COMSovereign Holding Corp. - Quarter Report: 2009 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

|X|

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

For the quarterly period ended March 31, 2009

|_|

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _________ to ___________

MACROSOLVE, INC.

(Exact name of registrant as specified in its charter)

Oklahoma

(State or other jurisdiction of incorporation or organization)

73-1518725

(I.R.S. Employer Identification No.)

1717 South Boulder Ave. Suite 700

Tulsa, OK 74119

(Address of principal executive offices)

(918) 280-8693

(Registrant’s telephone number, including area code)

Former name, former address, and former fiscal year, if changed since last report)

5800 E. Skelly Drive, Suite 300, Tulsa OK 74135

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 o

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

Large accelerated filer [

]

Accelerated filer [

]

Non-accelerated filer [ ]

Smaller reporting company [ X ]

(Do not check if smaller reporting company)

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

The number of shares of the registrant's Common Stock, $0.001 par value per share, outstanding as of April 29, 2009 was 27,002,618.

Table of Contents

Part I –	Financial Information
	Item 1. Financial Statements (unaudited)
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures about Market Risk
	Item 4T. Controls and Procedures
Part II –	Other Information
	Item 1. Legal Proceedings
	Item 1A. Risk Factors
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
	Item 3. Defaults upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits
Signatures
Exhibit Index
Rule 13a-14(a) Certification executed by Clint Parr
Rule 13a-14(a) Certification executed by Kendall Carpenter
Section 1350 Certification

PART I

FINANCIAL INFORMATION

MACROSOLVE, INC.

Interim Unaudited Financial Statements

For the Period Ended March 31, 2009

MACROSOLVE, INC.

BALANCE SHEETS

	(unaudited)			(audited)
	3/31/2009			12/31/2008
ASSETS
CURRENT ASSETS:
Cash	$	129,590		$	101,397
Accounts receivable — trade		153,870			134,199
Prepaid expenses and other		28,446			47,365
Total current assets		311,906			282,961
PROPERTY AND EQUIPMENT, at cost:		281,029			274,392
Less — accumulated depreciation and amortization		(157,554	)		(152,060	)
Net property and equipment		123,475			122,332
OTHER ASSETS:
Note receivable		135,577			135,577
Software development costs, net of accumulated amortization of $56,218 and $8,031 as of March 31, 2009 and December 31, 2008, respectively		744,625			675,778
Deferred offering costs		371,104			320,347
Other assets		18,243			18,243
Total other assets		1,269,549			1,149,945
TOTAL ASSETS	$	1,704,930		$	1,555,238
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt	$	167,196		$	162,638
Revolving line of credit		148,000			188,000
Accounts payable — trade and accrued liabilities		183,608			150,900
Unearned income		6,975			60,683
Total current liabilities		505,779			562,221
LONG-TERM DEBT, less current maturities		187,203			199,841
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Common stock, $.01 par value; authorized 100,000,000 shares; issued and outstanding 26,902,618 and 25,603,461 shares, at March 31, 2009 and December 31, 2008, respectively		269,026			256,035

Additional paid-in capital		7,512,148			6,903,609
Accumulated deficit		(6,769,226	)		(6,366,468	)
Total stockholders’ equity		1,011,948			793,176
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,704,930		$	1,555,238
See notes to unaudited financial statements

-1-

MACROSOLVE, INC.

STATEMENTS OF OPERATIONS (unaudited)

For the Quarters Ended March 31,	3/31/2009			3/31/2008
SALES:
Solution services	$	327,590		$	1,056,161
Hardware sales		26,051			18,881
Software licensing		7,294			8,997
Net sales		360,935			1,084,039
COST OF SALES:
Solution services		162,632			680,906
Hardware sales		24,749			15,408
Software licensing		77			579
Total cost of sales		187,458			696,893
Gross profit		173,477			387,146
OPERATING EXPENSES:
Solution services		86,625			137,474
Selling, general and administrative		461,794			372,110
Total operating expenses		548,419			509,584
Loss from operations		(374,942	)		(122,438	)
OTHER INCOME (EXPENSE):
Interest income		92			2,055
Interest expense		(5,254	)		(10,111	)
Other		(22,655	)		(7,088	)
Total other expense		(27,817	)		(15,144	)
LOSS BEFORE INCOME TAXES		(402,759	)		(137,582	)
INCOME TAXES		—			—
NET LOSS	$	(402,759	)	$	(137,582	)
LOSS ALLOCABLE TO COMMON STOCKHOLDERS:
Net loss	$	(402,759	)	$	(137,582	)
Loss allocable to common stockholders	$	(402,759	)	$	(137,582	)
Basic and diluted loss per share	$	(0.01	)	$	(0.01	)
See notes to unaudited financial statements

-2-

MACROSOLVE, INC.

STATEMENTS OF CASH FLOWS (unaudited)

For the Quarters Ended March 31,	3/31/2009			3/31/2008
OPERATING ACTIVITIES:
Net loss	$	(402,759	)	$	(137,582	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		53,681			5,496
Stock based compensation		22,589			6,932
Issuance of stock for services		22,500			—
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable — trade		(19,670	)		365,894
Decrease (increase) in prepaid expenses and other		18,919			(4,436	)
Increase in accounts payable — trade and accrued liabilities		32,706			248,947
(Decrease) in unearned income		(53,708	)		(337,924	)
Net cash (used in) provided by operating activities		(325,742	)		147,327
INVESTING ACTIVITIES:
Purchase of equipment		(6,637	)		(18,898	)
Software development costs		(117,033	)		(40,726	)
Net cash used in investing activities		(123,670	)		(59,624	)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock and warrants		450,000			154,598
Proceeds from exercise of warrants and options		120,203			—
Deferred offering costs		(44,518	)		(43,853	)
Proceeds from notes payable		—			953,108
Repayments of notes payable		(48,080	)		(205,000	)
Proceeds from shareholder loan		75,000			7,500
Repayments of shareholder loan		(75,000	)		—
Net cash provided by financing activities		477,605			866,353
NET INCREASE IN CASH		28,193			954,056
CASH, beginning of year		101,397			25,668
CASH, end of year	$	129,590		$	979,724
See notes to unaudited financial statements

-3-

MacroSolve, Inc.
Notes to Interim Unaudited Financial Statements

For the Period Ended March 31, 2009

BASIS OF PRESENTATION

The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The information furnished reflects all adjustments, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the financial statements not misleading. The financial statements as of December 31, 2008 have been audited by an independent registered public accounting firm. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s 10K for the calendar year ended December 31, 2008.

DESCRIPTION OF BUSINESS

MacroSolve, Inc. is an Oklahoma corporation formed on January 17, 1997, under the laws of the State of Oklahoma and does business as Anyware Mobile Solutions, a division of MacroSolve. Anyware is a technology and services company that develops mobile solutions for businesses. MacroSolve, Inc. has been a fully reporting OTC Bulletin Board company since August 15, 2008.

NOTE RECEIVABLE

Note receivable at March 31, 2009 and December 31, 2008 Consist of the following:	March 31, 2009		Dec 31, 2008

Convertible promissory note with a customer negotiated as part of a strategic alliance. Under the Master Services Agreement, customer may borrow up to $150,000 to finance development work with interest accrued monthly at prime rate plus 5% (8.25% at March 31, 2009), due June 30, 2011. The note may be converted to common stock of the borrower prior to the due date at MacroSolve’s discretion.	$	135,577	$	135,577

NOTES PAYABLE

Notes payable at March 31, 2009 and December 31, 2008 consist of the following:	March 31, 2009		Dec 31, 2008

Revolving line of credit with a financial institution of up to $300,000 with interest payable monthly at the greater of prime rate or 5% plus 2.0% (7.0% at March 31, 2009), due April 30, 2009, and secured by substantially all assets of the Company. The line of credit may be withdrawn, at the lender’s option, if the Company is found to be in default on the loan as that term is defined in the borrowing arrangement. At March 31, 2009 there was no remaining available liquidity on this line due to the borrowing base calculation.	$	148,000	$	188,000

-4-

Advancing term loan with a financial institution of up to $125,000 with interest only payable monthly at prime rate plus 2.0% (5.25% at March 31, 2009), until January 2009, with principal and interest due at prime rate plus 2.0% amortized ratably over 30 months, due August 31, 2011, and secured by substantially all assets of the company.	$	116,899	$	125,000

Note from the State of Oklahoma Technology Business Finance Program (OTCC loan) represented by a $150,000 refundable award to be repaid at two times the amount of the award. The balance includes accrued interest (imputed at 14.27%), through September 2007. The repayment terms were modified in September, 2007 to require 24 equal monthly installments of $12,500, consisting of principal only, beginning May, 2008. The monthly payments were suspended in October 2008 with resumption anticipated upon significant equity raise.	$	237,500	$	237,500

As of March 31, 2009, maturities of long-term debt are: $167,196 in 2009, $179,696 in 2010, $7,507 in 2011.

DEFERRED OFFERING COSTS

The Company has incurred cash and non-cash expenses in connection with its registration of stock for public sale. Costs associated with the Company’s plan to raise additional equity in an institutional PIPE transaction continue to be capitalized. Costs of $30,761 associated with the Company’s current private placement offering have been netted against equity proceeds. Activity related to deferred offerings costs for the period ended March 31, 2009 are as follows:

Outstanding balance — December 31, 2008	$	320,347
Financial advisory services and investor relations		79,001
Travel expenses		1,792
Other		725
Total increase — first quarter 2009		81,518
Less costs associated with private placement offering		(30,761	)
Outstanding balance — March 31, 2009	$	371,104

EMPLOYEE STOCK PLANS

Certain employees of the Company are participants in a stock bonus plan established in 2003 by the MacroSolve, Inc. Stock Bonus Trust Agreement (the Trust), an entity under common control. Stock allocated to the participants remains in the Trust for the benefit of the Participant until the grant date specified by the Trustees. In the event of termination of employment of the participants, any previously allocated stock reverts back to the Trust. As of March 31, 2009, there are 160,000 shares in the trust with 150,000 shares unallocated. On February 16, 2009, the Trustees granted 10,000 shares which vest on February 16, 2010. Compensation expense for stock awards is recognized ratably over the implicit vesting period from the date of grant and is based upon the market value of the Company’s common stock at the date of grant, adjusted for marketability if applicable. The Company recognized stock based compensation expense related to these awards of $900 and $0 for the periods ended March 31, 2009 and 2008, respectively.

A summary of activity under the Employee Stock Plans as of March 31, 2009 and changes during the period then ended is presented below:

-5-

	Stock Options
	Options			Weighted Average Exercise Price		Stock Bonus Plan Shares		Restricted Stock
Outstanding — December 31, 2008		5,263,271		$	0.54		—		140,853
Exercisable — December 31, 2008		5,186,071		$	0.54		—		—
Granted		417,851		$	1.43		10,000		138,610
Exercised		(200	)	$	0.60		—		—
Forfeited or Expired		(27,943	)	$	0.71		—		(2,118	)
Outstanding — March 31, 2009		5,652,979		$	0.50		10,000		277,345
Exercisable — March 31, 2009		5,389,779		$	0.54		—		—

The weighted-average grant-date calculated value of options granted during the period ended March 31, 2009 was $0.04. Options outstanding at March 31, 2009 had an aggregate intrinsic value of $23,688 and a weighted-average remaining contractual term of 3.0 years. Options that were exercisable at March 31, 2009 had an aggregate intrinsic value of $-0- and a weighted-average remaining contractual term of 2.0 years.

The weighted-average grant-date calculated value of stock awards granted during the period ended March 31, 2009 was $0.11.

A summary of the status of the Company’s nonvested options as of and for the three months ended March 31, 2009 is presented below:

	Stock Options
Nonvested Shares	Options			Weighted- Average Grant Date Calculated Value		Stock Bonus Plan		Restricted Stock
Nonvested — Beginning of Year 2009		77,200		$	—		—		140,853
Granted		224,000		$	—		10,000		138,610
Vested		(30,123	)	$	—		—		—
Forfeited		(7,877	)	$	—		—		(2,118	)
Nonvested — Three Months Ended March 31, 2009		263,200		$	—		10,000		277,345

As of March 31, 2009, there was $12,619 unrecognized compensation cost related to nonvested share-based compensation arrangements under the stock bonus plan.

-6-

SHAREHOLDERS’ EQUITY

The Company issued 300,000 shares of restricted stock in the first quarter of 2009 to qualified investors in a private placement offering with $428,400 of the proceeds allocated to those shares and another $21,600 of the proceeds allocated to the underlying warrants and recorded as additional paid in capital.

During the first quarter of 2009, the Company sold 282,560 shares of unrestricted stock for $120,203 to qualified investors who exercised their rights to convert warrants and options at the prices stated in their respective instruments.

The Company engaged a vendor with an agreement to pay in restricted stock. As of March 31, 2009, the vendor had earned 11,598 shares of stock valued at $22,500 per the market value of the stock on that date. A financial consultant rendered services in the first quarter of 2009 and was paid with 200,000 shares of restricted stock valued at $6,000 for two months of services at a previously charged consulting rate. Another advisor was paid with 500,000 shares of restricted stock valued at $30,000 and cash of $25,000 for an extended commitment to expand the scope of services originally contemplated. Another financial consultant was compensated with 5,000 shares of restricted stock for advisory services valued at $1,000.

EARNINGS (LOSS) PER SHARE

The Company has calculated the loss allocable to the common shareholders for the periods ended March 31, 2009 and 2008:

	For the Periods Ended March 31
	2009			2008
Numerator:
Net Loss		($402,759	)		($137,586	)
Preferred Stock Dividends		—			—
Numerator for basic and diluted loss per share		($402,759	)		($137,586	)
Denominator:
Weighted-average number of common shares outstanding
		26,253,039			24,560,100
Basic and diluted loss per share		(0.01	)		(0.01	)

RELATED PARTY TRANSACTION

During the period ended March 31, 2009, a shareholder provided a $75,000 short term loan to the Company for operating capital. Total interest of $593 accrued at Prime rate plus 2% during the borrowing period. The loan and accrued interest were repaid during March 2009.

10.

SUBSEQUENT EVENTS

Subsequent to March 31, 2009 the Company received an additional $150,000 for 100,000 shares of restricted stock from a qualified investor in its private placement offering.

On April 13, 2009, the Board of Directors amended the private placement offering by adding a price protection feature and extended the offering 90 days from April 13, 2009 until July 12, 2009. The common stock and the common stock underlying the warrants issued may be subject to a price adjustment at year end dependent upon the volume-weighted average price on the last ten trading days; however, the price will not be adjusted lower than $0.20 per share.

-7-

11.

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid during the periods ended March 31, 2009 and 2008 are:

	2009		2008
Interest	$	5,254	$	2,611
Income taxes	$	—	$	—

Noncash activities are as follows for the periods ended March 31, 2009 and 2008 are:

	2009		2008
Stock based compensation	$	22,589	$	6,932
Stock issued for financial and legal services in connection with stock offering	$	37,000	$	102,269
Stock issued for services	$	22,500	$	—
Deferred offering costs netted against private placement proceeds	$	30,761	$	—

-8-

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

Special Note on Forward-Looking Statements

Certain statements in Management's Discussion and Analysis ("MD&A"), other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words "believe," "will," "would," "will be," "will continue," "will likely result," and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. These statements are subject to a number of risks, uncertainties and developments beyond our control or foresight including changes in the trends of the mobile computing industry, formation of competitors, changes in governmental regulation or taxation, changes in our personnel and other such factors. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers should carefully review the risk factors and related notes included under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission on April 3, 2009.

Overview

The following MD&A is intended to help the reader understand the results of operations, financial condition, and cash flows of MacroSolve, Inc. MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes to the financial statements ("Notes").

Background

We are a technology and services company that develops mobile solutions for businesses. A mobile solution is typically the combination of mobile handheld devices, wireless connectivity and software that streamlines business operations resulting in improved efficiencies and cost savings. We are development and marketing partners with the major mobile device manufacturers, wireless carriers and many software providers.

Our customers rely on us to define, design, develop and support the best combination of technologies in a market that is very dynamic. We assist software and web-based application companies by modifying their software product offerings so that they can be used by a mobile end-user who typically has a Smartphone or a similar cellular device. Many of these customers rely on our technology and marketing expertise. We also serve enterprises that find it difficult to identify a mobile software product which addresses their specific need to streamline operational processes, and do not have the competency in house. Our technology and services capabilities generate a growing base of contract and annuity based revenue. We have one mobile software product, ReForm™, which helps to minimize mobile application development effort. This product is currently being upgraded and has yet to contribute significant revenues to MacroSolve.

Plan of Operation and Financing Needs

Since December 31, 2008, the Company has raised $120,123 in equity through the exercise of options and warrants by existing shareholders and employees. The Company has also raised additional equity of $450,000 during the first quarter of 2009, through the sale of restricted stock in a Private Placement Offering and an additional $150,000 since March 31, 2009. The equity raised, together with funds available through our line of credit with a financial institution and cash generated from current operations, are expected to provide adequate capital to fund the Company’s operations.

The Company does lack growth capital and anticipates that approximately $5 million in additional investment capital will be required within the next three (3) years to execute our growth strategy. We are presently investigating various financing alternatives including equity and/or debt financing. It is the Company’s intention to raise additional equity in 2009 to support it growth requirements. There is no assurance that capital in

any form will be available to us and, if available, on terms and conditions that are acceptable. If we are unable to obtain sufficient funds, we may not be able to implement our growth strategy.

Positioned as an experienced provider of mobile solutions, we will continue to market our products and services to enterprises seeking business process operational efficiencies while also marketing our expertise and relationships to technology companies who wish to apply mobile solutions to enhance their current software products. We will take advantage of our long standing relationships with wireless carriers, mobile hardware manufacturers and related applications companies and jointly market to each customer segment. Within these customer engagements we seek longer term projects with promising passive revenues including license fees, revenue share arrangements and equity participations.

Our near term focus will be on the expansion of marketing and sales efforts which will increase the number of revenue streams, especially those with more passive recurring revenue including license fees and revenue share arrangements. We completed the development of a new version of ReForm in December 2008. The Company’s digiTicket™ product, a mobile electronic law enforcement citation solution, began its beta testing phase late in the first quarter of 2009 with the commitment of its pilot customer, the Sand Springs Police Department. Significant marketing efforts for this product are underway in the second quarter of 2009. digiTicket™ is expected to contribute as much as 53% of the 2009 annual revenues. Our mobile video platform project will position us to compete in mobile solutions which require video. Growth in these and other areas will require more geographical sales resource coverage with modest plans to expand within Oklahoma and the Midwest in the near term. Finally, we will augment our joint marketing arrangements with other mobile industry technology leaders and utilize more efficient and effective Web-based methods for attracting customers and streamlining the sales process.

We continuously monitor industry trends and adjust projections about the direction of the business in anticipation of the continuous change in client requirements as the mobile industry evolves. We believe that our current direction is one that will bring profits, however our ability to drive sales volume is limited without additional capital. There is no expected purchase or sale of capitalized assets, significant equipment or intellectual property in the next twelve (12) months.

Results of Operations

Quarter Ended March 31, 2009 compared to Quarter Ended March 31, 2008 (all references are to the Quarter Ended March 31)

Total Net Sales: Total Net Sales decreased $723,000 or 67% to $361,000 in the first quarter ended March 31, 2009 from $1,084,000 for the same period in 2008. Sources of revenue were derived from our services business, hardware sales and software licensing. Services revenue represented the majority of Total Net Sales, with a decrease of $728,000 for the first quarter of 2009 to $328,000 from $1,056,000 in the first quarter of 2008. This was primarily due to a reduction in work under contract in the first quarter of 2009. Hardware sales to third parties and in support of our services activities for the first quarter of 2009 were $25,000, up $7,000 or 39% from $18,000 in 2008. Software licensing sales decreased $2,000 or 29% for the period to $7,000 from $9,000 for the same period in 2008. The Company’s ReFormXT™ software product became available in final form in December 2008. ReFormXT™ and its predecessor versions have contributed less than five percent of annual revenues since initial inception.

Cost of Sales and Gross Profit: Cost of Sales for the first quarter of 2009 decreased $509,000 or 73%, in line with the lower level of revenues from $697,000 in 2008 to $188,000 in 2009. The majority of this decrease was associated with workforce reductions and reassignments of resources to product development. The resultant Gross Profit for the first quarter of 2009 of $173,000 was down $214,000 or 55% under the Gross Profit for the same period in 2008 of $387,000. Profit margin was up for the quarter from 36% in 2008 to 48% in 2009 primarily due to subcontractor pass-thru revenue in the prior year.

Operating, Selling, General and Administrative Expenses: Operating, selling, general and administrative expenses increased by $39,000, or 8% in the first quarter of 2009 to $548,000 from $509,000 in 2008. This increase reflects $48,000 in amortization expense on the ReFormXT™ product which was still in development in 2008 offset by a $12,000 reduction in commission expense in 2009 corresponding to the reduction in net sales.

Loss from Operations: Loss from operations for the first quarter of 2009 was $375,000, an increase of $252,000 or 205% from the loss from operations in 2008 of $123,000 as a result of the aforementioned decrease in gross profit and increase in operating, sales and marketing expenses.

Other Income and Expense: Total other expense of $28,000 in 2009 represented an increase of 87% or $13,000 from $15,000 in 2008 as a result of higher stock based compensation related to the salary differential incentive options granted in the first quarter of 2009 to employees and related to first quarter 2009 board of director compensation paid in restricted stock.

Net Loss: Net loss of $403,000 for the first quarter of 2009 was $265,000 or 192% higher than the net loss of $138,000 for the same period in 2008 as the higher operating, sales and marketing expenses, amortization expense and stock based compensation combined with the decrease in gross profit associated with the lower revenue achieved in the period.

Liquidity and Capital Resources

We finance our operations primarily through internally generated funds, a bank line of credit and investments of equity by qualified investors or placement of debt with qualified lenders.

In the first quarter of 2009, the Company raised an additional $120,123 in equity through the exercise of options and warrants by existing shareholders and employees. The Company also raised an additional $450,000 during the first quarter of 2009 in equity though sale of restricted stock in a Private Placement Offering and an additional $150,000 subsequent to the first quarter. The Private Placement Offering will remain open until July 12, 2009 or until five million dollars in total has been raised. To date, two million dollars has been closed under the offering.

The Company renewed its $300,000 line of credit with a financial institution for an additional three months to April 30, 2009 and anticipates renewing the line under similar terms and conditions through the end of 2009. The line of credit primarily supports customer invoices in accounts receivable and is limited to 80% of eligible invoices. At March 31, 2009 there was no remaining available liquidity on this line due to the borrowing base calculation.

As of March 31, 2009, we had cash and cash equivalents of $129,590. This liquidity, together with funds available through credit facilities with a financial institution, funds raised under the private placement offering and cash generated from current operations, are expected to provide adequate capital to fund the Company’s operations.

Sources and Uses of Cash

	Three Months Ended March 31,
(In thousands)	2009	2008
Cash flow data:
Net cash (used in) provided by operating activities	(326)	97
Net cash (used in) investing activities	(124)	(60)
Net cash provided by financing activities	478	917
Net increase in cash and cash equivalents	28	954
Cash and cash equivalents, beginning of period	101	26
Cash and cash equivalents, end of period	129	980

Operating Activities

Net cash used in operating activities for the Three Months ended March 31, 2009 was $326,000, an increase of $423,000 from the same period in 2008 reflecting the higher net operating loss for the first quarter of 2009 and the amortization of ReFormXT™.

Investing Activities

Cash used in investing activities for the Three Months ended March 31, 2009 was $124,000, up $64,000 from the same period in 2008 represented principally in both periods by costs associated with the development of the Company’s new product lines, including digiTicket™, and a prototype community website which will serve as a mobility community of interest network for businesses with modest or no I.T. staff and provide a platform to promote our customer’s products and those of the Company.

Financing Activities

Net cash provided by financing activities for the Three Months ended March 31, 2009 was $478,000 as compared with $917,000 for the same period last year, a decrease of $439,000. This is primarily related to the investor bridge loans of $950,000 in the first quarter of 2008 offset by the $409,000 difference in additional equity raised from the exercise of warrants and options and private placement offering in the first quarter of 2009 over the same quarter in 2008.

The Company suspended $12,500 per month repayment of its note with the State of Oklahoma Technology Business Finance Program in October 2008. The repayments will commence when the Company has raised sufficient additional equity through sale of its stock to private investors to fund its growth requirements.

As of March 31, 2009, the Company had cash and cash equivalents in the amount of $129,950 as compared with $979,724 at March 31, 2008.

Critical Accounting Policies

Accounts Receivable and Credit Policies:

Trade accounts receivable consist of amounts due from the sale of solution services, software and hardware. Accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days of receipt of the invoice. The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts based on historical collection experience and a review of the current status of trade accounts receivable. In many instances, customers make a substantial prepayment for services before rendered; therefore the Company is extending trade terms to customers who have already proven to be credit worthy. The Company has not taken any direct write offs of bad debts in the past five years.

At the quarter ending March 31, 2009 and at fiscal year ending December 31, 2008, the Company deems all amounts recorded as collectible and, thus has not provided an allowance for uncollectible amounts.

Revenue Recognition and Unearned Revenue:

Revenue generated from the provision of services is recognized at the time the service is provided. On service contracts which specify hourly rates plus costs, revenue is recognized based upon hours worked at the specified hourly rate. On service contracts which are fixed price based upon a Statement of Work, revenue is recognized on the Percentage Completion method with updated estimates monthly of the project’s percentage complete. Margins may be affected, both positively and negatively, during the duration of the project as efficiencies either increase or decrease or as direct costs of doing business change. Sales of hardware are recognized upon delivery to the customer. Revenue from the licensing of software is recognized ratably over the license period.

Customarily on service contracts related to projects expected to take longer than one month to complete, the customer prepays one-third to one-half of the total estimated project in advance. The prepayment is recorded as Unearned Revenue and is subsequently adjusted at the end of each month based upon actual hours worked or percentage of project completion, as the case may be. If work is performed during the month which is not yet invoiceable to the customer under the terms of the agreement, a proforma entry is made to record the revenue in the proper accounting period.

Software Development Costs:

The Company accounts for software development costs in accordance with Statement of Financial Accounting Standards No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed”. Costs incurred prior to the establishment of technological feasibility are expensed as incurred as research and development costs. Costs incurred after establishing technological feasibility and before the product is released for sale to customers are capitalized. Additions to capitalized costs are recorded monthly based upon the actual hours worked at the developers’ hourly cost, including salary, direct employment benefits and direct overhead.

Once the software is deemed to be commercially available, these capitalized costs are amortized over three years and are reviewed for impairment at each period end. If management determines that projected revenue from the capitalized software costs are less than the net book value of the software, the capitalized software asset is written down per generally accepted accounting principles. No capitalized software costs are considered impaired at March 31, 2009.

Long-Lived Assets:

The Company accounts for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-lived assets. This Statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. No impairment charges were incurred during the periods ended March 31, 2009 and 2008.

Stock-Based Compensation:

The Company accounts for stock-based compensation in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123(R), Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS 123(R) requires companies to measure the cost of employee services received in exchange for an award of equity instruments, including stock options, based on the grant-date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for the award, usually the vesting period.

The Company uses the Black-Sholes model for determining the value of the options. One of the factors required to compute the options price is volatility of the stock price. The Company’s own stock commenced public trading in August, 2008; however due to initially thin trading activity, management determined that the technology sector fund XLK and it’s standard deviation would continue to be used to provide the volatility factor required to compute the option value.

Effect of Recently Issued Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141R, Business Combinations, which replaces SFAS No. 141. SFAS No. 141R retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the recognition of assets and liabilities purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS No. 141R is effective for us beginning January 1, 2009 and will apply prospectively to business combinations completed on or after that date. The Company has adopted this standard and there has been no effect on its financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. The Company adopted this new standard effective January 1, 2008. The Company has evaluated the effect of this pronouncement and determined that the adoption of this interpretation did not have a material effect on the Company’s financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

N/A

Item 4T. Controls and Procedures.

Management’s Evaluation of Disclosure Controls and Procedures

In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2009 to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There was no change in our internal controls or in other factors that could affect these controls during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time we may be a defendant and plaintiff in various legal proceedings arising in the normal course of our business. We are currently not a party to any material pending legal proceedings or government actions, including any bankruptcy, receivership, or similar proceedings. In addition, management is not aware of any known litigation or liabilities involving the operators of our properties that could affect our operations. Should any liabilities be incurred in the future, they will be accrued based on management’s best estimate of the potential loss. As such, there is no adverse effect on our consolidated financial position, results of operations or cash flow at this time. Furthermore, Management of the Company does not believe that there are any proceedings to which any director, officer, or affiliate of the Company, any owner of record of the beneficially owned more than five percent of the common stock of the Company, or any associate of any such director, officer, affiliate of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company.

Item 1A. Risk Factors.

There have been no material changes in our risk factors from those disclosed in our Form 10-K filed with the SEC on April 3, 2009, for the period ended December 31, 2008.

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

Issuance of Unregistered Securities

The Company issued the following restricted common stock in the first quarter of 2009:

Qualified investors in the private placement offering

300,000

Exercise of warrants by qualified investor

282,360

Exercise of options by employee

200

Shares for services

716,598

Total

1,299,150

Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

31.1		Certification of Periodic Financial Reports by Clint Parr in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Periodic Financial Reports by Kendall Carpenter in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Periodic Financial Reports by Clint Parr in satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350
32.2		Certification of Periodic Financial Reports by Kendall Carpenter in satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350

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.

	MACROSOLVE, INC.

Date: May 14, 2009	By:	/s/ Clint Parr
		Clint Parr
		Chief Executive Officer


Date: May 14, 2009	By:	/s/ Kendall Carpenter
		Kendall Carpenter
		Chief Financial Officer