UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

 

For the fiscal year ended December 31, 2013

 

OR

 

 

For the transition period from __________ to __________

 

Commission File No: 001-31590

 

PROTEXT MOBILITY, INC.

(Exact name of registrant as specified in its charter)

 

 

Registrant’s telephone number, including area code:

(800) 215-4212

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

 

Securities registered pursuant to section 12(b) of the Exchange Act: None

 

Securities registered pursuant to section 12(g) of the Exchange Act:

 

Common Stock, $0.0001 par value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

              Yes   ¨     No   x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.       Yes   ¨     No   x

 

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   ¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     ¨

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

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

 

As of June 28, 2013, the aggregate market value of the issued and outstanding common stock held by non-affiliates of the registrant, based upon the closing price of the common stock, under the symbol "TXTM" as quoted on the National Association of Securities Dealers Inc. OTC Bulletin Board of $0.72 was approximately $2,652,000. For purposes of the statement in the preceding statement, all directors, executive officers and 10% shareholders are assumed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for any other purpose.

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

Number of registrant’s shares of common stock outstanding at April 12, 2014 was 8,833,570.

 

Documents incorporated by reference: None.

 

  

TABLE OF CONTENTS

 

 

SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

 

This Annual Report contains forward-looking statements. These forward-looking statements are based largely on our expectations and are subject to a number of risks and uncertainties, many of which are beyond our control. Actual results could differ materially from these forward-looking statements as a result of, among other factors, risks related to the large amount of our outstanding term loan; history of net losses and accumulated deficits; reliance on third parties to market, sell and distribute our products; future capital requirements; competition and technical advances; ability to protect our patents and proprietary rights; reliance on a small number of customers for a significant percentage of our revenues; and other risks. In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this Annual Report will in fact occur.

 

 

PART I

 

Item 1. Description of Business

 

 

Business Summary

 

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 with a robust and flexible feature set that 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. Currently, 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.  We anticipate deriving a substantial portion of our future revenue from products designed for the mobile industry.

 

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 FamilyMobileSolutions

 

Business Strategy and Products

 

The mobile phone handset market returned from the economic downturn and grew strongly in 2010. A particularly strong sector of the handset market in 2010, were “smartphones.” According to the TomiAhonen Almanac 2011, an industry summary eBook which includes updated data on the mobile telecom industry, mobile phone sales increased from 1.24 billion in 2009 to 1.38 billion in 2010, an 11% increase. Smartphones alone sold close to 300 million units in 2010. A press release issued in February 2011 by Gartner, Inc., an information technology research and advisory company, stated that worldwide smartphone sales will reach 468 million units in 2011, a 57.7% increase from 2010.  Specific to mobile messaging, the TomiAhonen Almanac 2011 reports that the industry generated $172 billion in 2010, with text messages representing $153 billion and the other messaging types, instant messaging (IM) and email, adding the remaining $19 billion.  Furthermore, mobile telecommunication service revenues grew from $865 billion in 2009 to $928 billion in 2010, a 7% growth rate, and consumer applications specifically grew from $1 billion in 2009 to $3 billion in 2010, a 300% increase. According to Gartner, Inc., worldwide PC unit growth is on pace to total 364 million units in 2011, a 3.8% increase from 2010. PC shipments are forecast to see better growth by the end of 2012, when units are expected to reach 404 million units, a 10.9% increase from 2011. However, according to Gartner, Inc., these numbers have been reduced from previous projections due to sharply downgraded forecasts for Western Europe and the United States and the increased usage of media tablets over more traditional PCs. We must constantly evolve our products in order to keep up with the changes in the economy and the online and mobile markets.

 

 

3

 

Our Products

 

In July 2011, Hart Research Associates, a survey research firm, conducted a research project on behalf of the Family Online Safety Institute in order to better understand parents’ knowledge and attitudes toward online safety, and their self-reported use of parental control technologies or other tools for monitoring children’s online activity across various platforms. Out of the 702 parents surveyed, more than half reported using parental control technologies to monitor their child’s online activities, which include the internet and mobile devices. We currently have products aimed at protecting children from dangerous situations that arise on the internet and mobile communication devices.  Our SafeText and DriveAlert parental management products are download applications for use with mobile communications devices and geared to the consumer market, under FamilyMobileSolutions.com, with our CompliantWireless solution designed for enterprise.

 

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 language filtering 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 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.

 

Drive Alert

 

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 compatible with the Android and Blackberry operating systems.  Our distracted driving solution utilizes two different technologies for deployment.  The first is a software based solution using GPS technology and the second is hardware based utilizing an OBD-II “Dongle” connected via Bluetooth while in a vehicle.

4

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.

 

 

Marketing

 

SafeText and DriveAlert

 

Our marketing strategy for the SafeText, Drive Alert and ComplaintWireless products is to provide products primarily directly to consumer and through re-sellers. We are also leveraging the automobile dealership and the insurance verticals for distribution of our distracted driving solution to be sold directly to consumers.  The Company plans to use online marketing and social media for further distribution and sales of its suite of products.

 

Competition

 

Our competition for the SafeText, DriveAlert and CompliantWireless products are other developers of applications available in the marketplaces. including  NetNanny, a provider of internet filter software, SMobile Systems Inc, which provides parental controls for smartphones, CellControl and Location Labs, which provide distracted driving products.

 

We respond to the challenges of technological change, evolving standards and our competitors' innovations by continuing to enhance our products and services, as well as our work bolster our sales and marketing channels.   We have made regular updates to our platforms and products.  Since February 2011, when SafeText was first launched for Android, we launched the Blackberry-based SafeText application in April 2011 and the mobile parent control center in May 2011. In June 2011, we launched an upgraded SafeText, whose new features include speed detection, mobile web browsing, voice call log and image archiving.  In August 2011 we launched DriveAlert, a “safe driving” solution in response to increased incidences of distracted driving.  In Q4 2012, we launched ComplaintWireless for the enterprise and in Q4, 2013 we launched DriveAlert utilizing OBD-II Dongle-Bluetooth technology.

 

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 Dashboard- Easily 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.

 

5

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.

 

Economic Dependency

 

Since 2009 we have sold our products primarily on-line.   There was no single customer that accounted for more than 10% of the sales for the fiscal years ended December 31, 2013 or 2012.

 

Intellectual Property

 

We have filed patent protection for our SafeText solution and seek to file additional protection measures. To date, we have filed provisional patents for our Smart Message Analyzer and various other proprietary processes and concepts and look to file additional protection measures, such as trademark, trade name and copyright protection.  We also rely on trade secret laws and confidentiality provisions in our agreements to prevent the unauthorized disclosure and use of our intellectual property.

 

Employees

 

As of April 12, 2014, the Company has one full time employee.

 

Property

 

Our principal executive offices are located at 16885 River Birch Circle, Delray Beach, FL 33445.  Our lease for such premises commenced in May 2013 and is for one year term for a monthly rent of $1,500.

 

Legal Proceedings

On May 10, 2010, the Company was served with an action from Ms. Von Biederman for breach of contract seeking damages in excess of $75,000. The Company was in mediation  proceedings, and has accrued $20,000 of prior consulting fees due to Ms. Von Biederman.

 

Ms. Von Biederman motioned for a summary judgment that the Company breached the employment agreement by terminating her employment without good cause and/or due to a change in control of the Company.  On August 8, 2012 Ms. Von Biederman's motion was denied. 

 

Further, on August 8, 2012, the Court granted Ms. Von Biederman a summary judgment that the Company breached the employment agreement by failing to pay her salary owed between July 29, 2009 and November 15, 2009 and the Company breached the consulting agreement by failing to pay Ms. Von Biederman the $20,000 owed under the consulting agreement. 

 

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

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

 

6

Item 1A. RISK FACTORS.

 

Investing in our common stock involves a high degree of risk, and you should be able to bear the complete loss of your investment. You should carefully consider the risks described below, the other information in this prospectus when evaluating our company and our business. If any of the following risks actually occur, our business could be harmed. In such case, the trading price of our common stock could decline and investors could lose all or a part of the money paid to buy our common stock.

 

RISKS RELATED TO OUR BUSINESS

 

If we continue our history of losses, we may be unable to continue our operations

 

We cannot be certain whether we will ever make a profit, or, if we do, that we will be able to continue making a profit or earn a significant amount of revenues.  If we continue to lose money, our stock price could decline or we may be forced to discontinue our operations, either of which may result in you losing a portion or all of your investment.   We incurred net losses of approximately $1.5 million and $2.2 million for the years ended December 31, 2013 and 2012, respectively. At December 31, 2013 we had an accumulated deficit of approximately $5.6 million, a stockholders’ deficit of approximately $51.4 million and a working capital deficiency of $4.2 million.

 

We may not be able to continue our business as a going concern

 

If we are unable to continue as a going concern, you may lose your entire investment.  The report of our independent auditors for the fiscal years ended December 31, 2013 and December 31, 2012 is qualified subject to substantial doubt as to our ability as a going concern. As discussed in Note 1 to our financial statements for the fiscal year December 31, 2013, we have experienced operating losses over the past two years resulting in an accumulated deficit. Our independent auditors believe, based on our financial results as of December 31, 2013, that such results raised substantial doubts about our ability to continue as a going concern. If we are unable to continue as a going concern, you may lose your entire investment.

 

If we are unable to secure additional financing, our business may fail or our operating results and our stock price may be materially adversely affected

 

If we are not able to raise enough funds through the Equity Line or other sources, we may not be able to successfully develop and market our products and our business may fail. The Company's cash on hand at December 31, 2013 totaled approximately $41.  To date, the Company received proceeds from sale of the Company’s Series B Preferred Stock totaling $4,650,000, proceeds from the sale of the Company’s Series A Preferred Stock totaling $2,050,000, proceeds from the use of the Equity Line of $30,000, proceeds from the sale of common stock and exercise of warrants and options in the aggregate of approximately $5,598,000, and approximately $8,659,000 from the issuance of debt. However, we have generated minimal revenue from operations. We do not have any commitments for financing other than the Equity Line, and we will need additional financing to meet our obligations and to continue our business. Although we plan to raise funds through the Equity Line, due to the conditions of the Equity Line we cannot guarantee that we will be able to raise money through the use of the Equity Line or that we will be able to utilize the full Equity Line.

 

As we raise additional capital, a shareholder’s percentage ownership interest in ProText Moblility will likely be reduced

 

The raising of additional financing would in all likelihood result in dilution or reduction in the value of our securities. Our ability to operate is dependent upon obtaining sufficient capital. In September of 2009, we entered into a Stock Purchase Agreement for sales of our Series B Preferred Stock and to date we have issued 511,551 shares of preferred stock.  Each share of preferred stock converts to 100 shares of common stock at the option of the holder.  Preferred stock has a priority to the common stock, and will reduce common shareholders' percentage of ownership. In addition, we have also issued warrants which are exercisable for shares of common stock.  Upon conversion of the preferred stock and exercise of the warrants, common shareholders' ownership interest will be further reduced. If we issue additional stock in accordance with the Amended Stock Purchase Agreement, common shareholders' ownership interest will be further reduced. We have recently raised money from the sale of convertible notes that contain a conversion feature with a discount to market.  Such a discount will have a dilutive effect on our current shareholders as well.

 

We are a development stage company with a limited operating history, making it difficult for you to evaluate our business and your investment.

 

We are in the development stage and our operations and the development of our products are subject to all of the risks inherent in the establishment of a new business enterprise, including but not limited to:

 

 

 

 

 

Because we are subject to these risks, you may have a difficult time evaluating our business and your investment in our company.

 

We are currently in default under several of our notes.

 

We have not made all of the required payments under several notes that matured during 2007 and 2008 in the aggregate principal amount of $114,034.  In addition, we have not made required payments under eight notes that matured between February 2011 and December 2011 in the aggregate principal amount of $746,125.  Should the holders of any of these notes demand payment and we are unable to renegotiate the terms of the note or raise funds at the time of any such demand to repay amounts owed, the note holders could declare the notes in default and take legal action against us.  Our ability to continue to operate is dependent upon our ability to raise additional funds to repay the notes secured by our assets and/or negotiate forbearance agreements.

 

7

We have several notes that are due in 2014 and we will need additional capital to repay these loans when due and may not be able to obtain it.

 

As of December 31, 2013 we had notes in the aggregate principal amount of approximately $1,500,000 outstanding. We will need to raise additional funds in order to repay these loans.   In addition we will need to raise additional funds to support further expansion, meet competitive pressures, and respond to unanticipated requirements. We cannot assure you that additional financing will be available to us as needed or on terms favorable to us. We currently do not have any commitments for additional funding other than the Equity Line, which is dependent upon stock sales volume and our stock price over which we have no control.

 

The holder of our Series B and C Preferred Stock controls the right to vote our common stock as well as our right to effectuate certain actions.

 

The holder of our Series B and C Preferred Stock has the right to control the vote of in excess of 51% of our outstanding common stock with regard to an increase in our authorized shares and has the right to 51,155,100 votes based on their ownership of the Series B Preferred Stock and 365,000,000 votes based on their ownership of Series C preferred Stock.  As a result, the holder of our Series B and C Preferred Stock may be able to effectively control the management and affairs and all matters requiring stockholder approval, including the election of directors and approval of significant corporate actions. In addition, we are required to obtain the approval of holders of 66% of the Series B Preferred Stock with respect to certain actions, including an increase or decrease in the board size or any committee, an amendment to or waiver of provisions of our organizational documents, the sale of any equity or debt security other than certain exempted transaction, declaration or payment of a dividend, redemption of stock, sale of a substantial portion of our debt or equity or the engagement in a transaction with an affiliate, officer or director. This concentration of control may delay or prevent a change of control and may adversely affect the market value of our common stock.

 

We have no independent audit committee nor do we have an audit committee financial expert at this time. Our full board of directors functions as our audit committee. This may hinder our board of directors’ effectiveness in fulfilling the functions of the audit committee.

 

Currently, we have no independent audit committee nor do we have an audit committee financial expert at this time. Our full board of directors functions as our audit committee and is comprised of four directors, two of whom are not considered to be "independent" in accordance with the requirements of Rule 10A-3 under the Exchange Act. An independent audit committee plays a crucial role in the corporate governance process, assessing our company's processes relating to our risks and control environment, overseeing financial reporting, and evaluating internal and independent audit processes. The lack of an independent audit committee may prevent the board of directors from being independent from management in its judgments and decisions and its ability to pursue the committee's responsibilities without undue influence. We may have difficulty attracting and retaining directors with the requisite qualifications. If we are unable to attract and retain qualified, independent directors, the management of our business could be compromised. In addition, the director on our board of directors is not considered to be a “financial expert” in that he does not have the education or experience of being a chief financial officer.

  

Our inability to retain and attract key personnel could seriously harm our business and adversely affect our ability to develop our products

 

We believe that our future success will depend on the abilities and continued service of our senior management and executive officers, particularly David Lewis, our Executive Director. If we are unable to attract additional qualified employees, researchers and consultants, we may be unable to successfully finalize and market our products and other future products being developed.

 

Our software technology and strategy may not be successful

 

Our success will depend almost entirely upon the acceptance of our products and services by parents with children under the age of 17, elementary and middle schools, media companies and households. Market acceptance will depend upon several factors, particularly the determination by parents that they need and want to monitor and protect their children while on the Internet and mobile devices. A number of factors may inhibit acceptance, including the existence of competing products, our inability to convince families that they need to pay for the products and services that we will offer, or failure by households and service companies to use our products. If our products are not accepted by the ultimate end user, we may have to curtail our business operations, which could have a material negative effect on operating results and most likely result in a lower stock price.

 

The commercialization of our new technology and strategy may not be successful

 

Our success will depend upon the acceptance of our products and services by consumers and companies within the computer and mobile industry. Market acceptance will depend upon several factors, particularly the determination by consumers and companies that they need and want a premium service for their computer or mobile devices that provide parents a solution to help manage their children’s communications activities. A number of factors may inhibit acceptance, including our inability to convince consumers and businesses that they need to pay for the products and services that we will offer. If our products are not accepted by the market, we may have to curtail our business operations, which could have a material negative effect on operating results and most likely result in a lower stock price. 

 

We may not be able to compete successfully against current and future competitors

 

We will compete, in our current and proposed businesses, with other companies, some of which have far greater marketing and financial resources and experience than we do. We cannot guarantee that we will be able to penetrate our primary market and be able to compete at a profit. In addition to established competitors, there is ease of market entry for other companies that choose to compete with us. Effective competition could result in price reductions, reduced margins or have other negative implications, any of which could adversely affect our business and chances for success. Competition is likely to increase significantly as new companies enter the market and current competitors expand their services. Many of these potential competitors are likely to enjoy substantial competitive advantages, including larger technical staffs, greater name recognition, larger customer bases and substantially greater financial, marketing, technical and other resources. To be competitive, we must respond promptly and effectively to the challenges of technological change, evolving standards and competitors’ innovations by continuing to enhance our services and sales and marketing channels. Any pricing pressures, reduced margins or loss of market share resulting from increased competition, or our failure to compete effectively, could seriously damage our business and chances for success.

 

We may not be able to manage our growth effectively

 

We must continually implement and improve our products and/or services, operations, operating procedures and quality controls on a timely basis, as well as expand, train, motivate and manage our work force in order to accommodate anticipated growth and compete effectively in our market segment. Successful implementation of our strategy also requires that we establish and manage a competent, dedicated work force and employ additional key employees in corporate management, product design, client service and sales. We can give no assurance that our personnel, systems, procedures and controls will be adequate to support our existing and future operations. If we fail to implement and improve these operations, there could be a material, adverse effect on our business, operating results and financial condition.

 

8

 

If we do not continually update our products, they may become obsolete and we may not be able to compete with other companies

 

Mobile technology, software applications and related infrastructure are rapidly evolving. Our ability to compete depends on the continuing development of our technologies and products. We cannot assure you that we will be able to keep pace with technological advances or that our products will not become obsolete. We cannot assure you that competitors will not develop related or similar products and bring them to market before we do, or do so more successfully, or that they will not develop technologies and products more effective than any that we have developed or are developing. If that happens, our business, prospects, results of operations and financial condition will be materially adversely affected.

 

Our business also depends on providing applications that wireless subscribers want to buy. We must continue to invest significant resources in research and development to enhance our offering of wireless applications and introduce new applications. Our operating results would suffer if our applications are not responsive to the preferences of our customers or are not effectively brought to market.

 

The planned timing or introduction of new applications is subject to risks and uncertainties. Unexpected technical, operational, deployment, distribution or other problems could delay or prevent the introduction of new applications, which could result in a loss of, or delay in, revenues or damage to our reputation and brand. If any of our applications is introduced with defects, errors or failures, we could experience decreased sales, loss of customers and damage to our reputation and brand. In addition, new applications may not achieve sufficient market acceptance to offset the costs of development. Our success depends, in part, on unpredictable and volatile factors beyond our control, including customer preferences and competing applications. A shift in mobile phone usage or the interest in parental control products could cause a decline in our applications' popularity that could materially reduce our revenues and harm our business.

 

We must make product development decisions and commit significant resources well in advance of the anticipated introduction of a new mobile phone model. New mobile phone models for which we are developing applications may be delayed, may not be commercially successful, may have a shorter life cycle than anticipated or may not be adequately promoted by wireless carriers or the mobile phone manufacturer. If the mobile phone models for which we are developing applications are not released when expected or do not achieve broad market penetration, our potential revenues will be limited and our business will suffer.

 

Wireless carriers generally control the price charged for our applications either by approving the price of our applications or by establishing the price charged to their wireless subscribers. The carriers' control over the pricing of our applications could adversely affect market acceptance of our applications and our revenues.

 

We must obtain approval from our wireless carriers for the pricing of the applications that we propose to offer to their subscribers. These approvals may not be granted in a timely manner or at all. Some of our carrier agreements may also restrict our ability to change prices. In addition, our carriers generally have the ability to set the price charged to their wireless subscribers. Failure to obtain, or a delay in obtaining, these approvals, or the price the carriers charge for our applications could adversely affect market acceptance of our applications.

 

If we are unsuccessful in establishing and increasing awareness of our brand and recognition of our applications, or if we incur excessive expenses promoting and maintaining our brand, our business could be harmed.

 

We believe that establishing and maintaining our brand is critical to retaining and expanding our customer base. Promotion of our brand will depend on our success in providing high-quality wireless applications. However, such success will depend, in part, on the services and efforts of third parties, over which we have little or no control. For instance, if our wireless carriers fail to provide quality service, our customers' ability to access our applications may be interrupted, which may adversely affect our brand. If our customers and carriers do not perceive our existing products and services as high quality, or if we introduce new applications that are not favorably received by our customers and carriers, then we may be unsuccessful in building brand recognition and brand loyalty in the marketplace. In addition, globalizing and extending our brand may be costly. It will also involve extensive management time to execute successfully. Further, the markets in which we operate are highly competitive and many of our competitors, such as NetNanny and S-Mobile, already have substantially more brand recognition than we do. If we fail to successfully increase brand awareness and consumer recognition of our applications, our potential revenues could be limited, our costs could increase and our business could suffer.

 

Credit market volatility and illiquidity may affect our ability to raise capital to finance our operations, planned expansion and growth.

 

The credit markets have experienced extreme volatility in recent years, and worldwide credit markets have remained unstable despite injections of capital by the federal government and foreign governments. Banks and other lenders, such as equipment leasing companies, have significantly increased credit requirements and reduced the amounts available to borrowers. Companies with low credit ratings may not have access to the debt markets until the liquidity improves, if at all. If we do not meet the conditions necessary for use of the Equity Line, we will be forced to seek other funding.  If current credit market conditions do not improve, we may not be able to access debt or leasing markets to finance our expansion plans.

 

We may not be able to successfully recruit and retain skilled employees, particularly scientific, technical and management professionals.

 

We believe that our future success will depend in large part on our ability to attract and retain highly skilled technical, managerial and marketing personnel who are familiar with our technology. Industry demand for such employees, however, exceeds the number of personnel available, and the competition for attracting and retaining these employees is intense. We compete in the market for personnel against numerous companies, including larger, more established competitors who have significantly greater financial resources than we do and may be in a better financial position to offer higher compensation packages to attract and retain human capital. We cannot be certain that we will be successful in attracting and retaining the skilled personnel necessary to operate our business effectively in the future. Because of the highly technical nature of our products, the loss of any significant number of our personnel could have a material adverse effect on our business and operating results.

 

Our business is concentrated, making our operations sensitive to economic fluctuations.

 

Because of our limited financial resources, it is unlikely that we will be able to further diversify our operations. Therefore, we will be subject to economic fluctuations within our industry. If our business does not succeed, you could lose all or part of your investment.

 

9

 

If we do not succeed in our expansion strategy, we may not achieve the results we project.

 

Our business strategy is designed to expand the sales of our products and services. Our ability to implement our plan will depend primarily on the ability to attract customers and the availability of qualified and cost-effective sales personnel. There are no firm agreements for employment of additional marketing personnel, and we can give you no assurance that any of our expansion plans will be successful or that we will be able to establish additional favorable relationships for the marketing and sales of our products and services. We also cannot be certain when, if ever, we will be able to hire the appropriate marketing personnel and to establish additional merchandising relationships.

 

Our officers and directors have limited liability against lawsuits.

 

ProText Mobility is a Delaware corporation. Delaware law permits the indemnification of officers and directors against expenses incurred in successfully defending against a claim. Delaware law also authorizes Delaware corporations to indemnify their officers and directors against expenses and liabilities incurred because of their being or having been an officer or director. Our organizational documents provide for this indemnification to the fullest extent permitted by law.

 

Our company is a party to various litigations.

 

We have been engaged in various litigations (See “Legal Proceedings” below). A negative outcome in these actions could adversely affect our business. We could be subject to future litigations that could materially affect our ability to operate our business, which would negatively impact our results of operations and financial condition.

 

 

RISKS RELATED TO OUR SECURITIES

 

Issuance of preferred stock could hurt holders of common stock.

 

Our board of directors is authorized by our charter to create and issue preferred stock. The rights of holders of preferred stock take precedence over the rights of holders of common stock. Between February 2007 and December 31, 2007, we authorized a class of 1,526,718 Series A 7% of cumulative preferred stock and 28,968 Series A shares remain outstanding as of the date hereof. Our board of directors authorized a class of Series “B” preferred stock, with 1,000,000 shares designated, and since that date, we have sold 511,551 shares. During 2013, we authorized a class of Series “C” Preferred Stock, with 3,900,000 shares designated and 3,650,000 issued and outstanding, which grants special voting rights to its holder.  We may issue additional shares of Series A, B, or C stock in addition to other preferred stock. As future tranches of capital are received by the Company, additional preferred stock may be issued. The rights of future preferred stockholders could delay, defer or prevent a change of control, even if the holders of common stock are in favor of that change of control, as well as enjoy preferential treatment on matters like distributions, liquidation preferences and voting.

Our stock price has been volatile.

 

Our stock price fluctuated between $0.08 and $0.48 during the last three months ended December 31, 2013. The price of our shares may fluctuate significantly despite the absence of any apparent reason. In addition, our stock is thinly traded, leading to even greater volatility. You should expect this volatility to continue. The price of our common stock may be subject to considerable fluctuations as a result of various factors, including but not limited to:

 

  

A limited trading market currently exists for our securities and we cannot assure you that an active market will ever develop, or if developed, will be sustained.

There is currently a limited trading market for our securities on the OTCQB. We cannot assure you when and if an active-trading market in our shares will be established, or whether any such market will be sustained or sufficiently liquid to enable holders of shares of our common stock to liquidate their investment in our company. If an active public market should develop in the future, the sale of unregistered and restricted securities by current shareholders may have a substantial impact on any such market.

 

Accordingly, an investment in our securities should only be considered by those investors who do not require liquidity and can afford to suffer a total loss of their investment. An investor should consider consulting with professional advisers before making such an investment.

 

There will be a significant number of shares of common stock eligible for future sale and this may hurt the market price of the shares.

 

The market price of our shares could decline as a result of sales, or the perception that sales could occur, of a large number of shares available in the public market. Such sales also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. At December 31, 2013, we had a total of 1,733,569 shares of common stock outstanding, but there were also 9,374,846 shares of common stock that could be acquired upon the conversion or exercise of outstanding preferred stock, notes, options and warrants. Upon the conversion or exercise of these securities, holders of our common stock will see their interest as a percentage of the total number of our common stock diluted.

 

We have never paid any cash dividends.

 

We have never paid any cash dividends on our shares of common stock and there are presently no plans being considered that would result in the payment of cash dividends.

 

FINRA sales practice requirements may also limit a stockholder's ability to buy and sell our stock.

 

 In addition to the “penny stock” rules described below, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

 

10

 

Because our common stock is deemed a low-priced “penny stock,” it will  be cumbersome for brokers and dealers to trade in our common stock, making the market for our common stock less liquid and negatively affect the price of our stock.

We will be subject to certain provisions of the Securities Exchange Act of 1934 (the “Exchange Act”), commonly referred to as the “penny stock” rules as defined in Rule 3a51-1.  A penny stock is generally defined to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. Since our stock is deemed to be a penny stock, trading is subject to additional sales practice requirements of broker-dealers.  These require a broker-dealer to:

 

 

Consequently, penny stock rules may restrict the ability or willingness of broker-dealers to trade and/or maintain a market in our common stock.  Also, prospective investors may not want to get involved with the additional administrative requirements, which may have a material adverse effect on the trading of our shares. 

RISKS RELATED TO INTELLECTUAL PROPERTY

 

 We may be involved in lawsuits to protect or enforce our patents, which could be expensive and time consuming.

 

Competitors or others may infringe our future patents. To counter infringement or unauthorized use, we may be required to file patent infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover that technology. An adverse determination of any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.

 

Interference proceedings brought by the United States Patent and Trademark Office may be necessary to determine the priority of inventions with respect to our patent applications. Litigation or interference proceedings may fail and, even if successful, may result in substantial costs and be a distraction to our management. We may not be able to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the United States.

 

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure. In addition, during the course of this litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.

 

We may not prevail in any litigation or interference proceeding in which we are involved. Even if we do prevail, these proceedings can be expensive and distract our management.

 

Our patent applications may not result in issued patents, which may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours.

 

Patent applications in the United States are maintained in secrecy until the patents are published or are issued. Since publication of discoveries in the scientific or patent literature tends to lag behind actual discoveries by several months, we cannot be certain that we are the first creator of inventions covered by pending patent applications or the first to file patent applications for these inventions. We also cannot be certain that our future patent applications will result in issued patents or that any of our issued patents will afford protection against a competitor. In addition, patent applications filed in foreign countries are subject to laws, rules and procedures that differ from those of the United States, and thus we cannot be certain that foreign patent applications related to issued U.S. patents will be issued. Furthermore, if these patent applications issue, some foreign countries provide significantly less effective patent enforcement than in the United States.

 

The status of patents involves complex legal and factual questions and the breadth of claims allowed is uncertain. Accordingly, we cannot be certain that the patent applications that we file will result in patents being issued, or that our patents and any patents that may be issued to us in the near future will afford protection against competitors with similar technology. In addition, patents issued to us may be infringed upon or designed around by others and others may obtain patents that we need to license or design around, either of which would increase costs and may adversely affect our operations.

 

Our patents and other protective measures may not adequately protect our proprietary intellectual property.

 

We regard our intellectual property as critical to our success. In addition, we generally enter into confidentiality and invention agreements with our employees and consultants. Such patents and agreements and various other measures we take to protect our intellectual property from use by others may not be effective for various reasons, including the following:

 

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We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.

 

We rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, former employees, contractors, consultants, outside scientific collaborators and other advisors to protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets or independently develop processes or products that are similar or identical to our trade secrets, and courts outside the United States may be less willing to protect trade secrets. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

  

Item 1B. Unresolved Staff Comments.

 

Not applicable.

 

Item 2. Properties.

 

Our principal executive offices are located at 16885 River Birch Circle, Delray Beach, Florida 33445.  In May 2013, we entered into a one year lease for a monthly rent of $1,500.

 

 

Item 3. Legal Proceedings. No updates

 

Item 4. Mine Safety Disclosures.

Not applicable.

 

 

 

 

12

 

 

PART II

 

Item 5. Market for Common Equity and Related Stockholder Matters.

 

MARKET PRICE OF COMMON STOCK AND OTHER STOCKHOLDER MATTERS

 

ProText Mobility Inc's public offering was completed on July 23, 2003. A total of 2,474,000 units were sold in the public offering. Each unit consisted of one share of Common Stock, one Class A Warrant, exercisable for five years, to purchase one share of Common Stock at $0.75 per share ("Class A Warrant") and one Class B Warrant, exercisable for seven years, to purchase one share of Common Stock at $1.75 per share ("Class B Warrant"). The Common Stock is quoted on the OTCQB and trades under the symbol TXTM.

 

 

Price Range of Common Stock

 

The following table shows the high and low bid prices of the Company’s Common Stock as quoted on the OTC Bulletin Board by quarter during each of our last two fiscal years ended December 31, 2012 and 2011. These quotes reflect inter-dealer prices, without retail markup, markdown or commissions and may not represent actual transactions. The information below was obtained from those organizations, for the respective periods.

 

 

 

 

Penny Stock

 

Our stock is considered to be a penny stock.  The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.

 

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with: (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer's account.

 

In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.

 

These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.

 

Holders

 

As of April 12, 2014, the Company had 185 record holders of the Company's common stock.   

 

Dividends

 

Since its organization, the Company has not paid any cash dividends on its common stock, nor does it plan to do so in the foreseeable future.

 

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

 

The following table provides information regarding the status of our existing equity compensation plans at December 31, 2013.

 

 

13

 

 

 

 

 

 

 

 

SALES OF UNREGISTERED SECURITIES FOR THE FOURTH QUARTER

 

In the fourth quarter of 2013, the Company issued 27,282,564 shares of common stock pursuant to a conversion of a promissory note of $50,000 and accrued interest of $2,000.

 

The above shares of common stock were issued pursuant to the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended, for transactions not involving a public offering. [Company’s attorney to confirm]

 

Item 6. – Selected Financial Data

 

N/A

 

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Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements included elsewhere in this prospectus. This discussion includes forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” and elsewhere in this Report, our actual results may differ materially from those anticipated in these forward-looking statements.

 

Certain statements contained herein, including statements regarding the anticipated development and expansion of our business, our intent, belief or current expectations, primarily with respect to our future operating performance and other statements contained herein regarding matters that are not historical facts, are “forward-looking” statements. Future filings with the Securities and Exchange Commission, future press releases and future oral or written statements made by us or with our approval, which are not statements of historical fact, may contain forward-looking statements, because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements.

 

All forward-looking statements speak only as of the date on which they are made. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made.

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) section discusses our results of operations, liquidity and financial condition, and certain factors that may affect our future results. You should read this MD&A in conjunction with our audited financial statements and accompanying notes included herein. This plan of operation contains forward-looking statements that involve risks, uncertainties, and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those presented under “Risk Factors” or elsewhere in this Report.

 

 

Background

 

Protext Mobility develops, markets and sells software products and solutions for the internet and mobile communications markets aimed at protecting children from danger on the internet and in mobile communication. The Company has expanded its business plan from developing software solely for personal computers (“PCs”) to developing software for products designed for the mobile industry. We offer three products, one for PCs and two for mobile communications devices. Although we continue to derive substantially all of our revenue from our first PC-based technology, namely FamilySafe Parental Controls, we anticipate deriving a substantial portion of our future revenues from products designed for the mobile industry. Our lead mobile product, SafeText, is a service for mobile devices that provides parents a tool to help manage their children’s mobile communication activities.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  These circumstances raise substantial doubt about the Company's ability to continue as a going concern.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

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. In the fiscal year 2012, the Company received approximately $655,000 from bridge notes and approximately $48,000 from common stock purchases. If the Company does not receive additional funding through the Equity Line, the Company will need to raise additional capital. As the Company increases sales from its products and services, the Company expects to increase cash flows from operations.

 

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 includes the marketing of the SafeText product to consumers and businesses as described in the Company’s business summary.

  

Significant and Critical Accounting Policies:

Our discussion of the financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States.  The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of any contingent assets and liabilities at the date of the financial statements.  Management regularly reviews its estimates and assumptions, which are based on historical factors and other factors that are believed to be relevant under the circumstances.  Actual results may differ from these estimates under different assumptions, estimates or conditions.

 

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions.  See “Notes to Consolidated Financial Statements” for additional disclosure of the application of these and other accounting policies.

 

Revenue Recognition: The Company recognizes revenues in accordance with authoritative guidance and when there is persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the sales price is determinable and collectability is reasonably assured. Software products and services revenue is derived from online Internet sales is recognized upon the settlement of credit card charges, typically within three days of the sale.

 

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

 

15

 

Results of Operations

 

Comparison of the Results for the Years Ended December 31, 2013 and 2012

 

PROTEXT MOBILITY, INC. AND SUBSIDIARIES
CONSOLIDATED RESULTS OF OPERATIONS
						Increase/		Increase/
		Year Ended				(Decrease)		(Decrease)
		December 31,				in $ 2013		in % 2013
		2013		2012		vs 2012		vs 2012
Revenues:		$                     642		$                10,634		(9,992)		-94.0%
Cost of Revenues
Amortization of internal-use software costs		-		181,887		(181,887)		-100.0%
		642		(171,253)		171,895		-100.4%
Operating expenses:
Sales, general and administrative		948,949		1,346,778		(397,829)		-29.5%
Total operating expenses		948,949		1,346,778		(397,829)		-29.5%
Operating income		(948,307)		(1,518,031)		569,724		-37.5%
Other income (expense):
Changes in fair value of derivative liability		34,095		-		34,095		NM
Interest expense		(554,161)		(651,720)		(97,559)		-15.0%
		(520,066)		(651,720)		(131,654)		-20.2%
Net loss		$          (1,468,373)		$          (2,169,751)		(701,378)		-32.3%
NM: Not Meaningful

 

Revenue during 2013 decreased when compared 2012 primarily from the decrease in the number of apps sold during 2013.

Cost of revenues decreased during 2013 when compared to 2012 primarily from the amortization and impairment of our internal-use software which occurred during 2012.  No such events occurred during 2013.

Selling, general, and administrative expenses decreased during 2013 when compared to 2012 resulting primarily from a general reduction of the Company’s expenses during 2013.

 

Interest expense decreased during 2013 when compared to 2012 primarily from the decrease of notes outstanding for which the debt discount is fully amortized at December 31, 2013.

  

Changes in fair value of the derivative liability increase in 2013 when compared to 2012, primarily from the issuance of hybrid instruments convertible into the Company’s common stock at a variable rate.  Such hybrid instruments were not issued during 2012.

 

Liquidity and Capital Resources

 

The financial statements have been prepared on a going concern basis which assumes our company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.  We have a working capital deficit, and have incurred losses since inception, and further losses are anticipated in the development of our business raising substantial doubt about our company’s ability to continue as a going concern.  The ability to continue as a going concern is dependent upon our company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand and loans from directors and/or private placement of securities.

 

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 and 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 December 31, 2013, the Company had cash and cash equivalents of approximately $41 and a working capital deficiency of approximately of $4.1 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 would need additional financing to continue to operate. As the Company increases sales from its products and services, the Company expects to increase cash flows from operations although these cash flows may not be enough to support the Company’s operations.

 

Net cash used in operating activities for the year ended December 31, 2013 and 2012 was approximately $366,000 and $630,000, respectively.   

The net cash used in operating activities during 2013 consists of the net loss of approximately $1.3 million adjusted by amortization of debt discount of approximately $296,000 and common stock issued for directors compensation of $160,000. Additionally, the Company’s accounts payable and accrued expenses increased by approximately $494,000 ( primarily unpaid accrued interest from our debt).

The net cash provided by financing activities during 2013 consists primarily from proceeds from the issuance of convertible notes of approximately $369,000 offset by principal repayments on such notes of $30,000.

The net cash used in operating activities during 2012 consists of the net loss of approximately $2.2 million adjusted by amortization of debt discount of approximately $417,000, amortization of internal-use software and website development costs of approximately $204,000,  and common stock issued for directors compensation of $160,000. Additionally, the Company’s accounts payable and accrued expenses increased by approximately $634,000 ( primarily unpaid compensation and accrued interest from our debt).

The net cash provided by financing activities during 2012 consists primarily from proceeds from the issuance of convertible notes of approximately $656,000 offset by principal repayments on such notes of $78,000.

 

 

 Research and Development

 

Research and development costs are generally expensed as incurred. In accordance with the provisions of FASB Codification Topic ACS 985-20, "Costs of Software to be Sold, Leased, or Marketed,” software development costs are subject to capitalization beginning when a product's technological feasibility has been established and ending when a product is available for release to customers. For the years ended December 31, 2012, and 2011 the Company capitalized approximately $0 and $192,000 of software and website development costs, respectively.  The software and website costs are amortized on a straight line basis over the estimated useful life of three years. Amortization expense for the years ended December 31, 2012 and 2011 was approximately $106,000 and $107,000 respectively.

 

In accordance with FASB Codification Topic ASC 360-10-15, Impairment or Disposal of Long-Lived Assets, we review long-lived assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered.  In such circumstances, we will estimate the future cash flows expected to result from the use of the asset and its eventual disposition.  Future cash flows are the future cash inflows expected to be generated by an asset less the future outflows expected to be necessary to obtain those inflows.  If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, we will recognize an impairment loss to adjust to the fair value of the asset.  In the fourth quarters of the fiscal years ended December 31, 2012 and 2011 the Company determined there was an impairment to the software capitalization and website development costs related to obsolete product and legacy website costs and recorded write offs of approximately $88,000 and $81,000, respectively, which is included in the accompanying consolidated statement of operations.

 

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

 

16

 

Recent Accounting Pronouncements Affecting the Company:

 

In July 2012, FASB issued Accounting Standards Update (“ASU”) No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU 2012-02”). ASU 2012-02 gives entities an option to first assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that the indefinite-lived intangible asset impaired. If based on its qualitative assessment an entity concludes that it is more likely than not that the fair value of an indefinite lived intangible asset is less than its carrying amount, quantitative impairment testing is required. However, if an entity concludes otherwise, quantitative impairment testing is not required. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. ASU 2012-02 did not have a material impact on our financial position or results of operations.

 In December 2011, the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). ASU 2011-11 enhances current disclosures about financial instruments and derivative instruments that are either offset on the statement of financial position or subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset on the statement of financial position. Entities are required to provide both net and gross information for these assets and liabilities in order to facilitate comparability between financial statements prepared in conformity with U.S. GAAP and financial statements prepared on the basis of International Financial Reporting Standards (“IFRS”).  ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. ASU 2011-11 did not have a material impact on our financial position or results of operations.

 In September 2011, the FASB issued ASU No. 2011-08 Intangibles – Goodwill & Other (“ASU 2011-08”), which updates the guidance in Accounting Standards Codification (“ASC”) Topic 350, Intangibles – Goodwill & Other (“ACS Topic 350”).  The amendments in ASU 2011-08 permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in ASC Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than fifty percent. If, after assessing the totality of events or circumstances, an entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. The amendments in ASU 2011-08 include examples of events and circumstances that an entity should consider in evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. However, the examples are not intended to be all-inclusive and an entity may identify other relevant events and circumstances to consider in making the determination. The examples in this ASU 2011-08 supersede the previous examples under ASC Topic 350 of events and circumstances an entity should consider in determining whether it should test for impairment between annual tests, and also supersede the examples of events and circumstances that an entity having a reporting unit with a zero or negative carrying amount should consider in determining whether to perform the second step of the impairment test.

Under the amendments in ASU 2011-08, an entity is no longer permitted to carry forward its detailed calculation of a reporting unit’s fair value from a prior year as previously permitted under ASC Topic 350. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of ASU 2011-08 did not have a material impact on our financial position or results of operations.

In May 2011, the FASB issued ASU 2011-04 (“ASU 2011-04”), which updated the guidance in ASC Topic 820, Fair Value Measurement. The amendments in ASU 2011-04 generally represent clarifications of Topic 820, but also include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed.  ASU 2011-04 results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and IFRS.  The amendments in ASU 2011-04 are to be applied prospectively. For public entities, the amendments are effective for interim and annual periods beginning after December 15, 2011. The adoption of ASU 2011-04 did not have a material impact on our financial position or results of operations.

We do not believe there would have been a material effect on the accompanying financial statements had any other recently issued, but not yet effective, accounting standards been adopted in the current period.

  

 

17

 

Item 9. Changes in and Disagreements with Accountants on Accounting And Financial Disclosure

 

None

 

Item 9A (T). Controls and Procedures

 

Internal Controls

 

Evaluation of our Disclosure Controls and Internal Controls

 

Under the supervision and with the participation of our senior management, including our chief executive and financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this annual report (the “Evaluation Date”). The disclosure controls and procedures are intended to insure that the information relating to us, including our consolidated subsidiaries, required to be disclosed in our Securities and Exchange Commission (“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 chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management has concluded that based on their evaluation that our disclosure controls and procedures were effective as of December 31, 2012.

 

Management's Annual Report on Internal Controls and Procedures.

 

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. In evaluating the effectiveness of our internal control over financial reporting, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework.

Based upon our assessment and the COSO criteria, management concluded that our internal control over financial reporting was effective as of December 31, 2013.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permanently exempt smaller reporting companies.

  

Changes in Internal Controls. There were no significant changes in our internal controls over financial reporting that occurred during the three months ended December 31, 2012, that have materially affected, or are reasonably like to materially affect, our internal controls over financial reporting.

 

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

 

Item 9B. Other Information.

 

Not Applicable.

 

18

 

 

PART III

 

Item 10. Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance With Section 16(a) of the Exchange Act.

 

The Company has two members of the board of directors. The identity of each of our directors and executive officers and their principal occupations for the past five years are as follows.

  

 

David M. Lewis – Executive Director

 

Mr. Lewis has served on the Board since September 2009 and currently serves as a senior strategic advisor. He is a founding partner of Rock Island Capital, a partnership established to invest in and acquire a controlling interest in a single public company, Protext Mobility. The Rock Island team and investment group is comprised of seasoned business professionals with decades of operational experience. The group seeks to invest in companies with compelling value and exceptional growth potential. At Rock Island, Mr. Lewis is responsible for developing corporate client relationships leading to investment opportunities as well as managing various aspects of public and private market transactions. Mr. Lewis began his investment career in 1994 and has had affiliations with leading investment banking firms including Alex Brown & Sons, Prudential Securities, and Oppenheimer & Co. Prior to forming Rock Island, Mr. Lewis specialized in public market transactions including initial & secondary public offerings, P.I.P.E. transactions, and institutional trading. In addition to private banking services, Mr. Lewis’s background also includes in depth asset management and asset allocation. Over the past several years, Mr. Lewis has advised numerous companies in various industries including software, mobile, energy, nuclear power, and consumer products. Mr. Lewis’s past experiences and knowledge led to the conclusion he should serve on the Company’s board of directors given the Company’s business and structure. Mr. Lewis brings to the board of directors significant strategic, business and financial experience related to our business and our efforts to raise financing.   

 

Frank Chester

 

Prior to joining the board in 2009, Mr. Chester was self-employed. With more than 40 years in the finance industry and on the New York Stock Exchange, Mr. Chester is a much requested guest-expert on financial news television and broadcast programs such as CNBC, Fox Business, and Bloomberg radio. Mr. Chester is a former member of the New York Stock Exchange with 24 years of experience. During his time as a New York Stock Exchange member, he owned a seat for 15 years until the exchange became a public entity. Mr. Chester serves as advisor to brokerage firms on becoming active members on the floor. Mr. Chester's financial knowledge and experience led to the conclusion he should serve on the Company's board of directors, given the Company's business and structure. Mr. Chester is uniquely qualified to bring strategic insight to the board in its financing efforts.

Each director holds office until the next annual stockholders meeting or until a successor is duly elected or appointed.  Officers are appointed to their positions, and continue in such positions, at the discretion of the directors.

 

No directors of the Company are directors of other companies with securities registered pursuant to section 12 of the Exchange Act or subject to the requirements of section 15(d) of such act or any company registered under the Investment Company Act of 1940.

 

 

Committees of the Board

 

Our company has a compensation committee consisting of Msrs, Chester and  Lewis. This committee performs several functions, including reviewing all forms of compensation provided to our executive officers, directors, consultants and employees, including stock compensation.

 

Our company currently does not have a nominating or audit committee or committees performing similar functions, nor does our company have a written nominating or audit committee charter. Our directors believe that it is not necessary to have such committees at this time, because the functions of such committees can be adequately performed by the board of directors. We do not have an audit committee financial expert at this time. Our full board of directors functions as our audit committee and is comprised of four directors, only two of whom are considered to be "independent" in accordance with the requirements of Rule 10A-3 under the Exchange Act.

 

Our company does not have any defined policy or procedural requirements for shareholders to submit recommendations or nominations for directors. The board of directors believes that, given the stage of our development, a specific nominating policy would be premature and of little assistance until our business operations develop to a more advanced level. Our company does not currently have any specific or minimum criteria for the election of nominees to the board of directors and we do not have any specific process or procedure for evaluating such nominees. The board of directors will assess all candidates, whether submitted by management or shareholders, and make recommendations for election or appointment.

 

A shareholder who wishes to communicate with our board of directors may do so by directing a written request addressed to our CEO and director, Peter Charles, at the address appearing on the first page of this prospectus.

 

Code of Ethics

 

Our board of directors adopted a Code of Ethics that covers all executive officers of our company and its subsidiaries as posted on our website www.protextmobility.net. The Code of Ethics requires that senior management avoid conflicts of interest; maintain the confidentiality of information relating to our company; engage in transactions in shares of our common stock only in compliance with applicable laws and regulations and the requirements set forth in the Code of Ethics; and comply with other requirements which are intended to ensure that such officers conduct business in an honest and ethical manner and otherwise act with integrity and in the best interest of our company.

 

All our executive officers are required to affirm in writing that they have reviewed and understand the Code of Ethics.

 

Any amendment of our Code of Ethics or waiver thereof applicable to any of our principal executive officer, principal financial officer and controller, principal accounting officer or persons performing similar functions will be disclosed on our website within 5 days of the date of such amendment or waiver. In the case of a waiver, the nature of the waiver, the name of the person to whom the waiver was granted and the date of the waiver will also be disclosed. A copy of our Code of Ethics is incorporated by reference to the Company’s form 10-KSB filed with the Securities and Exchange Commission on March 16, 2004.

 

 

19

 

Family Relationships

 

There are no family relationships among our executive officers and directors.

 

Legal Proceedings

 

None of the current officers or directors of the Company have been the subject of litigation over the past ten years nor was any the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires all of ProText Mobility’s officers and directors, and persons who own more than ten percent of a registered class of ProText Mobility’s equity securities, to file reports of ownership and changes in ownership of equity securities of ProText Mobility with the SEC and any applicable stock exchange. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish ProText Mobility with copies of all Section 16(a) forms that they file.  Based on our review of the 16(a) filings, we believe that : state conclusion

 

Changes in Nominating Procedures

 None.

 

Item 11. Executive Compensation

 

Each of our named executive officers has entered into a three year employment agreement with ProText Mobility. Pursuant to the respective employment agreements, each executive officer receives an annual base salary, a non-ISO option grant, paid health insurance and between three to four weeks of vacation annually. The employment agreements require the named executive officers to maintain the confidentiality of ProText Mobility information and subject them to non-competition and non-solicitation restrictions during their employment.

 

The following table shows the compensation earned by each of the named executive officers for the years ended December 31, 2012 and 2011.

(1) Salary represents base salary earned in 2013 and 2012.

(2) Represents the amount recognized by ProText Mobility for financial statement reporting purposes in accordance with the recognition and measurement provisions of Share Based Compensation as defined in FASB Codification, topic 718, which requirescompensation costs related to share-based payment transactions, including employee stock options, to be recognized in the financial statements.

 

20

The following table shows outstanding option awards held by each of the named executive officers as of December 31, 2013.

 

 

 

Stock Plans

 

The Company’s 2004 Stock Plan, which is shareholder approved, permits the grant of up to 1,500,000 shares of common stock. 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. The Company filed the 2009 Incentive Stock Plan with the Securities and Exchange Commission on October 19, 2010.

 

Employment and Consulting Agreements

We entered into an employment agreement with Erica Zalbert effective as of June 1, 2009 for a term of three years to serve as our Chief Financial Officer. The agreement provides that Ms. Zalbert will receive an annual base salary of One Hundred Fifty Thousand Dollars ($150,000), which is to be increased to $175,000 upon the raise of $3,000,000 in equity/debt or a combination thereof and $200,000 upon the raise of $4,000,000 within the first twelve months of the agreement. Ms. Zalbert receives a salary that is pro-rated for the numbers of days that she works based upon an annual salary of $175,000 per year and is entitled to a minimum 10% raise each year. Ms. Zalbert was issued 250,000 options upon signing the agreement which vested immediately and contained a cashless feature. Ms. Zalbert was also issued 1,500,000 options, 500,000 of which vested on the one year anniversary of the agreement and each subsequent one year anniversary. She also receives certain other benefits such as health insurance. Our company has the right to terminate the agreement for Good Cause as defined in the agreement. If the agreement is terminated by us during the initial term, she is entitled to one month’s salary during year one, two months’ salary during year two and three months’ salary during year three. If Ms. Zalbert terminates the agreement due to a Company Material Breach as defined in the agreement, she is entitled to receive her full salary and benefits for three months after termination. If Ms. Zalbert terminates the agreement within 180 days of any warrant, option or bonus grant not for Good Cause she will forfeit such warrant, option or bonus received within the 180 day period. If we terminate the agreement for Cause as defined in the agreement, Ms. Zalbert will be entitled to receive accrued salary only through the termination date and if she is terminated for any other reason, she is entitled to receive severance equal to one year’s salary. Upon her death or disability she is not entitled to receive any base salary and upon a change of control she is entitled to receive her base salary and benefits specified in the agreement. The agreement also contains non-competition and non-disclosure provisions. On May 1, 2012, Erica Zalbert resigned as Chief Financial Officer and Secretary of ProText Mobility, Inc.

 

We entered into an employment agreement with Peter Charles effective as of October 1, 2009 for a term of three years to serve as our Vice President and Director of Corporate Affairs. The agreement provides that Mr. Charles will receive an annual base salary of One Hundred Thirty Five Thousand Dollars ($135,000), subject to a minimum 10% raise each year. Mr. Charles was issued 1,500,000 options upon signing the agreement, 500,000 of which vested immediately and 500,000 of which vested on the one year anniversary of the agreement and 500,000 of which vested on the second anniversary, October 1, 2011.

 

21

Mr. Charles was also eligible to receive and did receive 2,500,000 performance based options. He also receives certain other benefits such as health insurance. Our company has the right to terminate the agreement for Good Cause as defined in the agreement. If the agreement is terminated for Good Cause he has no right to any further base salary but if we terminate for any other reason during the initial term, he is entitled to one month’s salary during year one, two months’ salary during year two and three months’ salary during year three. If Mr. Charles terminates the agreement due to a Company Material Breach as defined in the agreement, he is entitled to receive his full salary and benefits for three months after termination. If Mr. Charles terminates the agreement within 180 days of any warrant, option or bonus grant not for Good Cause he will forfeit such warrant, option or bonus received within the 180 day period. If we terminate the agreement for Cause as defined in the agreement, Mr. Charles will be entitled to receive accrued salary only through the termination date and if he is terminated for any other reason, he is entitled to receive severance equal to one year’s salary. Upon his death or disability he is not entitled to receive any base salary and upon a change of control he is entitled to receive his base salary and benefits specified in the agreement. The agreement also contains non-competition and non-disclosure provisions.

 

We entered into a consulting agreement with Dmidnights, Inc., a company owned by one of our board members, David Lewis, effective as of October 2010 for a twelve-month term with automatic twelve month renewal periods unless terminated by either party in writing with 90 days advance notice. The agreement provides that Mr. Lewis will receive a monthly consulting fee of Fifteen Thousand Dollars ($15,000) or 2,000,000 shares annualized, commencing upon the effective date of the agreement, and payable in equivalent value in either equity options, and/or company stock. The amount of shares are to be calculated by dividing the dollar amount of compensation by the thirty day volume weighted average for the same month of service. Dmidnights, Inc. is also entitled to an equity bonus at year end at the discretion of our board of directors. The agreement also contains non-disclosure provisions.

We entered into an employment agreement with Steve Berman as Interim Chief Executive Officer in May 2013.  The agreement provides for the payment of $50,000 per quarter and is renewable every three months and is entitled to 15% of the net revenues resulting in a commercial contract.

  

Director Compensation

 

Directors who are employees of the Company do not receive any fees for their service on the Board. We use equity-based incentive compensation to attract and retain qualified candidates to serve on our Board. Our non-employee directors receive quarterly equity compensation in the form of the Company’s restricted common stock and stock options to purchase shares of the Company's common stock.

  

 

 

 

 

  

22

Risk Management

The Company does not believe risks arising from its compensation policies and practices for its employees are reasonably likely to have a material adverse effect on the Company.

 

Item 12. -Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The following table sets forth certain information, as of April 12, 2013, with respect to the beneficial ownership of our common stock by: (i) each holder of more than five percent (5%) of the outstanding shares of our Common Stock; (ii) our executive officers and directors; and (iii) all our executive officers and directors as a group. The Company's issued and outstanding voting securities at the close of business on April 12, 2013, consisted of 449,628,022 shares of common stock.

 

Unless otherwise indicated below, to our knowledge, all persons listed below have sole voting and investment power with respect to their shares of common stock, except to the extent authority is shared by spouses under applicable law. Unless otherwise indicated below, each entity or person listed below maintains an address of c/o ProText Mobility, Inc., 60 Queens Street, Syosset, New York 11791.

 

The number of shares beneficially owned by each stockholder is determined under rules promulgated by the Securities and Exchange Commission. The information is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting or investment power and any shares as to which the individual or entity has the right to acquire beneficial ownership within 60 days after April 12, 2013 through the exercise of any stock option, warrant or other right. The inclusion in the following table of those shares, however, does not constitute an admission that the named stockholder is a direct or indirect beneficial owner.

 

 

  

 

        Included in the total beneficial ownership of Rock Island are:

 

Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of the Company's common stock beneficially owned by them. A person is deemed to be the beneficial owner of securities which may be acquired by such person within 60 days from the date on which beneficial ownership is to be determined, upon the exercise of options, warrants or convertible securities.  Each beneficial owner's percentage ownership is determined by assuming that options, warrants and convertible securities that are held by such person (but not those held by any other person) and which are exercisable within such 60 day period, have been exercised.

 

*) less than 1%

 

23

Item 13. Certain Relationships and Related Transactions, and Director Independence

 

The Company is indebted to a board member, David Lewis, for approximately $102,000. Mr. Lewis was issued two notes each in the principal amount of $12,500, each bear interest at a rate of 10% per annum, each is convertible into common stock at a conversion price of $.07 per share and one note matures on August 8, 2011 and the other August 31, 2011. Mr. Lewis was issued one additional note in the principal amount of $77,000 for funds received from October through December 30, 2011, which bears interest at a rate of 10% per annum, and is convertible into common stock at a conversion price of $0.03 per share and matures on June 27, 2012.The notes to Mr. Lewis are secured by all of our assets.

 

We entered into a consulting agreement with Dmidnights, Inc., a company owned by one of our board members, David Lewis, effective as of October 2010 for a twelve-month term with automatic twelve month renewal periods unless terminated by either party in writing with 90 days advance notice. The agreement provides that Mr. Lewis will receive a monthly consulting fee of Fifteen Thousand Dollars ($15,000) or 2,000,000 shares annualized, commencing upon the effective date of the agreement, and payable in equivalent value in either equity options, and/or company stock. The amount of shares are to be calculated by dividing the dollar amount of compensation by the thirty day volume weighted average for the same month of service. Dmidnights, Inc. is also entitled to an equity bonus at year end at the discretion of our board of directors. The agreement also contains non-disclosure provisions.

 

Director Independence

 

The Board of Directors have determined that Mr. Frank Chester is an independent director as of December 31, 2013.

 

Item 14. Principal Accountant Fees and Services

 

 

Fees billed for audit of year end consolidated financial statements and annual reports.

 

 

Fees billed for quarterly review of unaudited consolidated financial statements and interim reports

 

  

 

 

 

Audit Committee Pre-Approval Policies and Procedures

 

We currently do not have any members serving on the audit committee.

 

24

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

  

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

INDEX

 

 

 

 

 

                                                                                                     

                                                                                                                                                                     

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors

Protext Mobility, Inc,

 

We have audited the accompanying consolidated balance sheet of Protext Mobility, Inc. (the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of operations, stockholders’ deficit and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Protext Mobility, Inc. at December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has sustained net losses from continuing operations for the year ended December 31, 2013 and has a working capital deficit and a stockholder’s deficit as of December 31, 2013. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

/s/ RBSM LLP

 

April 15, 2014

 

New York, NY

 

 

 

F-1