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| MDVX.OB > SEC Filings for MDVX.OB > Form 10-K on 15-Jun-2009 | All Recent SEC Filings |
15-Jun-2009
Annual Report
The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with financial statements and the notes to those statements included elsewhere in this report. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed under Business- Risk Factors above and elsewhere in this report.
Overview
During the year ended February 28, 2009, we raised $1,672,353 of capital to further our operational and patent related initiatives. We ended our fiscal year with cash of $374,696 and working capital deficit of $1,302,471, stockholder's equity of $2,887,134. Although we recorded a net loss for fiscal 2009 of $5,325,510, this net loss included depreciation and amortization expense of $869,563 and stock option expense of $888,653. The company realized a decrease in legal expense over 2008 which is due to our patent strategy, internal reviews, and legacy related matters. The legal expense to our company for fiscal 2009 was $714,594, excluding $353,000 capitalized for patent defense cost, compared to $849,083 in 2008.
During the year ended February 28, 2009, revenues consisted of talk radio production fees and related sponsorship revenue, and revenue from the sale of Interactive Products Division products and related Hosting.
Operating expenses are primarily third party software production costs, third party hosting costs for Interactive Products Division products and our talk radio network operating costs. These costs are principally the cost of technical personal and fees paid to third parties for hosting services.
Selling, general and administrative expenses consist primarily of salaries, commissions and related expenses for sales, marketing, accounting, and administrative personnel, as well as other general corporate expenses such as rent communication and legal and accounting fees. Our litigation with Tacoda, defense of our trade names, patent related costs, internal reviews and examinations, and other onetime fees provided a large percentage of the costs associated with our business. We feel these expenses will continue to tax the overall operation until legacy and patent related matters are resolved.
Results of Operations
The discussion of the results of operations compares the fiscal year ended February 28, 2009 with the fiscal year ended February 29, 2008, and is not necessarily indicative of the results which may be expected for any subsequent periods. Our limited operating history makes predicting future operating results very difficult. Our prospects should be considered in light of the risks, expenses and difficulties encountered by companies in similar positions. We may not be successful in addressing these risk and difficulties.
For the year ended February 28, 2009, gross revenues were $2,663,941, a decrease of $153,753 over 2008 revenues of $2,817,694. Revenues decreased in the Interactive Division because of the strategic focus on our patent and IP. As a result we have extended the reach of our Interactive Products Enterprise Communication Software which is primarily our BoomBox® Video product and related hosting. In the fourth quarter of 2009 we finalized an internal control policy related to collections which required a write of certain accounts that had been in the reserve for doubtful accounts for more than year.
Operating expenses for 2009 were $1,377,969, compared to $1,468,183 for 2008. Operating expenses decreased for fiscal 2009 due to better management control over expenditures related to sales. Modavox renegotiated contracts with content management and hosting vendors in an effort to decrease overall sales expenses. The interactive department focused most of its efforts on the IP and patent which resulted in a significant reduction of outsourced development hours and reduced commissions.
Selling general and administrative expenses for the year ended February 28, 2009 were $3,974,531 and $3,342,960 for the year ended February 29, 2008.
Depreciation and amortization expenses increased to $869,563 in 2009 from $639,776 in 2008 due principally to the increase in software amortization expense arising from the software developed internally and acquired externally during fiscal 2008 and 2007.
Impairment in the amount of $729,000 was recorded for the year ended February 28, 2009 on the Goodwill related to Kino acquisition. No such expense was recorded for fiscal 2008.
Bad debt expense for the year ended February 28, 2009 were $557,764 and $121,136 for the year ended February 29, 2008.
During 2009, we terminated one of our leases and incurred a lease termination expense in the amount of $489,845. No such expense was recorded for fiscal 2008.
Interest expense, net of interest income was $9,221 compared to net interest income of $153,995 in the prior year.
The net loss was $5,325,510 in 2009 compared to $3,304,005 in 2008 due to decreased costs associated onetime accounting related items. Although our legal expenses related to our patent protection and legacy matters increased our onetime fees moving forward on such items should be considerably lower in the future. In addition to the aforementioned increased operating and legal costs we experienced stock option expenses of $888,653, consulting related shares for services of $87,500.
Cash generated from revenues exceeded our cash based operating expenses. During fiscal 2009, we raised $1,672,353 of capital through the issuance of unregistered shares of common stock.
As of February 28, 2009, we had cash balances of $374,696 and working capital deficit of $1,302,471. We do not believe that this liquidity is adequate to fund our current operations without supplemental funds from sales of our equity. Due to the sustained and substantial progress in the procurement of necessary working capital required to meet operating and general corporate expenditures, and the resolution of multiple cost intensive legacy legal related matters, Modavox believes it will have enough cash flow from operations and financing activities to continue for the next twelve months. The company has had substantive discussions with existing warrant holders and or prospective financing sources which lead it to believe it will have the capital necessary to not only maintain current operations, but also to develop and implement a growth strategy in its core businesses as well as ensuring a vigorous effort in protecting its Intellectual Property.
During the fiscal year ending February 28, 2009, we retired our outstanding bank loan and we do not intend to use those funds or request an increase to the bank loan in 2010.
Critical Accounting Policies
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires our management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Certain of these accounting policies involve judgments and uncertainties to such an extent that there is a reasonable likelihood that materially different amounts would have been reported if future events indicate that different assumptions should have been used or uncertainties are resolved differently than currently anticipated. The following describes the assumptions involved in these accounting policies:
Management evaluated the probability of the utilization of the deferred income tax asset related to the net operating loss carry forwards. We have estimated a $3,447,000 deferred income tax asset that relates to net operating loss carry forwards at February 28, 2009. Management determined that because we have yet to generate taxable income and that the generation of taxable income in the short term is uncertain, it was appropriate to provide a valuation allowance for the total deferred income tax assets.
We evaluate the impairment of long lived tangible and intangible assets, including goodwill, in accordance with SFAS 144 and SFAS 142 in order to determine whether a write down of the applicable long lived asset is required. This evaluation requires that we estimate future cash flows in order to evaluate whether any impairment has occurred. Due to the nature of estimates, actual cash flows will vary from those estimated.
Our revenue recognition policy requires that we evaluate client contracts with multi-deliverables in accordance with EITF 00-21, and, otherwise determine the period in which revenues are recognized. These evaluations are based upon the interpretation of client contracts.
We record a liability for contingencies when we believe that it is reasonably possible that a liability exists and when we can estimate the potential range of that liability. We evaluate contingencies based upon our analysis of the contingency, which includes receiving advice from professionals, such as attorneys.
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