Attached files

file filename
EX-4.1 - EX-4.1 - MOBIVITY HOLDINGS CORP.mfon-20160930xex4_1.htm
EX-32.1 - EX-32.1 - MOBIVITY HOLDINGS CORP.mfon-20160930xex32_1.htm
EX-31.2 - EX-31.2 - MOBIVITY HOLDINGS CORP.mfon-20160930xex31_2.htm
EX-31.1 - EX-31.1 - MOBIVITY HOLDINGS CORP.mfon-20160930xex31_1.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, 2016





 

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 14, 2016, the registrant had 33,058,991 shares of common stock issued and outstanding.





 



 

 


 

 

MOBIVITY HOLDINGS CORP.

INDEX





 

 

 



 

 

 

   

   

   

 Page

Part I

Financial Information

   

   

   

Item 1.

Financial Statements

   

   

Condensed Consolidated Balance Sheets

   

   

Condensed Consolidated Statements of Income and Comprehensive Income

   

   

Condensed Consolidated Statement of Stockholders’ Equity

   

   

Condensed Consolidated Statements of Cash Flows

   

   

Notes to Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24 

Item 4.

Controls and Procedures

24 

Item 5.

Other Information

 

24 

Item 6.

Exhibits

25 

   

 

Signature Page

25 



 

-i-



 

 


 

Part I - Financial Information

Item 1.  Financial Statements

Mobivity Holdings Corp.

Condensed Consolidated Balance Sheets







 

 

 

 

 

 



 

 

 

 

 

 



 

September 30,

 

December 31,



 

2016

 

2015



 

(Unaudited)

 

(Audited)

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$

273,539 

 

$

634,129 

Restricted cash

 

 

1,000,000 

 

 

 -

Accounts receivable, net of allowance for doubtful accounts of $158,915 and $237,383, respectively

 

 

723,724 

 

 

700,356 

Other current assets

 

 

161,021 

 

 

131,345 

Total current assets

 

 

2,158,284 

 

 

1,465,830 

Goodwill

 

 

3,046,108 

 

 

1,921,072 

Intangible assets, net

 

 

2,368,537 

 

 

2,373,689 

Other assets

 

 

130,996 

 

 

173,022 

TOTAL ASSETS

 

$

7,703,925 

 

$

5,933,613 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

686,985 

 

$

375,363 

Accrued interest

 

 

4,112 

 

 

 -

Accrued and deferred personnel compensation

 

 

462,027 

 

 

414,314 

Deferred revenue and customer deposits

 

 

272,188 

 

 

72,624 

Notes payable

 

 

1,283,085 

 

 

 -

Other current liabilities

 

 

121,898 

 

 

197,145 

Total current liabilities

 

 

2,830,295 

 

 

1,059,446 



 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

Notes payable

 

 

125,789 

 

 

 -

Total non-current liabilities

 

 

125,789 

 

 

 -

Total liabilities

 

 

2,956,084 

 

 

1,059,446 

Commitments and Contingencies (See Note 9)

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Common stock, $0.001 par value; 50,000,000 shares authorized; 33,058,991 and 28,787,991, shares issued and outstanding 

 

 

33,059 

 

 

28,788 

Equity payable

 

 

100,862 

 

 

100,862 

Additional paid-in capital

 

 

73,750,605 

 

 

69,903,527 

Accumulated other comprehensive loss

 

 

(43,626)

 

 

 -

Accumulated deficit

 

 

(69,093,059)

 

 

(65,159,010)

Total stockholders' equity

 

 

4,747,841 

 

 

4,874,167 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

7,703,925 

 

$

5,933,613 



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



-1-


 

Mobivity Holdings Corp.

Condensed Consolidated Statements of Income and Comprehensive Income 

(Unaudited)







 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Nine Months Ended

 



 

September 30,

 

September 30,

 



 

2016

 

2015

 

2016

 

2015

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

2,182,750 

 

$

1,303,663 

 

$

6,102,501 

 

$

3,335,080 

 

Cost of revenues

 

 

619,495 

 

 

286,503 

 

 

1,618,461 

 

 

820,455 

 

Gross margin

 

 

1,563,255 

 

 

1,017,160 

 

 

4,484,040 

 

 

2,514,625 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

1,139,732 

 

 

1,068,157 

 

 

3,125,484 

 

 

3,276,384 

 

Sales and marketing

 

 

1,336,257 

 

 

1,005,520 

 

 

3,667,279 

 

 

2,895,748 

 

Engineering, research, and development

 

 

446,447 

 

 

269,273 

 

 

1,074,266 

 

 

584,978 

 

Depreciation and amortization

 

 

194,419 

 

 

105,512 

 

 

501,866 

 

 

243,998 

 

Total operating expenses

 

 

3,116,855 

 

 

2,448,462 

 

 

8,368,895 

 

 

7,001,108 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(1,553,600)

 

 

(1,431,302)

 

 

(3,884,855)

 

 

(4,486,483)

 



 

 

 

 

 

 

 

 

 

 

 

 

 

Other income/(expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

525 

 

 

506 

 

 

2,278 

 

 

1,054 

 

Interest expense

 

 

(25,900)

 

 

 -

 

 

(52,960)

 

 

 -

 

Intangible asset impairment

 

 

 -

 

 

(21,188)

 

 

 -

 

 

(21,188)

 

Change in fair value of derivative liabilities

 

 

 -

 

 

41,795 

 

 

 -

 

 

34,980 

 

Gain on adjustment in contingent consideration

 

 

 -

 

 

87,740 

 

 

 -

 

 

89,740 

 

Foreign currency gain

 

 

372 

 

 

 -

 

 

1,488 

 

 

 -

 

Total other income/(expense)

 

 

(25,003)

 

 

108,853 

 

 

(49,194)

 

 

104,586 

 

Loss before income taxes

 

 

(1,578,603)

 

 

(1,322,449)

 

 

(3,934,049)

 

 

(4,381,897)

 

Income tax expense

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

Net loss

 

 

(1,578,603)

 

 

(1,322,449)

 

 

(3,934,049)

 

 

(4,381,897)

 

Other comprehensive loss, net of income tax

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

1,696 

 

 

 -

 

 

(43,626)

 

 

 -

 

Comprehensive loss

 

$

(1,576,907)

 

$

(1,322,449)

 

$

(3,977,675)

 

$

(4,381,897)

 



 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share - basic and diluted

 

$

(0.05)

 

$

(0.05)

 

$

(0.12)

 

$

(0.17)

 

Weighted average number of shares

  during the period - basic and diluted

 

 

33,059,007 

 

 

28,480,322 

 

 

31,965,484 

 

 

25,973,592 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



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

 

-2-


 

Mobivity Holdings Corp.

Consolidated Statement of Stockholders’ Equity







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Common Stock

 

Equity

 

Additional

 

Accumulated Other

 

Accumulated

 

Total Stockholders'



 

Shares

 

Dollars

 

Payable

 

Paid-in Capital

 

Comprehensive Loss

 

Deficit

 

Equity

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,

  net of 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 

 

 

 -

 

 

1,659,812 

 

 

 -

 

 

 -

 

 

1,659,832 

Net loss

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(6,133,046)

 

 

(6,133,046)

Balance, December 31, 2015

 

28,787,991 

 

$

28,788 

 

$

100,862 

 

$

69,903,527 

 

$

 -

 

$

(65,159,010)

 

$

4,874,167 

Issuance of common stock for acquisition

 

1,015,000 

 

 

1,015 

 

 

 -

 

 

709,485 

 

 

 -

 

 

 -

 

 

710,500 

Issuance of common stock for financing

 

3,256,000 

 

 

3,256 

 

 

 -

 

 

1,950,344 

 

 

 -

 

 

 -

 

 

1,953,600 

Stock based compensation

 

 -

 

 

 -

 

 

 -

 

 

1,187,249 

 

 

 -

 

 

 -

 

 

1,187,249 

Foreign currency translation adjustment

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(43,626)

 

 

 -

 

 

(43,626)

Net loss

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(3,934,049)

 

 

(3,934,049)

Balance, September 30, 2016

 

33,058,991 

 

$

33,059 

 

$

100,862 

 

$

73,750,605 

 

$

(43,626)

 

$

(69,093,059)

 

$

4,747,841 



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

 

-3-


 



Mobivity Holdings Corp.

Consolidated Statements of Cash Flows

(Unaudited)







 

 

 

 

 

 



 

 

 

 

 

 



 

Nine Months Ended



 

September 30,



 

2016

 

2015

OPERATING ACTIVITIES

 

 

 

 

 

 

   Net loss

 

$

(3,934,049)

 

$

(4,381,897)

   Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

      Bad debt expense

 

 

152,938 

 

 

(8,300)

      Amortization of deferred financing costs

 

 

8,705 

 

 

 -

      Common stock issued for services

 

 

 -

 

 

363,001 

      Stock-based compensation

 

 

1,187,249 

 

 

1,218,649 

      Depreciation and amortization expense

 

 

501,866 

 

 

243,998 

      Change in fair value of derivative liabilities

 

 

 -

 

 

(34,980)

      Loss on disposal of fixed assets

 

 

67,185 

 

 

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

 

 

(175,433)

 

 

(379,095)

      Other current assets

 

 

(22,455)

 

 

(82,997)

      Other assets

 

 

23,100 

 

 

(43,082)

      Accounts payable

 

 

235,676 

 

 

87,614 

      Accrued interest

 

 

4,112 

 

 

 -

      Accrued and deferred personnel compensation

 

 

36,989 

 

 

(40,311)

      Deferred revenue and customer deposits

 

 

199,479 

 

 

(109,069)

      Other liabilities

 

 

(77,525)

 

 

146,420 

Net cash used in operating activities

 

 

(1,792,163)

 

 

(3,081,658)

INVESTING ACTIVITIES

 

 

 

 

 

 

   Purchases of equipment

 

 

(30,209)

 

 

(46,506)

    Acquisitions

 

 

11,088 

 

 

 -

    Cash paid for patent

 

 

(20,915)

 

 

 -

    Capitalized software development costs

 

 

(442,267)

 

 

(489,850)

Net cash used in investing activities

 

 

(482,303)

 

 

(536,356)

FINANCING ACTIVITIES

 

 

 

 

 

 

    Deferred financing costs

 

 

(32,287)

 

 

 -

    Repayments of notes payable

 

 

(4,634)

 

 

 -

    Proceeds from issuance of common stock, net of issuance costs

 

 

1,953,600 

 

 

4,570,500 

Net cash provided by financing activities

 

 

1,916,679 

 

 

4,570,500 



 

 

 

 

 

 

Effect of foreign currency translation on cash flow

 

 

(2,803)

 

 

 -



 

 

 

 

 

 

Net change in cash

 

 

(360,590)

 

 

952,486 

Cash at beginning of period

 

 

634,129 

 

 

848,230 

Cash at end of period

 

$

273,539 

 

$

1,800,716 

Supplemental disclosures:

 

 

 

 

 

 

Cash paid during period for:

 

 

 

 

 

 

    Interest

 

$

52,960 

 

$

 -

Non-cash investing and financing activities:

 

 

 

 

 

 

    Restricted cash proceeds from line of credit

 

$

1,000,000 

 

$

 -

    Issuance of common stock for earn-out payable

 

$

 -

 

$

750,260 



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, 2015 filed with the SEC on March 30, 2016.



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, 2016, and for the three and nine months ended September 30, 2016 and 2015. The results of operations for the three and nine months ended September 30, 2016 are not necessarily indicative of the operating results for the full year ending December 31, 2016

 

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, 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.



Restricted cash



Restricted cash represents funds advanced in accordance with the Company’s Working Capital Line of Credit Facility which requires the Company to maintain collateral with a market value greater than or equal to the limit of liability.



Accounts Receivable, Allowance for Doubtful Accounts and Concentrations



Accounts receivable are carried at their estimated collectible amounts. We grant unsecured credit to substantially all of our customers. Ongoing credit evaluations are performed and potential credit losses are charged to operations at the time the account receivable is estimated to be uncollectible. Since we cannot necessarily predict future changes in the financial stability of our customers, we cannot guarantee that our reserves will continue to be adequate.



As of September 30, 2016, the Company recorded an advance of $160,579 against certain receivables under their Working Capital Line of Credit Facility in accordance with the agreement.



As of September 30, 2016 and December 31, 2015, we recorded an allowance for doubtful accounts of $158,915 and $237,383, respectively.

-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 one to twenty years. No significant residual value is estimated for intangible assets.



Software Development Costs

 

Software development costs include direct costs incurred for internally developed products and payments made to independent software developers and/or contract engineers. The Company accounts for software development costs in accordance with the FASB guidance for the costs of computer software to be sold, leased, or otherwise marketed (“ASC Subtopic 985-20”). Software development costs are capitalized once the technological feasibility of a product is established and such costs are determined to be recoverable. Technological feasibility of a product encompasses technical design documentation and integration documentation, or the completed and tested product design and working model. Software development costs are capitalized once technological feasibility of a product is established and such costs are determined to be recoverable against future revenues. Technological feasibility is evaluated on a project-by-project basis. Amounts related to software development that are not capitalized are charged immediately to the appropriate expense account. Amounts that are considered ‘research and development’ that are not capitalized are immediately charged to engineering, research, and development expense.

 

Capitalized costs for those products that are cancelled or abandoned are charged to product development expense in the period of cancellation. Commencing upon product release, capitalized software development costs are amortized to “Amortization Expense -  Development” based on the straight-line method over a twenty-four month period.

 

The Company evaluates the future recoverability of capitalized software development costs on an annual basis. For products that have been released in prior years, the primary evaluation criterion is ongoing relations with the customer.



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.



Foreign Currency Translation



The Company translates the financial statements of its foreign subsidiary from the local (functional) currency into US Dollars using the year or reporting period end or average exchange rates in accordance with the requirements of Accounting Standards Codification subtopic 830-10, Foreign Currency Matters (“ASC 830-10”). Assets and liabilities of these subsidiaries were translated at exchange rates as of the balance sheet date. Revenues and expenses are translated at average rates in effect for the periods presented. The cumulative translation adjustment is included in the accumulated other comprehensive gain (loss) within shareholders’ equity. Foreign currency transaction gains and losses arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the unaudited Condensed Consolidated Statements of Income and Comprehensive Income.



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.

-6-


 



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, 2016 and 2015,  one customer accounted for 50% and 32%, 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, 2016, the comprehensive loss was $1,576,907 and $3,977,675, respectively. For the three and nine months ended September 30, 2015,  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, 2016 and 2015, 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.



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 February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)”. Under this guidance, an entity is required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. This guidance offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. This guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard will have on our consolidated financial statements.



In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”. The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. The Company elected to early adopt the new guidance in the second quarter of fiscal year 2016 which requires us to reflect any adjustments as of January 1, 2016, the beginning of the annual period that includes the interim period of adoption. The primary impact of adoption was the recognition of additional stock compensation expense and paid-in capital for all periods in fiscal year 2016. Additional amendments to the recognition of excess tax benefits, accounting for income taxes and minimum statutory withholding tax requirements had no impact to retained earnings as of January 1, 2016, where the cumulative effect of these changes are required to be recorded. We have elected to account for forfeitures as they occur to determine the amount of compensation cost to be recognized in each period.



-7-


 

Adoption of the new standard impacted our previously reported quarterly results for the fiscal year 2016 as follows:









 

 

 

 

 

 

   

   

Three Months Ended



 

March 31, 2016

   

   

As reported

 

As adjusted

Income statement:

   

 

 

 

 

 

Net loss

   

$

(1,288,989)

 

$

(1,359,226)

Comprehensive net loss

 

$

(1,352,208)

 

$

(1,422,445)

Net loss per share - basic and diluted

   

$

(0.04)

 

$

(0.05)



   

 

 

 

 

 

Balance Sheet:

 

 

 

 

 

 

Common stock, equity payable and paid in capital

 

$

73,053,886 

 

$

73,124,123 

Retained earnings

 

$

(66,447,999)

 

$

(66,518,236)



 

 

 

 

 

 

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 this standard will have on our consolidated financial statements.



In May 2014, the FASB issued ASU 2014-09 regarding ASC Topic 606, “Revenue from Contracts with Customers.” ASU 2014-09 provides principles for recognizing 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. In August 2015, the FASB issued ASU 2015-14 to defer the effective date by one year with early adoption permitted as of the original effective date. ASU 2014-09 will be effective for our fiscal year beginning January 1, 2018 unless we elect the earlier date of January 1, 2017. In addition, the FASB issued ASU 2016-08, ASU 2016-10, and ASU 2016-12 in March 2016, April 2016, and May 2016, respectively, to help provide interpretive clarifications on the new guidance in ASC Topic 606. The Company is currently evaluating the accounting, transition, and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption.

 

3.  Acquisitions



LiveLenz Acquisition



On January 15, 2016, we acquired all of the outstanding capital stock of LiveLenz Inc., a Nova Scotia corporation (“LiveLenz”), pursuant to an agreement dated January 15, 2016 among the Company and the stockholders of LiveLenz. Pursuant to the agreement, we acquired all of the capital stock of LiveLenz in consideration of our issuance of 1,000,000 shares (“Consideration Shares”) of our common stock to the LiveLenz stockholders, our issuance of an additional 15,000 share of our common stock in satisfaction of certain liabilities of LiveLenz, and the assumption of their existing liabilities. The agreement included customary representations, warranties, and covenants by us and the LiveLenz stockholders, including the LiveLenz stockholders’ agreement to indemnify us against certain claims or losses resulting from certain breaches of representations, warranties or covenants by the LiveLenz stockholders in the agreement. Pursuant to the agreement, the LiveLenz stockholders have agreed to adjust the number of Consideration Shares downward based on LiveLenz’ working capital as of the closing and in the event of any claims for indemnification by us. The LiveLenz stockholders have agreed that 100% of the Consideration Shares will be escrowed for a period of 18 months and subject to forfeiture based on indemnification claims by us or the final determination of LiveLenz’ working capital as of the closing date.



-8-


 

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







 

 

 



 

 

 

Cash

   

$

11,088 

Accounts receivable, net

 

 

718 

Inventory

 

 

4,457 

Other assets

   

   

2,617 

Fixed assets

 

 

4,407 

Intangible assets

   

   

20,300 

Goodwill

   

   

1,125,036 

Total assets acquired

   

   

1,168,623 

Liabilities assumed

   

   

(458,123)

Net assets acquired

   

$

710,500 



The purchase price consists of the following:







 

 

 



 

 

 

Common stock

   

$

710,500 

Total purchase price

   

$

710,500 



-9-


 

The following information presents unaudited pro forma consolidated results of operations for the nine months ended September 30, 2015 as if the Livelenz acquisition described above had occurred on January 1, 2015. 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

Nine Months Ended September 30, 2015



 

 

 

 

 

 

 

 

 

 

 

 

 



 

Mobivity

 

Livelenz

 

Pro forma
adjustments

 

 

Pro forma
combined

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

3,335,080 

 

$

187,059 

 

$

 -

 

 

$

3,522,139 

Cost of revenues

 

 

820,455 

 

 

59,230 

 

 

 -

 

 

 

879,685 

Gross margin

 

 

2,514,625 

 

 

127,829 

 

 

 -

 

 

 

2,642,454 



 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

3,276,384 

 

 

64,297 

 

 

 -

 

 

 

3,340,681 

Sales and marketing

 

 

2,895,748 

 

 

191,180 

 

 

 -

 

 

 

3,086,928 

Engineering, research, and development

 

 

584,978 

 

 

 -

 

 

 -

 

 

 

584,978 

Depreciation and amortization

 

 

243,998 

 

 

2,819 

 

 

 -

 

 

 

246,817 

Total operating expenses

 

 

7,001,108 

 

 

258,296 

 

 

 -

 

 

 

7,259,404 



 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(4,486,483)

 

 

(130,467)

 

 

 -

 

 

 

(4,616,950)



 

 

 

 

 

 

 

 

 

 

 

 

 

Other income/(expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

1,054 

 

 

 -

 

 

 -

 

 

 

1,054 

Interest expense

 

 

 -

 

 

(31,658)

 

 

 -

 

 

 

(31,658)

Change in fair value of derivative liabilities

 

 

34,980 

 

 

 -

 

 

 -

 

 

 

34,980 

Intangible asset impairment

 

 

(21,188)

 

 

 -

 

 

 -

 

 

 

(21,188)

Gain on adjustment in contingent consideration

 

 

89,740 

 

 

 

 

 

 

 

 

 

89,740 

    Foreign Currency Gain/(Loss)

 

 

 -

 

 

30,426 

 

 

 -

 

 

 

30,426 

Total other income/(expense)

 

 

104,586 

 

 

(1,232)

 

 

 -

 

 

 

103,354 



 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(4,381,897)

 

 

(131,699)

 

 

 -

 

 

 

(4,513,596)



 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

 -

 

 

 -

 

 

 -

 

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(4,381,897)

 

$

(131,699)

 

$

 -

 

 

$

(4,513,596)



 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share - basic and diluted

 

$

(0.17)

 

 

 

 

 

 

 

 

$

(0.17)



 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares

  during the period - basic and diluted

 

 

25,973,592 

 

 

 

 

 

 

 

 

 

25,973,592 



 

4.  Goodwill and Purchased Intangibles



Goodwill



The carrying value of goodwill at September 30, 2016 and December 31, 2015 was $3,046,108 and $1,921,072, respectively.  



-10-


 

Intangible assets



The following table presents details of our purchased intangible assets as of September 30, 2016 and December 31, 2015:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Balance at
December 31,
2015

 

Additions

 

Impairments

 

Amortization

 

Fx and Other

 

Balance at

September 30,

2016

Patents and trademarks

 

$

78,931 

 

$

32,915 

 

$

 -

 

$

(7,789)

 

$

1,295 

 

$

105,352 

Customer and merchant relationships

 

 

1,373,513 

 

 

 -

 

 

 -

 

 

(124,865)

 

 

 -

 

 

1,248,648 

Non-compete agreement

 

 

 -

 

 

7,200 

 

 

 -

 

 

(5,599)

 

 

729 

 

 

2,330 

Trade name

 

 

135,567 

 

 

1,100 

 

 

 -

 

 

(12,495)

 

 

119 

 

 

124,291 

Acquired technology

 

 

187,298 

 

 

 -

 

 

 -

 

 

(17,027)

 

 

 -

 

 

170,271 



 

$

1,775,309 

 

$

41,215 

 

$

 -

 

$

(167,775)

 

$

2,143 

 

$

1,650,892 



The intangible assets are being amortized on a straight line basis over their estimated useful lives of one 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 $61,016 and $53,692 for the three months ended September 30, 2016 and 2015, respectively.



Amortization expense for intangible assets was $167,775 and $161,076 for the nine months ended September 30, 2016 and 2015, respectively.



The estimated future amortization expense of our intangible assets as of September 30, 2016 is as follows:







 

 

 



 

 

 

Year ending December 31,

 

Amount

2016

 

$

57,168 

2017

 

 

218,418 

2018

 

 

218,075 

2019

 

 

218,075 

2020

 

 

217,381 

Thereafter

 

 

721,775 

Total

 

$

1,650,892 

 

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, 2016 and December 31, 2015:







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Balance at
December 31,
2015

 

Additions

 

Amortization

 

Balance at
September 30,
2016

Software Development Costs

 

$

598,380 

 

$

442,267 

 

$

(323,002)

 

$

717,645 



 

$

598,380 

 

$

442,267 

 

$

(323,002)

 

$

717,645 



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 $134,590 and $50,262 for the three months ended September 30, 2016 and 2015, respectively.



Amortization expense for software development costs was $323,002 and $77,055 for the nine months ended September 30, 2016 and 2015, respectively.



-11-


 

The estimated future amortization expense of software development costs as of September 30, 2016 is as follows:







 

 

 



 

 

 

Year ending December 31,

 

Amount

2016

 

$

147,076 

2017

 

 

421,410 

2018

 

 

149,159 

2019

 

 

 -

2020

 

 

 -

Thereafter

 

 

 -

Total

 

$

717,645 

 

 

6.  Notes Payable and Interest Expense



The following table presents details of our notes payable as of September 30, 2016 and December 31, 2015:







 

 

 

 

 

 

 

 

 

 

Facility

 

Maturity

 

Interest Rate

 

Balance at

September 30,

2016

 

Balance at
December 31,
2015

  BDC Term Loan

 

December 15, 2017

 

12% 

 

$

343,665 

 

$

 -

  ACOA Note

 

May 1, 2021

 

-

 

 

65,209 

 

 

 -

  SVB Working Capital Line of Credit Facility

 

March 30, 2018

 

Variable

 

 

1,000,000 

 

 

 -

Total Debt

 

 

 

 

 

 

1,408,874 

 

 

 -

Less current portion

 

 

 

 

 

 

(1,283,085)

 

 

 -

Long-term debt, net of current portion

 

 

 

 

 

$

125,789 

 

$

 -



 

 

 

 

 

 

 

 

 

 

BDC Term Loan



On January 8, 2016, Livelenz (a wholly-owned subsidiary of the Company,) entered into an amendment of their original loan agreement dated August 26, 2011 with the Business Development Bank of Canada (“BDC”). Under this agreement the loan will mature, and the commitments will terminate on December 15, 2017.



ACOA Note



On April 29, 2016, Livelenz (a wholly-owned subsidiary of the Company), entered into an amendment of the original agreement dated December 2, 2014 with the Atlantic Canada Opportunities Agency (“ACOA”). Under this agreement the note will mature, repayments began on June 1, 2016, and the commitments will terminate on May 1, 2021.



SVB Working Capital Line of Credit Facility



In March 2016, we entered into a Working Capital Line of Credit Facility (the “Facility”) with Silicon Valley Bank (“SVB”) to provide up to $2 million to finance our general working capital needs. The Facility is funded based on cash on deposit balances and advances against our accounts receivable based on customer invoicing. Interest on Facility borrowings is calculated at rates between the prime rate minus 1.75% and prime rate plus 3.75% based on the borrowing base formula used at the time of borrowing. The Facility contains standard events of default, including payment defaults, breaches of representations, breaches of affirmative or negative covenants, and bankruptcy. During the nine months ended September 30, 2016, the Company borrowed $1,000,000, under this facility.



Under the terms of the Facility, the Company is obligated to pay a commitment fee on the available unused amount of the Facility commitments equal to 0.5% per annum.



The Company capitalized debt issuance costs of $32,287 as of September 30, 2016 related to the Facility, which are being amortized on a straight-line basis to interest expense over the two-year term of the Facility.



Interest Expense



Interest expense was $25,900 and $0 during the three months ended September 30, 2016 and 2015, respectively.



Interest expense was $52,960 and $0 during the nine months ended September 30, 2016 and 2015, respectively.

 

-12-


 

7.  Stockholders’ Equity



Common Stock



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.



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. 



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 293,125 warrants, exercisable for a period of five years from the closing date. We issued 234,500 warrants at an exercise price of $1.00 and 58,625 warrants at an exercise price of $1.20.



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.



2016



On January 15, 2016, we acquired all of the outstanding capital stock of LiveLenz in consideration of our issuance of 1,000,000 shares (“Consideration Shares”) of our common stock to the LiveLenz stockholders and our issuance of an additional 15,000 share of our common stock in satisfaction of certain liabilities of LiveLenz. The LiveLenz stockholders have agreed that 100% of the Consideration Shares will be escrowed for a period of 18 months and subject to forfeiture based on indemnification claims by us or the final determination of LiveLenz’ working capital as of the closing date. The Consideration Shares were valued using the closing price on the acquisition closing date of $0.70 per share for a total acquisition purchase price of $710,500.



In March 2016, we conducted the private placement of 3,256,000 shares of our common stock, at a price of $0.60 per share