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EX-32.1 - EX-32.1 - MOBIVITY HOLDINGS CORP.mfon-20150930xex321.htm
EX-31.1 - EX-31.1 - MOBIVITY HOLDINGS CORP.mfon-20150930xex311.htm
EX-31.2 - EX-31.2 - MOBIVITY HOLDINGS CORP.mfon-20150930xex312.htm

 

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-Q

 

(Mark One)

 

 

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

 

For the quarterly period ended September 30, 2015

 

 

 

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

 

For the transition period from ___________ to __________

 

Commission file number 000-53851

 

Mobivity Holdings Corp.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

 

Nevada

   

26-3439095

(State or Other Jurisdiction of

   

(I.R.S. Employer

Incorporation or Organization)

   

Identification No.)

 

55 N. Arizona Place, Suite 310

Chandler, Arizona 85225

 (Address of Principal Executive Offices & Zip Code)

 

(877) 282-7660

(Registrant’s Telephone Number)

 

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    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    No 

 

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 

 

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

 

As of November 12, 2015, the registrant had 28,787,991 shares of common stock issued and outstanding.

 

 

 

 

 

 


 

 

MOBIVITY HOLDINGS CORP.

INDEX

 

 

 

-i-

 

 

 


 

Part I - Financial Information

Item 1.  Financial Statements

 

Mobivity Holdings Corp.

Condensed Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

2015

 

2014

 

 

(Unaudited)

 

(Audited)

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$

1,800,716 

 

$

848,230 

Accounts receivable, net of allowance for doubtful accounts

  of $28,696 and $90,869, respectively

 

 

766,329 

 

 

378,934 

Other current assets

 

 

192,843 

 

 

109,846 

Total current assets

 

 

2,759,888 

 

 

1,337,010 

Goodwill

 

 

1,921,072 

 

 

1,921,072 

Intangible assets, net

 

 

2,241,483 

 

 

2,010,952 

Other assets

 

 

176,254 

 

 

99,476 

TOTAL ASSETS

 

$

7,098,697 

 

$

5,368,510 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

500,165 

 

$

412,551 

Accrued and deferred personnel compensation

 

 

144,903 

 

 

185,214 

Deferred revenue and customer deposits

 

 

71,872 

 

 

180,941 

Derivative liabilities

 

 

7,679 

 

 

42,659 

Other current liabilities

 

 

189,945 

 

 

43,525 

Earn-out payable

 

 

 -

 

 

840,000 

Total current liabilities

 

 

914,564 

 

 

1,704,890 

Total liabilities

 

 

914,564 

 

 

1,704,890 

Commitments and Contingencies (See Note 10)

 

 

 

 

 

 

Stockholders' equity (deficit)

 

 

 

 

 

 

Common stock, $0.001 par value; 50,000,000 shares authorized;

  and 28,787,991 and 22,748,193, shares issued and outstanding

 

 

28,788 

 

 

22,748 

Equity payable

 

 

100,862 

 

 

100,862 

Additional paid-in capital

 

 

69,462,344 

 

 

62,565,974 

Accumulated deficit

 

 

(63,407,861)

 

 

(59,025,964)

Total stockholders' equity (deficit)

 

 

6,184,133 

 

 

3,663,620 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

$

7,098,697 

 

$

5,368,510 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

-1-


 

Mobivity Holdings Corp.

Condensed Consolidated Statement of Operations

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2015

 

2014

 

2015

 

2014

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

1,303,663 

 

$

1,044,254 

 

$

3,335,080 

 

$

3,057,360 

Cost of revenues

 

 

286,503 

 

 

272,252 

 

 

820,455 

 

 

791,486 

Gross margin

 

 

1,017,160 

 

 

772,002 

 

 

2,514,625 

 

 

2,265,874 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

1,068,157 

 

 

916,322 

 

 

3,276,384 

 

 

2,900,711 

Sales and marketing

 

 

1,005,520 

 

 

828,333 

 

 

2,895,748 

 

 

2,723,979 

Engineering, research, and development

 

 

269,273 

 

 

344,322 

 

 

584,978 

 

 

1,026,120 

Depreciation and amortization

 

 

105,512 

 

 

116,309 

 

 

243,998 

 

 

300,273 

Total operating expenses

 

 

2,448,462 

 

 

2,205,286 

 

 

7,001,108 

 

 

6,951,083 

Loss from operations

 

 

(1,431,302)

 

 

(1,433,284)

 

 

(4,486,483)

 

 

(4,685,209)

Other income/(expense)

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

506 

 

 

132 

 

 

1,054 

 

 

2,034 

Interest expense

 

 

 -

 

 

(883)

 

 

 -

 

 

(2,563)

Intangible asset impairment

 

 

(21,188)

 

 

 -

 

 

(21,188)

 

 

 -

Change in fair value of derivative liabilities

 

 

41,795 

 

 

(2,354)

 

 

34,980 

 

 

55,438 

Gain on adjustment in contingent consideration

 

 

87,740 

 

 

 -

 

 

89,740 

 

 

 -

Total other income/(expense)

 

 

108,853 

 

 

(3,105)

 

 

104,586 

 

 

54,909 

Loss before income taxes

 

 

(1,322,449)

 

 

(1,436,389)

 

 

(4,381,897)

 

 

(4,630,300)

Income tax expense

 

 

 -

 

 

(1,678)

 

 

 -

 

 

(1,678)

Net loss

 

$

(1,322,449)

 

$

(1,438,067)

 

$

(4,381,897)

 

$

(4,631,978)

Net loss per share - basic and diluted

 

$

(0.05)

 

$

(0.06)

 

$

(0.17)

 

$

(0.22)

Weighted average number of shares

  during the period - basic and diluted

 

 

28,480,322 

 

 

22,237,762 

 

 

25,973,592 

 

 

20,672,880 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

-2-


 

Mobivity Holdings Corp.

Consolidated Statement of Stockholders’ Equity (Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Equity

 

Additional

 

Accumulated

 

Total Stockholders'

 

 

Shares

 

Dollars

 

Payable

 

Paid-in Capital

 

Deficit

 

Equity (Deficit)

Balance, December 31, 2014

 

22,748,193 

 

$

22,748 

 

$

100,862 

 

$

62,565,974 

 

$

(59,025,964)

 

$

3,663,620 

Issuance of common stock for financing,
including transaction costs of $234,500

 

4,805,000 

 

 

4,805 

 

 

 

 

 

4,565,695 

 

 

 

 

 

4,570,500 

Issuance of common stock for services

 

310,870 

 

 

311 

 

 

 

 

 

362,690 

 

 

 

 

 

363,001 

Issuance of common stock for earnout

 

903,928 

 

 

904 

 

 

 

 

 

749,356 

 

 

 

 

 

750,260 

Stock based compensation

 

20,000 

 

 

20 

 

 

 

 

 

1,218,629 

 

 

 

 

 

1,218,649 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,381,897)

 

 

(4,381,897)

Balance, September 30, 2015

 

28,787,991 

 

$

28,788 

 

$

100,862 

 

$

69,462,344 

 

$

(63,407,861)

 

$

6,184,133 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

-3-


 

 

Mobivity Holdings Corp.

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30,

 

 

2015

 

2014

OPERATING ACTIVITIES

 

 

 

 

 

 

   Net loss

 

$

(4,381,897)

 

$

(4,631,978)

   Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

      Bad debt expense

 

 

(8,300)

 

 

37,687 

      Common stock issued for services

 

 

363,001 

 

 

199,575 

      Stock-based compensation

 

 

1,218,649 

 

 

869,394 

      Depreciation and amortization expense

 

 

243,998 

 

 

300,273 

      Change in fair value of derivative liabilities

 

 

(34,980)

 

 

(55,438)

      Loss on disposal of fixed assets

 

 

6,943 

 

 

 -

      Gain on adjustment in contingent consideration

 

 

(89,740)

 

 

 -

      Intangible asset impairment

 

 

21,188 

 

 

 -

   Increase (decrease) in cash resulting from changes in:

 

 

 

 

 

 

      Accounts receivable

 

 

(379,095)

 

 

51,185 

      Other current assets

 

 

(82,997)

 

 

20,778 

      Other Assets

 

 

(43,082)

 

 

(8,290)

      Accounts payable

 

 

87,614 

 

 

(55,797)

      Accrued interest

 

 

 -

 

 

2,562 

      Accrued and deferred personnel compensation

 

 

(40,311)

 

 

39,675 

      Deferred revenue and customer deposits

 

 

(109,069)

 

 

(139,510)

      Other liabilities

 

 

146,420 

 

 

(13,925)

Net cash used in operating activities

 

 

(3,081,658)

 

 

(3,383,809)

INVESTING ACTIVITIES

 

 

 

 

 

 

    Purchases of equipment

 

 

(46,506)

 

 

(24,865)

    Capitalized software development costs

 

 

(489,850)

 

 

 -

    Acquisitions

 

 

 -

 

 

(2,368,019)

Net cash used in investing activities

 

 

(536,356)

 

 

(2,392,884)

FINANCING ACTIVITIES

 

 

 

 

 

 

    Proceeds from issuance of common stock, net of issuance costs

 

 

4,570,500 

 

 

4,977,130 

Net cash provided by financing activities

 

 

4,570,500 

 

 

4,977,130 

Net change in cash

 

 

952,486 

 

 

(799,563)

Cash at beginning of period

 

 

848,230 

 

 

2,572,685 

Cash at end of period

 

$

1,800,716 

 

$

1,773,122 

Supplemental disclosures:

 

 

 

 

 

 

Cash paid during period for :

 

 

 

 

 

 

    Interest

 

$

 -

 

$

2,563 

Non-cash investing and financing activities:

 

 

 

 

 

 

Issuance of common stock for acquisitions

 

$

 -

 

$

672,505 

Issuance of common stock for earn-out payable

 

$

750,260 

 

$

 -

Earn-out payable recorded for acquisition

 

$

 -

 

$

2,273,000 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

 

 

-4-


 

Mobivity Holdings Corp.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1.  Nature of Operations and Basis of Presentation

 

Mobivity Holdings Corp. (the “Company” or “we”) is in the business of developing and operating proprietary platforms over which brands and enterprises can conduct national and localized, data-driven mobile marketing campaigns.   Our proprietary platforms, consisting of software available to phones, tablets PCs, and Point of Sale (POS) systems, allow resellers, brands and enterprises to market their products and services to consumers through text messages sent directly to the consumers’ via mobile phones, mobile smartphone applications, and dynamically printed receipt content.   We generate revenue by charging the resellers, brands and enterprises a per-message transactional fee, through fixed or variable software licensing fees, or via advertising fees.

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and disclosures required by GAAP for annual financial statements.   The accompanying unaudited consolidated financial statements should be read in conjunction with the condensed consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 31, 2015.

 

In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of our condensed consolidated financial statements as of September 30, 2015, and for the three and nine months ended September 30, 2015 and 2014. The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the operating results for the full year ending December 31, 2015

 

2.  Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany balances and transactions have been eliminated.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates used are those related to stock-based compensation, the valuation of the derivative liabilities, asset impairments, the valuation and useful lives of depreciable tangible and certain intangible assets, the fair value of common stock used in acquisitions of businesses, the fair value of assets and liabilities acquired in acquisitions of businesses, and the valuation allowance of deferred tax assets. Management believes that these estimates are reasonable; however, actual results may differ from these estimates.

 

Derivative Financial Instruments

 

We do not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks.

 

We review the terms of the common stock, warrants and convertible debt we issue to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

 

Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value.

 

The fair values of the derivatives are estimated using a Monte Carlo simulation model. The model utilizes a series of inputs and assumptions to arrive at a fair value at the date of inception and each reporting period. Some of the key assumptions include the likelihood of future financing, stock price volatility, and discount rates.

 

-5-


 

Goodwill and Intangible Assets

 

Goodwill is tested for impairment at a minimum on an annual basis. Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does not pass the qualitative assessment, then the reporting unit's carrying value is compared to its fair value. The fair values of the reporting units are estimated using market and discounted cash flow approaches. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. The discounted cash flow approach uses expected future operating results. Failure to achieve these expected results may cause a future impairment of goodwill at the reporting unit.

 

Intangible assets consist of patents and trademarks, purchased customer contracts, purchased customer and merchant relationships, purchased trade names, purchased technology, non-compete agreements, and software development costs. Intangible assets are amortized over the period of estimated benefit using the straight-line method and estimated useful lives ranging from ten to twenty years. No significant residual value is estimated for intangible assets.

 

The Company accounts for the cost of computer software developed or obtained for internal use of its application service by capitalizing qualifying costs, which are incurred during the application development stage and amortizing them over the software’s estimated useful life. Costs incurred in the preliminary and post-implementation stages of the Company’s products are expensed as incurred. The amounts capitalized include external direct costs of services used in developing internal-use software and for payroll and payroll-related costs of employees directly associated with the development activities. The Company amortizes capitalized software over the expected period of benefit, which is two years, beginning when the software is ready for its intended use.

 

Impairment of Long-Lived Assets

 

We evaluate long-lived assets (including intangible assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. An asset is considered impaired if its carrying amount exceeds the undiscounted future net cash flow the asset is expected to generate.

 

Revenue Recognition and Concentrations

 

Our SmartReceipt and C4 Mobile Marketing and customer relationship management are hosted solutions. We generate revenue from licensing our software to clients in our software as a service model, per-message and per-minute transactional fees, and customized professional services. We recognize license/subscription fees over the period of the contract, service fees as the services are performed, and per-message or per-minute transaction revenue when the transaction takes place. We recognize revenue at the time that the services are rendered, the selling price is fixed, and collection is reasonably assured, provided no significant obligations remain. We consider authoritative guidance on multiple deliverables in determining whether each deliverable represents a separate unit of accounting. Some customers are billed on a month to month basis with no contractual term and is collected by credit card. Revenue is recognized at the time that the services are rendered and the selling price is fixed with a set range of plans. Cash received in advance of the performance of services is recorded as deferred revenue.

 

We generate revenue from the Stampt App through customer agreements with business owners.   Revenue is principally derived from monthly subscription fees which provide a license for unlimited use of the Stampt App by the business owners and their customers.   The subscription fee is billed each month to the business owner.   Revenue is recognized monthly as the subscription revenues are billed.   There are no per-minute or transaction fees associated with the Stampt App.

 

During the nine months ended September 30, 2015 and 2014, one customer accounted for 32% and 22%, respectively, of our revenues.

 

Comprehensive Income (Loss)

 

Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. We are required to record all components of comprehensive income (loss) in the consolidated financial statements in the period in which they are recognized. Net income (loss) and other comprehensive income (loss), including foreign currency translation adjustments and unrealized gains and losses on investments, are reported, net of their related tax effect, to arrive at comprehensive income (loss). For the three and nine months ended September 30, 2015 and 2014, the comprehensive loss was equal to the net loss.

 

Net Loss Per Common Share

 

Basic net loss per share excludes any dilutive effects of options, shares subject to repurchase and warrants. Diluted net loss per share includes the impact of potentially dilutive securities. During the three and nine months ended September 30, 2015 and 2014, we had securities outstanding which could potentially dilute basic earnings per share in the future, but were excluded from the computation of diluted net loss per share, as their effect would have been anti-dilutive.

 

-6-


 

Reclassifications

 

Certain amounts from prior periods have been reclassified to conform to the current period presentation.

 

Recent Accounting Pronouncements

 

Accounting standards promulgated by the FASB are subject to change. Changes in such standards may have an impact on the Company’s future financial statements. The following are a summary of recent accounting developments.

 

In May 2014, the Financial Accounting Standards Board (the “FASB”) and the International Accounting Standards Board (the “IASB”) issued substantially converged final standards on revenue recognition.  The FASB’s Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), was issued in three parts: (a) Section A, “Summary and Amendments That Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs-Contracts with Customers (Subtopic 340-40),” (b) Section B, “Conforming Amendments to Other Topics and Subtopics in the Codification and Status Tables” and (c) Section C, “Background Information and Basis for Conclusions.” The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard permits the use of either the retrospective or cumulative effect transition method. This guidance will be effective for the Company for its fiscal year 2016, with no early adoption permitted.

 

The new revenue recognition guidance becomes effective for the Company on January 1, 2017, and early adoption is not permitted. Entities have the option of using either a full retrospective or a modified approach to adopt the guidance in the ASU. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company is currently evaluating the impact of the adoption of ASU 2014-09 on its consolidated financial statements.

 

In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” ASU No. 2014-15 requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. This guidance will be effective for the Company for its fiscal year 2016, with early adoption permitted. The Company does not expect the adoption of this guidance to have a material effect on its consolidated financial statements.

 

In November 2014, the FASB issued ASU No. 2014-16, Derivatives and Hedging (Topic 815) - Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity. ASU 2014-16 was issued to clarify how current U.S GAAP should be interpreted in evaluating the economic characteristics and risk of a host contract in a hybrid financial instrument that is issued in the form of a share. In addition, ASU 2014-16 was issued to clarify that in evaluating the nature of a host contract, an entity should assess the substance of the relevant terms and features (that is, the relative strength of the debt-like or equity-like terms and features given the facts and circumstances) when considering how to weight those terms and features. The effects of initially adopting ASU 2014-16 should be applied on a modified retrospective basis to existing hybrid financial instruments issued in a form of a share as of the beginning of the fiscal year for which the amendments are effective. Retrospective application is permitted to all relevant prior periods. ASU 2014-16 is effective fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption in an interim period is permitted. The Company is currently evaluating the impact of the adoption of ASU 2014-16 on its consolidated financial statements.

 

In April 2015, the FASB issued ASU 2015-05 regarding Subtopic 350-40, “Intangibles - Goodwill and Other - Internal-Use Software.” The amendments in ASU 2015-05 provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The amendments in ASU 2015-05 are effective for annual and interim periods beginning after December 15, 2015. Early adoption is permitted. The amendments in ASU 2015-05 may be applied either prospectively to all arrangements entered into or materially modified after the effective date or retrospectively. The Company is currently evaluating the impact of the adoption of ASU 2015-05 on its consolidated financial statements.

 

3.  Acquisitions

 

SmartReceipt Acquisition

 

In March 2014, we acquired all the assets of SmartReceipt, Inc. in exchange for: (1) our payment at closing of $2.212 million of cash, net of a $150,000 loan made by us to SmartReceipt in January 2014; (2) our issuance of 504,884 shares of its $0.001 par value common stock; and (3) our earn-out payment of 200% of the “eligible revenue” over the 12 month period following the close of the transaction (“earn-out period”).  The “eligible revenue” consists of: 100% of our revenue derived during the earn out period from the sale of SmartReceipt products and services to certain SmartReceipt clients as of the close (the “designated SmartReceipt clients”); plus 50% of our revenue derived during the earn out period from the sale of our products and services to the designated SmartReceipt clients, plus 50% of our revenue derived during the earn out period from the sale of SmartReceipt products and services to our clients who are not

-7-


 

designated SmartReceipt clients.  The earn-out payment is payable in our common shares at the rate of $1.85 per share, representing the volume weighted average trading price of our common stock for the 90 trading days preceding the initial close of the transactions under the Asset Purchase Agreement.  As of September 30, 2015, the earn-out payable was settled for 903,928 shares of our Common Stock.

 

The allocation of the purchase price to assets and liabilities based upon fair value determinations was as follows:

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

   

$

161,664 

Other assets

   

   

6,620 

Customer relationships

   

   

2,010,000 

Developed technology

   

   

260,000 

Trade name

   

   

176,000 

Goodwill

   

   

2,890,801 

Total assets acquired

   

   

5,505,085 

Liabilities assumed

   

   

(191,561)

Net assets acquired

   

$

5,313,524 

 

The purchase price consists of the following:

 

 

 

 

 

 

 

 

 

 

Cash

   

$

2,368,019 

Earn Out

   

   

2,273,000 

Common stock

   

   

672,505 

Total purchase price

   

$

5,313,524 

 

-8-


 

The following information presents unaudited pro forma consolidated results of operations for the nine months ended September 30, 2014 as if the SmartReceipt acquisition described above had occurred on January 1, 2014. The following unaudited pro forma financial information gives effect to certain adjustments, including the increase in stock based compensation expense that had not been valued prior to acquisition. The pro forma financial information is not necessarily indicative of the operating results that would have occurred if the acquisition been consummated as of the date indicated, nor are they necessarily indicative of future operating results.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobivity Holdings Corp.

Unaudited Pro Forma Condensed Consolidated Statement of Operations

For the nine months ended September 30, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobivity

 

SR

 

Pro forma
adjustments

 

 

Pro forma
combined

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

3,057,360 

 

$

214,139 

 

$

 -

 

 

$

3,271,499 

Cost of revenues

 

 

791,486 

 

 

54,410 

 

 

 -

 

 

 

845,896 

Gross margin

 

 

2,265,874 

 

 

159,729 

 

 

 -

 

 

 

2,425,603 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

2,900,711 

 

 

231,084 

 

 

4,230 

(a)

 

 

3,136,025 

Sales and marketing

 

 

2,723,979 

 

 

60,077 

 

 

 -

 

 

 

2,784,056 

Engineering, research, and development

 

 

1,026,120 

 

 

139,649 

 

 

 -

 

 

 

1,165,769 

Depreciation and amortization

 

 

300,273 

 

 

403 

 

 

 -

 

 

 

300,676 

Total operating expenses

 

 

6,951,083 

 

 

431,213 

 

 

4,230 

 

 

 

7,386,526 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(4,685,209)

 

 

(271,484)

 

 

(4,230)

 

 

 

(4,960,923)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income/(expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

2,034 

 

 

 -

 

 

 -

 

 

 

2,034 

Interest expense

 

 

(2,563)

 

 

 -

 

 

 -

 

 

 

(2,563)

Change in fair value of derivative liabilities

 

 

55,438 

 

 

 -

 

 

 -

 

 

 

55,438 

Total other income/(expense)

 

 

54,909 

 

 

 -

 

 

 -

 

 

 

54,909 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(4,630,300)

 

 

(271,484)

 

 

(4,230)

 

 

 

(4,906,014)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

(1,678)

 

 

 -

 

 

 -

 

 

 

(1,678)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(4,631,978)

 

$

(271,484)

 

$

(4,230)

 

 

$

(4,907,692)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share - basic and diluted

 

$

(0.22)

 

 

 

 

 

 

 

 

$

(0.24)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares

  during the period - basic and diluted

 

 

20,672,880 

 

 

 

 

 

 

 

 

 

20,299,303 

 

Pro Forma Adjustments

 

The following pro forma adjustments are based upon the value of the tangible and intangible assets acquired as determined by an independent valuation firm.

 

(a)

Represents stock based compensation in conjunction with the transaction.

 

4.  Goodwill and Purchased Intangibles

 

Goodwill

 

The carrying value of goodwill at September 30, 2015 and December 31, 2014 was $1,921,072. 

 

-9-


 

Intangible assets

 

The following table presents details of our purchased intangible assets as of September 30, 2015 and December 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at
December 31,
2014

 

Additions

 

Impairments

 

Amortization

 

Balance at
September 30,
2015

Patents and trademarks

 

$

108,952 

 

$

 -

 

$

(21,188)

 

$

(6,860)

 

$

80,904 

Customer and merchant relationships

 

 

1,540,000 

 

 

 -

 

 

 -

 

 

(124,865)

 

$

1,415,135 

Trade name

 

 

152,000 

 

 

 -

 

 

 -

 

 

(12,324)

 

$

139,676 

Acquired technology

 

 

210,000 

 

 

 -

 

 

 -

 

 

(17,027)

 

$

192,973 

 

 

$

2,010,952 

 

$

 -

 

$

(21,188)

 

$

(161,076)

 

$

1,828,688 

 

The intangible assets are being amortized on a straight line basis over their estimated useful lives of ten to twenty years.

 

The Company recorded an impairment charge for patent application fees that were not granted of $21,188 for both the three and nine months ended September 30, 2015.

 

Amortization expense for intangible assets was $53,692 and $114,228 for the three months ended September 30, 2015 and 2014, respectively.

 

Amortization expense for intangible assets was $161,076 and $294,696 for the nine months ended September 30, 2015 and 2014, respectively.

 

The estimated future amortization expense of our intangible assets as of September 30, 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

Year ending December 31,

 

Amount

2015

 

$

53,380 

2016

 

 

213,519 

2017

 

 

213,519 

2018

 

 

213,520 

2019

 

 

213,520 

Thereafter

 

 

921,230 

Total

 

$

1,828,688 

 

5.  Software Development Costs

 

The Company has capitalized certain costs for software developed or obtained for internal use during the application development stage as it relates to specific contracts. The amounts capitalized include external direct costs of services used in developing internal-use software and for payroll and payroll-related costs of employees directly associated with the development activities. 

 

The following table presents details of our software development costs as of September 30, 2015 and December 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at
December 31,
2014

 

Additions

 

Amortization

 

Balance at
September 30,
2015

Software Development Costs

 

$

 -

 

$

489,850 

 

$

(77,055)

 

$

412,795 

 

 

$

 -

 

$

489,850 

 

$

(77,055)

 

$

412,795 

 

Software development costs are being amortized on a straight line basis over their estimated useful life of two years.

 

Amortization expense for software development costs was $50,262 for the three months ended September 30, 2015.

 

Amortization expense for software development costs was $77,055 for the nine months ended September 30, 2015.

 

-10-


 

The estimated future amortization expense of software development costs as of September 30, 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

Year ending December 31,

 

Amount

2015

 

$

61,230 

2016

 

 

244,920 

2017

 

 

106,645 

2018

 

 

 -

2019

 

 

 -

Thereafter

 

 

 -

Total

 

$

412,795 

 

6.  Derivative Liabilities

 

We completed a private placement in September 2011 for the sale of units consisting of shares of common stock and warrants to purchase our common stock. Both the common shares and the warrants contain anti-dilutive, or down round, price protection. We recorded derivative liabilities related to the down round price protection on the common shares and the warrants.

 

The down round price protection on the common shares expired in August 2012, and the down round price protection for the warrants terminates when the warrants expire or are exercised.

 

Our derivative liabilities at September 30, 2015 and December 31, 2014 both relate to these warrants.

 

The fair values of our derivative liabilities are estimated at the issuance date and are revalued at each subsequent reporting date using a Monte Carlo simulation discussed below.

 

At September 30, 2015 and December 31, 2014, we recorded current derivative liabilities of $7,679 and $42,659, respectively, which are detailed by instrument type in the table below.

 

The net change in fair value of the derivative liabilities for the three months ended September 30, 2015 and 2014  was a gain/(loss) of $41,795 and $(2,354), respectively.

 

The net change in fair value of the derivative liabilities for the nine months ended September 30, 2015 and 2014 was a gain of $34,980 and $55,438, respectively.

 

The following table presents the derivative liabilities by instrument type as of September 30, 2015 and December 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

Derivative Value by Instrument Type

   

2015

   

2014

Warrants

   

$

7,679 

   

$

42,659 

   

   

$

7,679 

   

$

42,659 

 

The following table presents details of our derivative liabilities from December 31, 2014 to September 30, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2014

   

 

 

 

$

42,659 

Change in fair value of derivative liabilities

   

 

 

 

 

(34,980)

Balance September 30, 2015

   

 

 

 

$

7,679 

 

An independent valuation expert calculated the fair value of the compound embedded derivatives using a complex, customized Monte Carlo simulation model suitable to value path dependent American options. The model uses the risk neutral methodology adapted to value corporate securities. This model utilized subjective and theoretical assumptions that can materially affect fair values from period to period.

 

Key inputs and assumptions used in valuing our derivative liabilities are as follows:

 

For issuances of warrants:

 

·

Stock prices on all measurement dates were based on the fair market value

·

Down round protection is based on the subsequent issuance of warrants with exercise prices less than $1.00 per share

·

The probability of a future equity financing event triggering the down round protection was estimated at 0%

·

Computed volatility of 112.2%

-11-


 

·

Risk free rate of 0.01% 

 

7.  Notes Payable and Interest Expense

 

Cherry Family Trust Note

 

This note was issued on March 1, 2007, for the principal amount of $20,000, interest accrues at the rate of 9% compounded annually, with a maturity date of December 31, 2008.  There was no accrued interest as of September 30, 2015 and December 31, 2014.  A court order was issued and December 7, 2007 that related to a summary judgment in favor of the Company, stemming from litigation between the Company and Mr. Cherry. Accordingly, we have extinguished the note payable as of December 31, 2014 and related accrued interest in the amounts and recorded a gain on debt extinguishment of $36,943.

 

Interest Expense

 

Interest expense was $883 during the three months ended September 30, 2014.

 

Interest expense was $2,563 during the nine months ended September 30, 2014.

 

8.  Stockholders’ Equity (Deficit)

 

Common Stock

 

2014

 

In March 2014, we issued 5,413,000 units of our securities at $1.00 per unit to accredited investors for the gross proceeds of $5,413,000.   Each unit consisted of one share of our common stock and a common stock purchase warrant to purchase one-quarter share of our common stock, over a five year period, at an exercise price of $1.20 per share.   The units included warrants for the purchase of 1,353,238 shares of common stock at $1.20 per share. The warrants were valued at $1,320,569 and expire in 2019.We entered into a Registration Rights Agreement with the investors, pursuant to which we filed a resale registration statement covering the common shares made part of the units.

 

Emerging Growth Equities, Ltd. (“EGE”) acted as placement agent for the private placement and received $370,685 in commissions from us.   In addition, we issued warrants for the purchase of 370,685 common stock units at $1.00 per unit to EGE in connection with the equity placements.  Each unit consists of one share of the Company’s common stock and a common stock purchase warrant to purchase one-quarter share of the Company’s common stock, over a five year period, at an exercise price of $1.20 per share.   

 

In March 2014, we issued 504,884 shares at $1.44 per share in connection with the acquisition of SmartReceipt. See Note 3.

 

In September 2014, we issued 500,000 shares of common stock at $1.01 per share for services and recorded share-based compensation of $505,000 in general and administrative expense.

 

In October 2014, we issued 2,137 accrued shares of common stock at $3.42 per share for services that had been recorded in 2013 as equity payable. 

 

In October 2014, we issued 10,431 shares of common stock at $3.42 per share for services and recorded share-based compensation of $35,673 in general and administrative expense.

 

2015

 

On January 13, 2015, Michael Bynum, president and a member of the board of directors of Mobivity Holdings Corp, resigned as an officer, director and employee of the Company and all subsidiaries. In connection with Mr. Bynum's resignation, he and the Company entered into a customary separation agreement providing for mutual releases and other standard covenants and acknowledgements. In addition, the separation agreement modified Mr. Bynum's rights to severance under his employment agreement dated May 17, 2013 with the Company.  Pursuant to his employment agreement, Mr. Bynum was entitled to one year of salary, or $200,000, upon his resignation. However, under the separation agreement, Mr. Bynum agreed to accept 260,870 shares of the common stock of the Company in lieu of cash severance. The shares were valued on the closing market price on the date of the separation agreement of January 9, 2015 of $1.15 which provided a fair market value of the share consideration of $300,001. In addition, pursuant to his employment agreement, Mr. Bynum's options would continue to vest for three months following his resignation and all vested options would remain exercisable for a period of six months following his resignation. However, under the separation agreement, Mr. Bynum agreed that his options would cease vesting upon his resignation, all unvested options would expire upon resignation and all vested options would remain exercisable for a period of 12 months following his resignation.

 

-12-


 

On January 21, 2015, the board of directors of Mobivity Holdings Corp. appointed William Van Epps to serve as executive chairman of the Company. In connection with the appointment, the Company entered into an employment agreement dated January 19, 2015 with Mr. Van Epps.  Pursuant to his employment agreement, the Company has agreed to pay Mr. Van Epps a base salary $310,000, subject to annual review by the board.  The Company has also agreed to pay Mr. Van Epps a signing bonus of 50,000 shares of the Company’s common stock. The shares were valued on the closing market price on the date of the employment agreement of January 19, 2015 of $1.26 which provided a fair market value of the share consideration of $63,000.

 

In March 2015, we conducted the private placement of our securities for the gross proceeds of $4,805,000.  In the private placement, we sold 4,805,000 units of our securities at a price of $1.00 per unit. As of May 1, 2015, net proceeds of $4,570,500 have been received by the Company (this amount is less offering costs of $234,500). Each unit consists of one share of our common stock and a common stock purchase warrant to purchase one-quarter share of our common stock, over a five year period, at an exercise price of $1.20 per share and grant date fair value of $0.93.   We entered into a Registration Rights Agreement with the investors, pursuant to which we agreed to cause a resale registration statement covering the common shares made part of the units to be filed by April 30, 2015.   The Registration Rights Agreement also provides that we must make certain payments as liquidated damages to the investors if it fails to timely file the registration statement and cause it to become effective. The Registration Rights Agreement was declared effective as of September 10, 2015. As of the date of this filing, liquidated damages in regards to the timely filing of the registration statement have been waived.

 

EGE acted as placement agent for the private placement and received $234,500 in commissions from us.   In addition, for its services as placement agent, we issued to EGE warrants to purchase an aggregate of 234,500 units, as defined above, exercisable for a period of five years from the closing date, at an exercise price of $1.00 per unit.

 

On July 31, 2015 we issued 903,928 shares of our common stock in satisfaction of the SmartReceipt earn-out payable. The earn-out payment was at the rate of $1.85 per share as further described in Note 10.

 

On August 14, 2015 we issued 20,000 Restricted Stock Units to a former employee at $1.18 per share for services and recorded share-based compensation of $23,800 in general and administrative expense

 

Stock-based Plans

 

Stock Option Activity

 

The following table summarizes stock option activity for the nine months ended September 30, 2015:

 

 

 

 

 

 

 

 

   

   

Options

Outstanding at December 31, 2014

   

5,399,320 

Granted

   

2,701,500 

Exercised

   

 -

Canceled/forfeited/expired

   

(2,733,326)

Outstanding at September 30, 2015

   

5,367,494 

 

The weighted average exercise price of stock options granted during the period was $1.18 and the related weighted average grant date fair value was $1.06 per share.

 

2014

 

On February 27, 2014, the Company granted one employee 180,000 options to purchase shares of the Company common stock at the closing price as of February 27, 2014 of $1.40 per share.  The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter, and are exercisable until February 27, 2024.  The total estimate value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.26 was $226,800.

 

On April 2, 2014, the Company granted three employees 202,500 options to purchase shares of the Company common stock at the closing price as of April 2, 2014 of $1.32 per share.  The options vest in forty-eight equal monthly installments following the grant date and are exercisable until April 2, 2024. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.19 was $240,975.

 

On April 15, 2014, the Company granted six employees 16,000 options to purchase shares of the Company common stock at the closing price as of April 15, 2014 of $1.44 per share.  The options vest in forty-eight equal monthly installments following the grant date and are exercisable until April 15, 2024. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.30 was $20,800.

 

-13-


 

On April 15, 2014, the Company granted two employees 5,000 options to purchase shares of the Company common stock at the closing price as of April 15, 2014 of $1.44 per share.  The options vest 25% on the first anniversary of the grant, then equally in thirty-six monthly installments thereafter and are exercisable until April 15, 2024. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.30 was $6,500.

 

On August 11, 2014, the Company granted five employees 212,500 options to purchase shares of the Company common stock at the closing price as of August 11, 2014 of $0.94 per share.  The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until August 11, 2024. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $0.85 was $180,625.

 

On September 29, 2014, the Company granted seven employees 182,500 options to purchase shares of the Company common stock at the closing price as of September 29, 2014 of $1.15 per share.  The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until September 29, 2024. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.04 was $189,800.

 

On November 13, 2014 the Company amended an Option Agreement dated June 17, 2013 (the “Option Agreement”) pursuant to which Tom Tolbert was granted the right to purchase up to 1,391,087 shares of common stock of the Company.  Options to purchase 391,085 Shares that were subject to vesting as of the date of the Amendment were cancelled.  In furtherance of the cancellation, the Company granted to Mr. Tolbert options to purchase all or any part of 1,000,000 shares of the Company’s Common Stock upon the following terms and conditions:  Options to purchase 650,000 Shares shall vest and first become exercisable as of the date of the Amendment and the balance of Options to purchase 350,000 Shares shall vest and first become exercisable in 47 equal monthly installments of Options to purchase 7,292 Shares commencing on December 13, 2014 and on the 13th of the next 47 months and the remaining Options to purchase 7,276 Shares shall vest and first become exercisable on November 13, 2018.  All other provisions of the Option Agreement remain in full force and effect.

 

On November 18, 2014, the Company granted three employees 250,000 options to purchase shares of the Company common stock at the closing price as of November 18, 2014 of $1.48 per share.  The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until November 18, 2024. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.48 was $370,000.

 

On December 30, 2014, the Company granted three employees 185,000 options to purchase shares of the Company common stock at the closing price as of December 30, 2014 of $1.23 per share.  The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until December 30, 2024. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.11 was $205,350.

 

2015

 

On January 1, 2015, the Company granted one employee 15,000 options to purchase shares of the Company common stock at the closing price as of January 1, 2015 of $1.19 per share.  The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until January 1, 2025. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.07 was $16,050.

 

On January 22, 2015, the Company granted one employee 900,000 options to purchase shares of the Company common stock at the closing price as of January 22, 2015 of $1.28 per share.  The options vest in forty-eight equal monthly installments following the grant date and are exercisable until January 22, 2025. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.15 was $1,035,000.

 

On January 22, 2015, the Company granted three employees 471,500 options to purchase shares of the Company common stock at the closing price as of January 22, 2015 of $1.28 per share.  The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until January 22, 2025. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.15 was $542,225.

 

On February 11, 2015, the Company granted one employee 3,000 options to purchase shares of the Company common stock at the closing price as of February 11, 2015 of $1.20 per share.  The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until February 11, 2025. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.08 was $3,240.

 

On February 16, 2015, the Company granted one employee 300,000 options to purchase shares of the Company common stock at the closing price as of February 16, 2015 of $1.30 per share.  The options vest in forty-eight equal monthly installments following the grant date and are exercisable until February 16, 2025. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.17 was $351,000.

 

-14-


 

On March 2, 2015, the Company granted one employee 100,000 options to purchase shares of the Company common stock at the closing price as of March 2, 2015 of $1.20 per share.  The options vest in forty-eight equal monthly installments following the grant date and are exercisable until March 2, 2025. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.08 was $108,000.

 

On April 16, 2015, the Company granted five employees 445,000 options to purchase shares of the Company common stock at the closing price as of April 16, 2015 of $1.20 per share. The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until April 16, 2025. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.08 was $480,600.

On April 27, 2015, the Company granted one employee 20,000 options to purchase shares of the Company common stock at the closing price as of April 27, 2015 of $1.10 per share. The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until April 27, 2025. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $0.99 was $19,800.

 

On May 4, 2015, the Company granted two employees 25,000 options to purchase shares of the Company common stock at the closing price as of May 4, 2015 of $1.00 per share. The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until May 4, 2025. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $0.90 was $22,500.

 

On May 13, 2015, the Company granted one employee 20,000 options to purchase shares of the Company common stock at the closing price as of May 13, 2015 of $0.99 per share. The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until May13, 2025. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $0.89 was $17,800.

 

On June 1, 2015, the Company granted one employee 2,000 options to purchase shares of the Company common stock at the closing price as of June 1, 2015 of $0.85 per share. The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until June 1, 2025. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $0.77 was $1,540.

 

On August 20, 2015, the Company granted three employees 400,000 options to purchase shares of the Company common stock at the closing price as of August 20, 2015 of $0.75 per share. The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until August 20, 2025. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $0.67 was $268,000.

 

Stock-Based Compensation Expense from Stock Options and Warrants

 

The impact on our results of operations of recording stock-based compensation expense for the three and nine months ended September 30, 2015 and 2014 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2015

 

2014

 

2015

 

2014

General and administrative

 

$

198,106 

 

$

311,047 

 

$

604,709 

 

$

925,383 

Sales and marketing

 

 

77,887 

 

 

29,258 

 

 

191,516 

 

 

116,733 

Engineering, research, and development

 

 

30,789 

 

 

16,588 

 

 

75,240 

 

 

26,852 

 

 

$

306,782 

 

$

356,893 

 

$

871,465 

 

$

1,068,968 

 

Valuation Assumptions

 

The fair value of each stock option award was calculated on the date of grant using the Black-Scholes option pricing model. The following weighted average assumptions were used for the nine months ended September 30, 2015 and 2014.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

   

Nine Months Ended

 

 

September 30,

   

   

2015

 

2014

Risk-free interest rate

   

1.58 

%

 

1.97 

%

Expected life (years)

   

6.02 

 

 

6.08 

 

Expected dividend yield

   

 -

%

 

 -

%

Expected volatility

   

132.0 

%

 

132.0 

%

 

-15-


 

The risk-free interest rate assumption is based upon published interest rates appropriate for the expected life of our employee stock options.

 

The expected life of the stock options represents the weighted-average period that the stock options are expected to remain outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its stock-based awards.

 

The dividend yield assumption is based on our history of not paying dividends and no future expectations of dividend payouts.

 

The expected volatility in 2015 and 2014 is based on the historical publicly traded price of our common stock.

 

Restricted stock units

 

The following table summarizes restricted stock unit activity under our stock-based plans as of and for the nine months ended September 30, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

Shares

 

Weighted Average
Exercise Price

 

Weighted Average
Remaining
Contractual Term
(Years)

 

Aggregate
Intrinsic Value

Outstanding at December 31, 2014

 

 

591,436 

 

$

 -

 

 

9.75 

 

$

703,809 

Granted

 

 

82,501 

 

$

 -

 

 

 -

 

$

 -

Exercised

 

 

(20,000)

 

$

 -

 

 

 -

 

$

 -

Canceled/forfeited/expired

 

 

 -

 

$

 -

 

 

 -

 

$

 -

Outstanding at September 30, 2015

 

 

653,937 

 

$

 -

 

 

9.03 

 

$

366,205 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expected to vest at September 30, 2015

 

 

630,055 

 

$

 -

 

 

8.73 

 

$

352,831 

Exercisable at September 30, 2015

 

 

564,732 

 

$

 -

 

 

9.01 

 

$

316,250 

Unvested at September 30, 2015