included as part of the Company’s Form 10-K for the year ended October 31, 2011.

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 include a 100% valuation allowance for deferred taxes due to the Company’s continuing and expected future losses and assumptions and estimates for the valuation for share-based compensation arrangements; estimates for the realizability of intangible assets; and estimates for the value of stock issued for services.

Principles of Consolidation

The consolidated financial statements include the Company’s accounts and those of the Company’s wholly owned subsidiaries. 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.
 
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS

Operations and Merger

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 (“MB”).
 
On December 5, 2011, we amended our Articles of Incorporation in the State of Nevada to increase the maximum number of shares of stock that we are authorized to have outstanding at any time to two hundred fifty million 250,000,000 shares of par value $0.001 common stock.
 
 
-7-

 
 
On December 6, 2011, through MB Pringo Merger Sub, Inc., a Delaware corporation and our wholly-owned subsidiary ("Merger Sub"), we 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 Pringo Merger, Merger Sub merged with and into Pringo, with Pringo surviving the Merger as our wholly owned subsidiary.
 
In connection with the Pringo Merger, the Company ceased to be a development stage company and as a result expanded its business focus. The Company now provides software tools that combine enterprise-class multilingual portals, Content Delivery System, user management, and social collaboration features in one integrated open-source package. Currently on Version 4.4 of its platform, the Company’s Pringo Connect product enables its enterprise clients to strengthen relationships between businesses and customers by leveraging Pringo Connect social engagement and loyalty solutions.
 
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 one financial institution. The balances are insured by the Federal Deposit Insurance Corporation. At July 31, 2012, the Company had a cash balance of $387,140 all of which was insured.
 
Accounts Receivable and Allowance for Bad Debt

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 July 31, 2012, the allowance for doubtful accounts totaled $93,303. For the nine months ended July 31, 2012, the Company recorded bad debt expense of $79,400.

Long-Lived Assets

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.
 
Software License Costs

Costs of licenses paid to third parties for software and professional services for upgrades developed are capitalized and subsequently reported at the lower of unamortized cost or net realizable value. Capitalized software license costs are amortized on a straight-line basis over the term of the license, which is three years.

Intangible Assets
 
Intangible assets consist of expenditures for a domain name and the fair value of the identifiable intangible assets as of the date of the Pringo Merger. The domain name has an estimated indefinite life, was recorded at its initial cost, is not subject to amortization, but is reviewed annually for impairment. The identifiable intangibles are amortized over their useful lives of 3 years and are reviewed annually for impairment.
 
 
-8-

 
 
Impairment

In addition to our intangible asset impairment testing, as noted above, we also review our other 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.

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.
 
Fair Value of Financial Instruments

The Company measures fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) which defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).

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 follows 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 July 31, 2012, 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. 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.
 
 
-9-

 
 
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.

Cost of License, Maintenance, and Hosting Revenues

Cost of license revenue is primarily comprised of the amortization of capitalized software development costs for internally developed products, the amortization of acquired technology for products acquired through business combinations, 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.

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 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 quoted 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.
 
 
-10-

 
 
Earnings per Share

Basic earnings per share (“EPS”) is computed by dividing net 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 potential dilutive shares of common stock if their effect is anti-dilutive. For the nine months ended July 31, 2012 and 2011, the Company excluded common stock equivalents of and, respectively, since they have anti-dilutive effect on the earnings per share. There were no potentially dilutive effects on the earnings per share.

Subsequent Events

The Company has evaluated subsequent events through the filing date of this Form 10-Q and has determined that other than what is disclosed in Note 14, there were no subsequent events to recognized or disclosed in these financial statement.

Recent Accounting Pronouncements

The Company does not expect that any recently issued accounting pronouncements will have a significant impact on the results of operations, financial position or cash flows of the Company.

NOTE 3 – GOING CONCERN
 
As reflected in the accompanying consolidated financial statements, the Company has a net loss of $13,944,059 and net cash used in operations of $1,747,608 for the nine months ended July 31, 2012; and an accumulated deficit of $18,587,964 at July 31, 2012. 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 significant commitments for funding have been made and no assurance can be made that such commitments will be available.
 
The accompanying 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, which may include merging with or acquiring other operating entities.
 
 
-11-

 
 
NOTE 4 – ACQUISITIONS

PRINGO, INC

On December 6, 2011, the Company completed a merger with Pringo.
 
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 common stock of the Company such that immediately after the Merger,  Pringo’s stockholders, and the holders of Pringo’s outstanding options and warrants, own fifty percent (50%) of the Company's then outstanding shares of common stock on a fully diluted basis (as if all of Pringo’s and the Company’s options and warrants were exercised), and the Company’s stockholders, and holders of the Company’s outstanding options and warrants, own fifty percent (50%) of its then outstanding shares of the Company's common stock on a fully diluted basis (as if all of Pringo’s and the Company’s options and warrants were exercised). These shares were valued at their grant date value of $14,726,772. At the closing of the Pringo Merger, Pringo’s stockholders immediately prior to the Pringo Merger were issued 29,453,544 shares of common stock of the Company.
 
All shares of Pringo common stock outstanding immediately prior to the Pringo Merger are no longer outstanding and were automatically cancelled and retired, and each certificate previously representing any such shares now represents the right to receive a certificate representing the shares of the Company common stock into which such Pringo common stock was converted into the Pringo Merger.  All the issued and outstanding options to purchase common stock of Pringo prior to the Pringo Merger were vested and converted into options to purchase the Company’s common stock.
 
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 various open-source packages.

Under the acquisition method of accounting, the total estimated purchase price is allocated to Pringo’s tangible and intangible assets and liabilities based on their estimated fair values at the date of the completion of the acquisition (December 6, 2011).
 
The following table summarizes the preliminary allocation of the purchase price:

Current assets
  $ 212,000  
Property and equipment
    17,000  
Software development Cost
    237,000  
Intangible assets
    3,780,000  
Current liabilities
    (632,000 )
Long-term liabilities
    (191,000 )
Goodwill
    11,304,000  
Purchase price
  $ 14,727,000  

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:

The purchase price and costs associated with the acquisition exceeded the net assets acquired by $15,083,803 on December 6, 2011, of which $3,780,000 was allocated to acquire technology and other intangible assets such as customer relationships and the remaining $11,303,803 was assigned to goodwill.
 
 
-12-

 
 
PENDING ACQUISITION OF AIXUM TEC

On May 21, 2012, MobileBits entered into a Stock Exchange Agreement (the “Exchange Agreement”) with Aixum Tec AG, a Liechtenstein company (“Aixum”), and each individual who executed the Exchange Agreement as a seller (the “Sellers”), pursuant to which the Sellers will exchange their shares of Aixum for shares of the Company (the “Share Exchange). Subject to the terms and conditions of the Exchange Agreement, Aixum will become a wholly-owned subsidiary of the Company.
 
Aixum is a provider of mobile marketing and loyalty solutions for the hyper-local business marketplace. Through its flagship product, Samy4Me™, Aixum provides an end-to-end solution that connects national and local merchants with targeted customers through their iPhone and Android smartphones. Samy4me provides an ever-growing mobile consumer community with the ability to choose and develop relationships with merchants and retailers. Merchants can create direct communication channels, deliver product information and offers, synchronize their loyalty systems, provide in-app purchases and reconcile through POS systems, all underlined by a rich reporting software that measures results of various campaigns in the social local mobile landscape.
 
The Company or Aixum, as the case may be, is entitled to various remedies, including a cash payment of $250,000, upon termination of the Exchange Agreement based on the other’s breach of representations and warranties as well as certain obligations. In the event of termination, MobileBits will continue to have the exclusive right to license the Samy4me product until the earlier of  March 7, 2014 or repayment of the promissory note between Aixum and MobileBits dated March 7, 2012 providing for MobileBits to lend up to 110,000 CHF (approximately $114,800) at 5% interest rate payable on September 13, 2012.  On June 19, 2012, the Company entered an amendment to increase the principal amount to 180,000 CHF (approximately $183,929). As of July 31, 2012, 150,000 CHF (approximately $153,275) had been advanced to Aixum by MobileBits. The amount has been classified as note receivable. In addition, MobileBits agreed to pay Aixum 22,000 CHF (approximately $24,956) to upgrade the Samy4Me product for MobileBits use in the United States and Canada. This cost has been capitalized as license costs and is being amortized over three years. The closing is subject to providing audited financial statements for the years’ ended December 31, 2010 and 2011 as well as completion of other customary closing conditions.  The transaction is expected to be completed by November 15, 2012.
 
NOTE 5 – PROPERTY AND EQUIPMENT

The following is a summary of the Company’s property and equipment at July 31, 2012 and October 31, 2011:
 
   
Estimated
   
July 31,
   
October 31,
 
   
Useful Lives
   
2012
   
2011
 
Furniture and fixtures
    5     $ 8,248     $ -  
Equipment
    5       25,515       -  
Website and database
    3       19,079       19,079  
Subtotal
            52,842       19,079  
Less:  accumulated depreciation
            (22,729 )     (8,405 )
Property and equipment, net
          $ 30,113     $ 10,674  

For the nine months ended July 31, 2012 and 2011, total depreciation expense was $14,324 and $3,363, respectively.
 
NOTE 6 – SOFTWARE DEVELOPMENT COSTS

The following is a summary of the Company’s software development costs at July 31, 2012 and October 31, 2011:
 
   
July 31,
   
October 31,
 
   
2012
   
2011
 
Software development costs
  $ 217,384     $ -  
Additional software development costs incurred
    164,737       -  
Less: accumulated amortization
    (177,622 )     -  
Software development costs, net
  $ 204,499     $ -  

For the nine months ended July 31, 2012 and 2011, total amortization expense was $177,622 and $0, respectively.
 
 
-13-

 
 
NOTE 7 – SOFTWARE LICENSE COSTS

The following is a summary of the Company’s software license costs at July 31, 2012 and October 31, 2011:
 
   
July 31,
   
October 31,
 
   
2012
   
2011
 
Software license costs acquired
 
$
24,956
   
$
-
 
Less: accumulated amortization
   
(3,466
)
   
-
 
Software license costs, net
 
$
21,490
   
$
-
 
 
For the nine months ended July 31, 2012 and 2011, total amortization expense was $3,466 and $0, respectively.

NOTE 8 – INTANGIBLE ASSETS

The following is a summary of the Company’s intangible assets at July 31, 2012 and October 31, 2011:

   
Estimated
             
   
Useful Lives
   
July 31, 2012
   
October 31, 2011
 
Domain name
         
$
20,100
   
$
-
 
Developed technology - software
   
3
     
2,140,000
     
-
 
Customer relationships
   
3
     
1,010,000
     
-
 
Trade name
   
3
     
630,000
     
-
 
Subtotal
           
3,800,100
     
-
 
Less:  accumulated amortization
           
(587,708
)
   
-
 
Intangible assets, net
         
$
3,212,392
   
$
-
 

For the nine months ended July 31, 2012 and 2011, the Company recognized amortization expense of $587,708 and $0, respectively.
 
NOTE 9 – NOTES PAYABLE – RELATED PARTY
 
The Company acquired a promissory note in the amount of $110,000 in the Pringo Merger, accruing interest at 10% per annum, to a related party. 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 parties are in the process of negotiating new payment terms.  The balance on the note as of July 31, 2012 was $53,000.

In addition, on December 22, 2011 the Company converted an $81,000 note payable and accrued interest of $23,288 by issuing 610,319 shares of common stock valued at $305,160. The value in excess of the principal in the amount of $200,872 was recorded as additional interest expense.
 
NOTE 10 – RELATED PARTY TRANSACTIONS
 
As of July 31, 2012, the Company had outstanding payables to related parties of the Company in the amount of $391,965. $227,584 was owed to The Abai Group, Inc. for the services performed and $164,381 was owed to Walter Kostiuk primarily for commissions on sale of the Company’s common stock and unpaid salary.
 
During the nine months ended July 31, 2012 and 2011, the Company paid Walter Kostiuk $20,000 and $148,779, respectively, primarily related to salary owed and commissions on sale of the Company's common stock.
 
In connection with the Pringo Merger, 3,000,000 shares owned by Walter Kostiuk were cancelled after the issuance of 29,453,544 shares issued to Pringo, Inc. shareholders.
 
 
-14-

 

NOTE 11 – COMMITMENTS AND CONTINGENCIES

As the result of the Pringo Merger, the Company moved its principal office to 11835 W. Olympic Boulevard, Suite 855 Los Angeles, California. The rent for this location was $3,128 per month through February 2012. After March 2012, the rent increased to $3,378 per month.

The Company is also maintaining an office in Sarasota, Florida located at 5901 N. Honere Ave.  The rent for three months was $1,175 per month for the period January 1, 2011 through March 31, 2011. On April 1, 2011, the Company expanded its space and renewed its lease for a twelve-month period for $1,192 per month. On March 1, 2012, the Company entered into a twelve-month lease for $3,705 per month.

Litigation Matters: Birlasoft, Inc., v. Pringo Networks LLC

On or about September 21, 2009, Birlasoft, Inc. filed a civil action in Superior Court of New Jersey, Middlesex County seeking damages in relation to Pringo Networks, LLC’s, the Company’s predecessor, alleged breach of contract.  The claims asserted by Birlasoft, Inc. were disputed and after an initial attempt to settle the case, the Company did not respond to the lawsuit, which resulted in a default judgment in the amount of approximately $59,000 in 2010.  On March 21, 2012, the lawsuit was settled in the amount of $22,000 for all amounts due including the previously accrued judgment of $59,000 and accounts payable of $44,817 resulting in a gain of $81,817. The $22,000 is to be paid with an initial amount of $4,000 being paid within five (5) days after the execution of the settlement and $2,000 payments on the first business day of each month, for nine (9) months, starting on April 1, 2012.  The outstanding balance on the settlement was $8,000 as of July 31, 2012 and this amount was accrued by the Company.

NOTE 12 – STOCKHOLDERS’ EQUITY
 
The Company recorded amortization of share-based compensation of $11,320,352 for the nine months ended July 31, 2012 for options granted during the nine months ended July 31, 2012 and prior to October 31, 2011. All Pringo’s options were fully vested on the date of the Pringo Merger.
 
During the nine months ended July 31, 2012, the Company received net proceeds of $1,233,750 including a subscription receivable of $15,760 from various investors for the sale of 2,539,021 shares of its common stock.  As of July 31, 2012, 2,287,521 shares of the stock had been issued and 251,500 shares of stock have not been issued.  The $125,750 in funds received for the stock not issued has been recorded as a stock payable on the balance sheet as of July 31, 2012.

In March 2012, the Company issued 494,627 shares of common stock to a vendor in payment of a $93,980 accounts payable.
 
On December 6, 2011, the Company issued 29,453,544 shares of common stock valued at $0.50 per share to Pringo, Inc. shareholders in connection with the Pringo Merger. In connection with the Pringo Merger, Walter Kostiuk, returned 3,000,000 shares for cancellation after the issuance of 29,453,544 shares issued to Pringo, Inc. shareholders.
 
On December 22, 2011, the Company issued 610,319 shares of common stock for a note payable in the amount of $81,000.  The value of the shares in excess of the principal $200,872 was recorded as interest expense.
 
NOTE 13 – STOCK OPTION ACTIVITIES
 
The Company issued various options during the nine months ending July 31, 2012. The Company issued 8,220,469 options with a fair value of $4,094,363 to Pringo employees in connection with the Pringo Merger, 2,650,000 options with a fair value of $1,318,215 to current and new MobileBits employees and 27,100,000 options with a fair value of $13,483,251 to officers and directors
 
 
-15-

 
 
The following is a summary of stock option activities for the nine months ended July 31, 2012:

   
Shares
   
Weighted Average Exercise Price
   
Weighted Average Remaining Contractual Term (in years)
   
Aggregate Intrinsic Value
 
Outstanding, October 31, 2011
    3,404,016     $ 1.43       6.75     $ 8,751,380  
Granted
    37,970,469       0.44                  
Exercised
    -       -                  
Forfeited
    (1,421,154 )     3.41                  
Expired
    -       -                  
Outstanding, July 31, 2012
    39,953,331       0.46       6.29       12,001,325  
Exercisable, July 31, 2012
    20,996,664       0.41                  

The above options were valued using the Black-Scholes option-pricing model and the following parameters: (1) 0.86% to 2.80 % risk-free discount rate, (2) expected volatility of 200.89% to 213.09%, (3) $0 expected dividends, and (4) an expected term of 5 to 15 years for each grant based on the term of the options.
 
The following is a summary of outstanding stock options at July 31, 2012:

Number of Common Stock Equivalents Options
 
 Expiration Date
  Remaining Contracted Life (Years)    
Exercise Price
   
Weighted Average Remaining Contracted Life (Years)
 
  208,335  
01/21/2015
    2.48     $ 0.50       0.0129  
  420,681  
06/27/2016
    3.91     $ 0.75       0.0412  
  62,499  
10/31/2016
    4.25     $ 0.50       0.0067  
  500,000  
11/01/2016
    4.26     $ 0.51       0.0533  
  300,000  
04/17/2017
    4.72     $ 0.51       0.0354  
  7,674,026  
05/31/2018
    5.84     $ 0.19       1.1209  
  1,000,000  
08/15/2018
    6.04     $ 0.51       0.1513  
  25,000  
09/05/2018
    6.10     $ 0.51       0.0038  
  187,790  
09/20/2018
    6.14     $ 0.19       0.0289  
  250,000  
10/31/2018
    6.25     $ 0.51       0.0391  
  100,000  
11/13/2018
    6.29     $ 0.51       0.0157  
  23,500,000  
12/01/2018
    6.34     $ 0.50       3.7289  
  1,000,000  
12/05/2018
    6.35     $ 0.51       0.1590  
  125,000  
01/01/2019
    6.42     $ 0.51       0.0201  
  50,000  
02/12/2019
    6.54     $ 0.51       0.0082  
  3,000,000  
04/30/2019
    6.75     $ 0.51       0.5069  
  1,000,000  
04/30/2020
    7.75     $ 1.00       0.1941  
  250,000  
04/30/2021
    8.75     $ 0.51       0.0548  
  300,000  
12/05/2026
    14.36     $ 0.51       0.1078  
  39,953,331                         6.29  
 
All options issued and outstanding are being amortized over their respective vesting periods. The unrecognized compensation expense at July 31, 2012 was $8,951,184.

NOTE 14 – SUBSEQUENT EVENTS

The Company has received cash proceeds of $167,000 subsequent July 31, 2012 to purchase common stock. The corresponding shares have not been issued as of September 13, 2012. 
 
 
-16-

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.

Plan of Operation

On December 6, 2011, through MB Pringo Merger Sub, Inc., a Delaware corporation and our wholly-owned subsidiary (“Merger Sub”), we completed a merger with Pringo, Inc. a Delaware corporation (“Pringo”). As a result of the Merger, Merger Sub merged with and into Pringo, with Pringo surviving the Pringo Merger as our wholly owned subsidiary.
 
Through Pringo we offer software products that combine multi-lingual enterprise-class portals, content management systems, social collaboration features, and user management tools in various open-source packages. We distinguish ourselves from other products of the same class in the market in four distinct areas: Our products are offered in an open-source format; available in 23 languages; Our products are easily integrated and easily deployed by enterprises; and we offer over 400 customizable features.

Currently we are in the process of acquiring Aixum Tec AG, a Liechtenstein company, who is a provider of mobile marketing and loyalty solutions for the hyper-local business marketplace. Through its flagship product, Samy4Me™, Aixum provides an end-to-end solution that connects national and local merchants with targeted customers through their iPhone and Android smartphones. Samy4me provides an ever-growing mobile consumer community with the ability to choose and develop relationships with merchants and retailers. Merchants can create direct communication channels, deliver product information and offers, synchronize their loyalty systems, provide in-app purchases and reconcile through POS systems, all underlined by a rich reporting software that measures results of various campaigns in the social local mobile landscape.

Over the next twelve months, we intend to connect the value of Pringo Connect with the benefits of Samy4me and continue building our business plan. We also plan on seeking strategic partnerships to increase the number of users that utilize our technologies and generate scalable and repeatable revenue.

Recent Development

Change of Officer and Director

On August 1, 2012, Majid Abai submitted a resignation letter pursuant to which he resigned as a director and Chief Executive Officer of the Company.  Mr. Abai also resigned as Chief Executive Officer and director of our two wholly-owned subsidiaries, MBC and Pringo.  Mr. Abai’s resignation was not the result of any disagreement with us on any matter relating to our operations, policies (including accounting or financial policies) or practices. Commencing August 1, 2012, Walter Kostiuk has acted as the Company’s new principal executive officer. Mr. Kostiuk has been our President, Chief Strategy Officer, and Chairman of the Board of Directors since December 2011.

Acquisition Agreement
 
On May 21, 2012, the Company entered into a Stock Exchange Agreement (the “Exchange Agreement”) with Aixum Tec AG, a Liechtenstein aktiengesellschaft (“Aixum”), and each individual who executed the Exchange Agreement as a seller (the “Sellers”), pursuant to which the Sellers will exchange their shares of Aixum for shares of the Company (the “Share Exchange).  Subject to the terms and conditions of the Exchange Agreement, Aixum will become a wholly-owned subsidiary of the Company. Pursuant to the Exchange Agreement, upon the closing of the Share Exchange each Seller will sell to the Company its shares of Aixum (the “Transferred Shares”).  In consideration for the Transferred Shares, the Company will issue 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 common shares at $0.75 or $5,000,000 minus (B) the sum of (i) the Liability Shares (as defined in the Exchange Agreement), if any, plus (ii) the Cost Shares (as defined in the Exchange Agreement), if any. In addition but subject to certain indemnity provisions of the Exchange Agreement, should Aixum operate at a net profit for the period commencing July 1, 2012 and ending September 30, 2012, the Company will issue to each Seller such Seller’s pro rata portion of 666,667 additional shares  at $0.75 or $500,000.
 
 
-17-

 
 
The respective obligations of each party to effect the Share Exchange is subject to certain customary closing conditions, as well as other conditions, including (i) the entry into Employment Agreements with certain officers of Aixum, (ii) the delivery by Aixum to the Company of audited financial statements for the years ended December 31, 2010 and 2011, (iii) the delivery by the Sellers to the Company of assignments of all outstanding shares of capital stock of Aixum, and (iv) the delivery by Aixum to the Company of evidence of full ownership of its intellectual property.
 
Pursuant to the Exchange Agreement, the Company may terminate the agreement without penalty if Aixum fails to provide the Company all material documents and other information in connection with Aixum’s representations and warranties within fifteen calendar days of the Exchange Agreement. The Company may also terminate the agreement without penalty during its diligence period of thirty (30) calendar days of the date of the Exchange Agreement, if the Company uncovers information that, should the share exchange take place, would have a material adverse effect on the Company’s business.

Results of Operation

Three Months Ended July 31, 2012 compared to the Three Months Ended July 31, 2011

Revenues

Our revenues were $97,907 for the three months ended July 31, 2012 compared to $0 for the three months ended July 31, 2011. We started to generate revenues after we acquired Pringo. Our revenues come from the existing of Pringo as well as new signed contracts. For the three-month period, license fees professional service fees and hosting fees totaled $10,156, $84,401 and $3,350, respectively.
 
Cost of Revenues

Our cost of revenues was $88,052 for the three months ended July 31, 2012 compared to $0 for the three months ended July 31, 2011. Cost of revenues is incurred on the revenues generated from Pringo contracts. For the three month period, costs associated with professional service fees were $84,972 and costs for hosting fees were $3,080.

Selling, General and Administrative Expenses

Our total selling, general and administrative expenses were $2,024,204 for the three months ended July 31, 2012 compared to $582,230 for the three months ended July 31, 2011. The increase is primarily due to an increase of $1,054,606 in stock option expense; higher salary costs associated with new hires and increased professional fees.

Depreciation and Amortization

Depreciation and amortization was $292,000 for the three months ended July 31, 2012 compared to $1,121 for the three months ended July 31, 2011. The increase is due to the additional assets acquired in the Pringo Merger as well as the amortization of software and development costs capitalized during the period.

Interest Expense

Interest expense was $1,012 for the three months ended July 31, 2012 compared to $0 for the three months ended July 31, 2011. 
 
 
-18-

 
 
Nine Months Ended July 31, 2012 compared to the Nine Months Ended July 31, 2011

Revenues

Our revenues were $386,887 for the nine months ended July 31, 2012 compared to $0 for the nine months ended July 31, 2011. Our revenues come from the existing contracts of Pringo as well as new signed contracts.  For the nine-month period, license fees professional service fees and hosting fees totaled $122,126, $254,061 and $10,700, respectively

Cost of Revenues

Our cost of revenues was $195,786 for the nine months ended July 31, 2012 compared to $0 for the nine months ended July 31, 2011. Cost of revenues is incurred on the revenues generated from Pringo contracts. For the nine-month period, costs associated with professional service fees were $190,774 and costs for hosting fees were $5,012, respectively.

Selling, General and Administrative Expenses

Our total selling, general and administrative expenses were $13,215,833 for the nine months ended July 31, 2012 compared to $1,608,546 for the nine months ended July 31, 2011. The increase is primarily due to a $10,882,580 increase in stock option expense in 2012 and higher salary costs from new hires and the addition of Pringo employees as well as increased professional fees.

Depreciation and Amortization

Depreciation and amortization was $783,120 for the nine months ended July 31, 2012 compared to $3,363 for the nine months ended July 31, 2011. The increase is due to the additional assets acquired in the Pringo Merger as well as the amortization of capitalized software development costs incurred in the nine months ended July 31, 2012.

Lawsuit Settlement

For the nine months ended July 31, 2012, the Company realized a gain on lawsuit settlement with Birlasoft, Inc, in the amount of $88,801.

Interest Expense

Interest expense was $212,546 for the nine months ended July 31, 2012 compared to $0 for the nine months ended July 31, 2011. 

Liquidity and Capital Resources

As of July 31, 2012, we had $387,140 available in cash as compared to $1,330,166 as of October 31, 2011. The decrease in cash is primarily due to losses from operations, the additional expenditures associated with the Pringo Merger, increased costs of software development and licenses, and funds advanced for a note receivable from Aixum and movements in working capital.
 
The Company has started generating revenues, but has an accumulated deficit at July 31, 2012 of $18,587,964. 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 accompanying 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 the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
 
 
-19-

 
 
In response to these factors, management has taken 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, which may include merging with or acquiring other  operating entities.

The use of proceeds from our unregistered common share sales that occurred for the nine months ending July 31, 2012 and 2011 were used for offering expenses, salaries, professional fees, advertising/marketing, and working capital. We raised approximately $1,233,750 from our offerings during the nine months ending July 31, 2012. We have expended the majority of our capital raised to date for merger costs and consulting fees/salaries for company management and product development.
 
We are currently seeking funding for our plan of operations. We seek to raise up to $10,000,000 in order to continue our marketing plan, build a customer base and increase revenues. To achieve our goals, a large portion of the funds raised will be invested in sales and marketing expenses. Our success is contingent upon having enough capital to build enough customers to support the business. We expect to raise additional funds within the next 3 months. A private placement is the most likely scenario for the Company to achieve success in raising additional funds for its operations.
 
Cash flows from operating activities
 
Cash used in operating activities for the nine months ended July 31, 2012 and 2011 was $1,747,608 and $1,540,543, respectively. The increase is primarily due to increased salary costs and professional fees.
 
Cash flows from investing activities
 
Cash used in investing activities for the nine months ended July 31, 2012 and 2011 was $372,168 and $0, respectively. The increase is due to money spent on software development and license costs as well as the advances associated with a note receivable.
 
Cash flows from financing activities

Cash provided by financing activities for the nine months ended July 31, 2012 and 2011 was $1,176,750 and $2,442,909, respectively. The cash provided by financing for both periods were due to us completing approximately $1.2 million and $2.4 million of private placements, respectively.

Critical 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.
  
A significant estimate included a 100% valuation allowance for deferred taxes due to the Company’s continuing and expected future losses. The Company also makes significant assumptions and estimates for the valuation for share-based compensation arrangements.
 
 
-20-

 
 
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.

Revenue Recognition

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 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.

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 quoted 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, as defined in ASC 718, if any, are recognized as an addition to paid-in capital.
 
 
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Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Smaller reporting companies are not required to provide this information.

ITEM 4. 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 Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting 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 CEO and CFO concluded that the Company’s disclosure controls and procedures are not effective as of the end of the period covered, that such that the information required to be disclosed in our “SEC” reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our CEO, as appropriate to allow timely decisions regarding required disclosure. Our CEO and CFO concluded, based on the evaluation of the effectiveness of the disclosure controls and procedures, that as of July 31, 2012, our disclosure controls and procedures were not effective due to the material weaknesses described in Management's Report on Internal Control over Financial Reporting as reported in our Form 10-K for the year ended October 31, 2011.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
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 PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
 
Birlasoft, Inc., v. Pringo Networks LLC.
 
On or about September 21, 2009, Birlasoft, Inc. filed a civil action in Superior Court of New Jersey, Middlesex County seeking damages in relation to Pringo Networks, LLC’s, the Company’s predecessor, alleged breach of contract.  The claims asserted by Birlasoft, Inc. were disputed and after an initial attempt to settle the case, the Company did not respond to the lawsuit, which resulted in a default judgment in the amount of approximately $59,000 in 2010.  On March 21, 2012, the lawsuit was settled in the amount of $22,000 for all amounts due including the judgment of $59,000 and accounts payable of $44,817 resulting in a gain of $81,817. The $22,000 is to be paid with an initial amount of $4,000 being paid within five (5) days after the execution of the settlement and $2,000 payments on the first business day of each month, for nine (9) months, starting on April 1, 2012.  The outstanding balance on the settlement was 8,000 as of July 31, 2012 and the amount has been accrued by the Company.
 
ITEM 1A. RISK FACTORS

Smaller reporting companies are not required to provide this information.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

For the three months ended July 31, 2012, the Company received net proceeds of $800,001 and a subscription receivable of $10,760 from various investors or the sale of its common stock. During the nine months ended July 31, 2012, the Company received net proceeds of $1,233,750 and a subscription receivable of $15,760 from various investors for the sale of shares of its common stock.

The issuance and sale of common stock was an unregistered sale of securities issued in reliance on the exemption under Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”), and Regulation S of the Securities Act of 1933.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

31.1
Certification of Principal Executive Officer of the Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of the Principal Financial Officer of the Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of Principal Executive Officer of the Registrant pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Principal Financial Officer of the Registrant pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the 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, Exhibit 32.1 is being furnished and not filed.
 
 
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SIGNATURES

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

 
MOBILEBITS HOLDINGS CORPORATION
   
Date: September 13, 2012
By:
Walter Kostiuk
   
Walter Kostiuk
   
President
(Duly Authorized Officer and Principal Executive Officer)
 
 
 
-24-


PINX:MBIT MobileBits Holdings Corp Quarterly Report 10-Q Filling

MobileBits Holdings Corp PINX:MBIT Stock - Get Quarterly Report SEC Filing of MobileBits Holdings Corp PINX:MBIT stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

PINX:MBIT MobileBits Holdings Corp Quarterly Report 10-Q Filing - 7/31/2012
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