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 June 30, 2017





 

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





 

 

 

 

Large accelerated filer

   

Accelerated filer

Non-accelerated filer 

(Do not check if a smaller reporting company)

   

Smaller reporting company 



 

 

Emerging Company



 

 

 

 



 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.



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



As of July 31, 2017, the registrant had 36,450,961 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

16 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

21 

Item 4.

Controls and Procedures

21 

Item 6.

Exhibits

21 

   

 

Signature Page

22 



 

-i-



 

 


 

Table of Contents

 

Part I - Financial Information

Item 1.  Financial Statements

Mobivity Holdings Corp.

Condensed Consolidated Balance Sheets







 

 

 

 

 

 



 

 

 

 

 

 



 

June 30,

 

December 31,



 

2017

 

2016



 

(Unaudited)

 

(Audited)

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$

574,900 

 

$

1,188,485 

Restricted cash

 

 

1,000,000 

 

 

1,000,000 

Accounts receivable, net of allowance for doubtful accounts of $1,959 and $15,503, respectively

 

 

702,199 

 

 

1,244,484 

Other current assets

 

 

216,462 

 

 

179,376 

Total current assets

 

 

2,493,561 

 

 

3,612,345 

Goodwill

 

 

803,118 

 

 

803,118 

Intangible assets, net

 

 

777,082 

 

 

627,119 

Other assets

 

 

98,289 

 

 

109,776 

TOTAL ASSETS

 

$

4,172,050 

 

$

5,152,358 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

797,911 

 

$

701,347 

Accrued interest

 

 

9,166 

 

 

2,020 

Accrued and deferred personnel compensation

 

 

626,670 

 

 

671,677 

Deferred revenue and customer deposits

 

 

985,363 

 

 

160,023 

Notes payable, net - current maturities

 

 

1,168,483 

 

 

1,011,910 

Other current liabilities

 

 

101,247 

 

 

115,051 

Total current liabilities

 

 

3,688,840 

 

 

2,662,028 



 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

Notes payable, net - long term

 

 

262,826 

 

 

361,166 

Total non-current liabilities

 

 

262,826 

 

 

361,166 

Total liabilities

 

 

3,951,666 

 

 

3,023,194 

Commitments and Contingencies (See Note 9)

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Common stock, $0.001 par value; 100,000,000 shares authorized; 36,450,961 and 36,388,981, shares issued and outstanding 

 

 

36,451 

 

 

36,389 

Equity payable

 

 

100,862 

 

 

100,862 

Additional paid-in capital

 

 

77,433,911 

 

 

76,698,383 

Accumulated other comprehensive loss

 

 

(48,863)

 

 

(32,999)

Accumulated deficit

 

 

(77,301,977)

 

 

(74,673,471)

Total stockholders' equity

 

 

220,384 

 

 

2,129,164 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

4,172,050 

 

$

5,152,358 



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



-1-


 

Table of Contents

 

Mobivity Holdings Corp.

Condensed Consolidated Statements of Income and Comprehensive Income 

(Unaudited)







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Six Months Ended



 

June 30,

 

June 30,



 

2017

 

2016

 

2017

 

2016

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

2,238,680 

 

$

2,074,713 

 

$

4,351,984 

 

$

3,919,805 

Cost of revenues

 

 

599,736 

 

 

504,964 

 

 

1,157,126 

 

 

909,910 

Gross profit

 

 

1,638,944 

 

 

1,569,749 

 

 

3,194,858 

 

 

3,009,895 



 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

845,928 

 

 

988,660 

 

 

1,863,893 

 

 

2,074,761 

Sales and marketing

 

 

868,473 

 

 

1,000,138 

 

 

1,836,185 

 

 

2,013,740 

Engineering, research, and development

 

 

1,073,189 

 

 

383,770 

 

 

1,901,234 

 

 

945,118 

Depreciation and amortization

 

 

99,458 

 

 

161,196 

 

 

168,203 

 

 

307,447 

Total operating expenses

 

 

2,887,048 

 

 

2,533,764 

 

 

5,769,515 

 

 

5,341,066 



 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(1,248,104)

 

 

(964,015)

 

 

(2,574,657)

 

 

(2,331,171)



 

 

 

 

 

 

 

 

 

 

 

 

Other income/(expense)

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

1,012 

 

 

1,385 

 

 

1,916 

 

 

1,753 

Interest expense

 

 

(31,501)

 

 

(19,546)

 

 

(52,607)

 

 

(27,063)

Foreign currency (loss) gain

 

 

(528)

 

 

(14,287)

 

 

(3,158)

 

 

1,104 

Total other income/(expense)

 

 

(31,017)

 

 

(32,448)

 

 

(53,849)

 

 

(24,206)

Loss before income taxes

 

 

(1,279,121)

 

 

(996,463)

 

 

(2,628,506)

 

 

(2,355,377)

Income tax expense

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Net loss

 

 

(1,279,121)

 

 

(996,463)

 

 

(2,628,506)

 

 

(2,355,377)

Other comprehensive loss, net of income tax

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(10,643)

 

 

17,897 

 

 

(15,864)

 

 

(45,322)

Comprehensive loss

 

$

(1,289,764)

 

$

(978,566)

 

$

(2,644,370)

 

$

(2,400,699)



 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share - basic and diluted

 

$

(0.04)

 

$

(0.03)

 

$

(0.07)

 

$

(0.07)

Weighted average number of shares
during the period - basic and diluted

 

 

36,391,063 

 

 

33,059,007 

 

 

36,390,030 

 

 

31,409,661 



 

 

 

 

 

 

 

 

 

 

 

 



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

 

-2-


 

Table of Contents

 

Mobivity Holdings Corp.

Consolidated Statement of Stockholders’ Equity







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Common Stock

 

Equity

 

Additional

 

Accumulated Other

 

Accumulated

 

 

Total Stockholders'



 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive

 

 

 

 

 

 



 

Shares

 

Dollars

 

Payable

 

Paid-in Capital

 

Loss

 

Deficit

 

 

Equity (Deficit)

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 

Issuance of common stock for warrant conversion

 

3,329,990 

 

 

3,330 

 

 

 -

 

 

2,535,858 

 

 

 -

 

 

 -

 

 

2,539,188 

Stock based compensation

 

 -

 

 

 -

 

 

 -

 

 

1,599,169 

 

 

 -

 

 

 -

 

 

1,599,169 

Foreign currency translation adjustment

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(32,999)

 

 

 -

 

 

(32,999)

Net loss

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(9,514,461)

 

 

(9,514,461)

Balance, December 31, 2016

 

36,388,981 

 

$

36,389 

 

$

100,862 

 

$

76,698,383 

 

$

(32,999)

 

$

(74,673,471)

 

$

2,129,164 

Issuance of common stock for options exercised

 

61,980 

 

 

62 

 

 

 -

 

 

29,688 

 

 

 -

 

 

 -

 

 

29,750 

Stock based compensation

 

 -

 

 

 -

 

 

 -

 

 

705,840 

 

 

 -

 

 

 -

 

 

705,840 

Foreign currency translation adjustment

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(15,864)

 

 

 -

 

 

(15,864)

Net loss

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(2,628,506)

 

 

(2,628,506)

Balance, June 30, 2017

 

36,450,961 

 

$

36,451 

 

$

100,862 

 

$

77,433,911 

 

$

(48,863)

 

$

(77,301,977)

 

$

220,384 



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

 

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Table of Contents

 



Mobivity Holdings Corp.

Consolidated Statements of Cash Flows

(Unaudited)







 

 

 

 

 

 



 

 

 

 

 

 



 

Six Months Ended



 

June 30,



 

2017

 

2016

OPERATING ACTIVITIES

 

 

 

 

 

 

   Net loss

 

$

(2,628,506)

 

$

(2,355,377)

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

 

 

 

 

 

 

      Bad debt expense

 

 

(9,101)

 

 

11,081 

      Amortization of deferred financing costs

 

 

12,237 

 

 

4,351 

      Stock-based compensation

 

 

705,840 

 

 

799,193 

      Depreciation and amortization expense

 

 

168,203 

 

 

307,447 

   Increase (decrease) in cash resulting from changes in:

 

 

 

 

 

 

      Accounts receivable

 

 

551,557 

 

 

(168,190)

      Other current assets

 

 

(37,005)

 

 

(60,237)

      Other assets

 

 

225 

 

 

17,700 

      Accounts payable

 

 

96,247 

 

 

106,044 

      Accrued interest

 

 

7,146 

 

 

3,026 

      Accrued and deferred personnel compensation

 

 

(46,043)

 

 

19,361 

      Deferred revenue and customer deposits

 

 

825,089 

 

 

222,487 

      Other liabilities

 

 

(13,911)

 

 

(69,440)

Net cash provided by (used in) operating activities

 

 

(368,022)

 

 

(1,162,554)

INVESTING ACTIVITIES

 

 

 

 

 

 

   Purchases of equipment

 

 

(2,489)

 

 

(9,753)

    Acquisitions

 

 

 -

 

 

10,730 

    Cash paid for patent

 

 

(9,780)

 

 

(12,700)

    Capitalized software development costs

 

 

(294,199)

 

 

(342,381)

Net cash used in investing activities

 

 

(306,468)

 

 

(354,104)

FINANCING ACTIVITIES

 

 

 

 

 

 

    Deferred financing costs

 

 

(15,000)

 

 

(32,287)

    Proceeds (repayments) from notes payable

 

 

46,410 

 

 

(1,152)

    Proceeds from issuance of common stock, net of issuance costs

 

 

29,750 

 

 

1,953,600 

Net cash provided by financing activities

 

 

61,160 

 

 

1,920,161 



 

 

 

 

 

 

Effect of foreign currency translation on cash flow

 

 

(255)

 

 

(1,769)



 

 

 

 

 

 

Net change in cash

 

 

(613,585)

 

 

401,734 

Cash at beginning of period

 

 

1,188,485 

 

 

634,129 

Cash at end of period

 

$

574,900 

 

$

1,035,863 

Supplemental disclosures:

 

 

 

 

 

 

Cash paid during period for:

 

 

 

 

 

 

    Interest

 

$

52,607 

 

$

27,063 

Non-cash investing and financing activities:

 

 

 

 

 

 



 

 

 

 

 

 

    Restricted cash proceeds from line of credit

 

$

 -

 

$

1,000,000 



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



 

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Table of Contents

 

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 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, 2016 filed with the SEC on March 31, 2017.



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 June 30, 2017, and for the three and six months ended June 30, 2017 and 2016. The results of operations for the three and six months ended June 30, 2017 are not necessarily indicative of the operating results for the full year ending December 31, 2017

 

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 June 30, 2017, the Company recorded an advance of $776,212 against certain receivables under their Working Capital Line of Credit Facility in accordance with the agreement.



As of June 30, 2017 and December 31, 2016, we recorded an allowance for doubtful accounts of $1,959 and $15,503, respectively.

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Table of Contents

 



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.

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Table of Contents

 



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 six months ended June 30, 2017,  two customers accounted for 71% of our revenues. During the six months ended June 30, 2016, one customer accounted for 47% 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 six months ended June 30, 2017, the comprehensive loss was $1,289,764 and $2,644,370, respectively. For the three and six months ended June 30, 2016,  the comprehensive loss was $978,566 and $2,400,699, respectively.



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 six months ended June 30, 2017 and 2016, 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.









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

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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.



In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which removes the second step of the two-step goodwill impairment test. Under ASU 2017-04, an entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. ASU 2017-04 does not amend the optional qualitative assessment of goodwill impairment. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019; early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently in the process of evaluating the impact of adopting ASU 2017-04 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’s 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’s working capital as of the closing date. As of the date of this report, no adjustments have been made to the working capital and the Consideration Shares have been issued to the Livelenz stockholders.



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

 

 

 -

Other assets

   

   

2,617 

Fixed assets

 

 

4,407 

Intangible assets

   

   

20,300 

Goodwill

   

   

1,129,493 

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 



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The following information presents unaudited pro forma consolidated results of operations for the six months ended June 30, 2016 as if the Livelenz acquisition described above had occurred on January 1, 2016. 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

Six Months Ended June 30, 2016



 

 

 

 

 

 

 

 

 

 

 

 

 



 

Mobivity

 

Livelenz

 

Pro forma
adjustments

 

 

Pro forma
combined

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

3,919,805 

 

$

4,300 

 

$

 -

 

 

$

3,924,105 

Cost of revenues

 

 

909,910 

 

 

120 

 

 

 -

 

 

 

910,030 

Gross margin

 

 

3,009,895 

 

 

4,180 

 

 

 -

 

 

 

3,014,075 



 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

2,074,761 

 

 

20,071 

 

 

 -

 

 

 

2,094,832 

Sales and marketing

 

 

2,013,740 

 

 

7,087 

 

 

 -

 

 

 

2,020,827 

Engineering, research, and development

 

 

945,118 

 

 

 -

 

 

 -

 

 

 

945,118 

Depreciation and amortization

 

 

307,447 

 

 

76 

 

 

 -

 

 

 

307,523 

Total operating expenses

 

 

5,341,066 

 

 

27,234 

 

 

 -

 

 

 

5,368,300 



 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(2,331,171)

 

 

(23,054)

 

 

 -

 

 

 

(2,354,225)



 

 

 

 

 

 

 

 

 

 

 

 

 

Other income/(expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

1,753 

 

 

 -

 

 

 -

 

 

 

1,753 

Interest expense

 

 

(27,063)

 

 

(3,452)

 

 

 -

 

 

 

(30,515)

Foreign Currency Gain/(Loss)

 

 

1,104 

 

 

 -

 

 

 -

 

 

 

1,104 

Total other income/(expense)

 

 

(24,206)

 

 

(3,452)

 

 

 -

 

 

 

(27,658)



 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(2,355,377)

 

 

(26,506)

 

 

 -

 

 

 

(2,381,883)



 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

 -

 

 

 -

 

 

 -

 

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(2,355,377)

 

$

(26,506)

 

$

 -

 

 

$

(2,381,883)

Other comprehensive loss, net of income tax

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(45,322)

 

 

 -

 

 

 -

 

 

 

(45,322)

Comprehensive loss

 

$

(2,400,699)

 

$

(26,506)

 

$

 -

 

 

$

(2,427,205)



 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share - basic and diluted

 

$

(0.07)

 

 

 

 

 

 

 

 

$

(0.08)



 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares

  during the period - basic and diluted

 

 

31,409,661 

 

 

 

 

 

 

 

 

 

31,409,661 



 

4.  Goodwill and Purchased Intangibles



Goodwill



The carrying value of goodwill at June 30, 2017 and December 31, 2016 was $803,118.  



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Intangible assets



The following table presents details of our purchased intangible assets as of June 30, 2017 and December 31, 2016:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Balance at
December 31,
2016

 

Additions

 

Impairments

 

Amortization

 

Fx and Other

 

Balance at

June 30,

2017

Patents and trademarks

 

$

112,537 

 

$

9,780 

 

$

 -

 

$

(5,916)

 

$

324 

 

$

116,725 

Customer and merchant relationships

 

 

178,000 

 

 

 -

 

 

 -

 

 

(12,276)

 

 

 -

 

 

165,724 

Trade name

 

 

47,659 

 

 

 -

 

 

 -

 

 

(3,308)

 

 

30 

 

 

44,381 



 

$

338,196 

 

$

9,780 

 

$

 -

 

$

(21,500)

 

$

354 

 

$

326,830 



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



Amortization expense for intangible assets was $12,177 and $58,321 for the three months ended June 30, 2017 and 2016, respectively.



Amortization expense for intangible assets was $21,500 and $111,701 for the six months ended June 30, 2017 and 2016, respectively.



The estimated future amortization expense of our intangible assets as of June 30, 2017 is as follows:







 

 

 



 

 

 

Year ending December 31,

 

Amount

2017

 

$

19,212 

2018

 

 

43,000 

2019

 

 

43,000 

2020

 

 

43,000 

2021

 

 

40,516 

Thereafter

 

 

138,102 

Total

 

$

326,830 

 

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 June 30, 2017 and December 31, 2016:







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Balance at
December 31,
2016

 

Additions

 

Amortization

 

Balance at

June 30,

2017

Software Development Costs

 

$

288,923 

 

$

294,199 

 

$

(132,870)

 

$

450,252 



 

$

288,923 

 

$

294,199 

 

$

(132,870)

 

$

450,252 



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 $81,822 and $98,949 for the three months ended June 30, 2017 and 2016, respectively.



Amortization expense for software development costs was $132,870 and $188,411 for the six months ended June 30, 2017 and 2016, respectively.



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The estimated future amortization expense of software development costs as of June 30, 2017 is as follows:







 

 

 



 

 

 

Year ending December 31,

 

Amount

2017

 

$

171,814 

2018

 

 

235,669 

2019

 

 

42,769 

2020

 

 

 -

2021

 

 

 -

Thereafter

 

 

 -

Total

 

$

450,252 

 

 

6.  Notes Payable and Interest Expense



The following table presents details of our notes payable as of June 30, 2017 and December 31, 2016:







 

 

 

 

 

 

 

 

 

 

Facility

 

Maturity

 

Interest Rate

 

Balance at
June 30,
2017

 

Balance at
December 31,
2016

  BDC Term Loan

 

December 15, 2018

 

12% 

 

$

345,066 

 

$

333,260 

  ACOA Note

 

May 1, 2021

 

-

 

 

109,602 

 

 

59,995 

  SVB Working Capital Line of Credit Facility

 

March 30, 2018

 

Variable

 

 

976,641 

 

 

979,821 

Total Debt

 

 

 

 

 

 

1,431,309 

 

 

1,373,076 

Debt discount

 

 

 

 

 

 

23,784 

 

 

21,003 

Less current portion

 

 

 

 

 

 

(1,192,267)

 

 

(1,032,913)

Long-term debt, net of current portion

 

 

 

 

 

$

262,826 

 

$

361,166 



 

 

 

 

 

 

 

 

 

 

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, 2018.  



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. As of June 30, 2017, the Company owes $976,641, 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 $42,287 as of June 30, 2017 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 $31,501 and $19,546 during the three months ended June 30, 2017 and 2016, respectively.



Interest expense was $52,607 and $27,063 during the six months ended June 30, 2017 and 2016, respectively.

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7.  Stockholders’ Equity



Common Stock



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’s 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. As of the date of this report, 100% of the Consideration Shares have been issued to LiveLenz stockholders.



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, for the gross proceeds of $1,953,600. The offering was conducted by our management and no commission or other selling fees were paid by us. Pursuant to the terms of the offering, we entered into registration rights agreement with the investors pursuant to which we agreed to file with the SEC a resale registration statement covering the common shares. The registration statement was declared effective by the SEC on August 8, 2016.



On October 31,2016, we issued 3,329,990 shares of our common stock, at a price of $0.70 per share, for the gross proceeds of $2,330,993.  



2017



On June 27, 2017, we issued 61,980 shares of our common stock, at a price of $0.48 per share, for the gross proceeds of $29,750 in conjunction with one employee that exercised vested stock options.



As of June 30, 2017 and December 31, 2016 we had an equity payable balance of $100,862.



Stock-based Plans



Stock Option Activity



The following table summarizes stock option activity for the year ended December 31, 2016 and for the six months ended June 30, 2017:







 

 



 

 

   

   

Options

Outstanding at December 31, 2015

   

5,043,228 

Granted

   

1,771,500 

Exercised

   

 -

Forfeit/canceled

 

(577,817)

Expired

   

(479,031)

Outstanding at December 31, 2016

   

5,757,880 

Granted

   

2,577,500 

Exercised

   

(61,980)

Forfeit/canceled

 

(1,093,694)

Expired

   

(142,995)

Outstanding at June 30, 2017

   

7,036,711 



 

 



The weighted average exercise price of stock options granted during the period was $0.62 and the related weighted average grant date fair value was $0.45 per share.



2016



On January 15, 2016, the Company granted four employees 167,500 options to purchase shares of the Company common stock at the closing price as of January 15, 2016 of $0.70 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 15, 2026. The total estimated value using the Black-Scholes Model, based on a volatility rate of 114% and a call option value of $0.59 was $98,825.

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On January 19, 2016, the Company granted one employee 500,000 options to purchase shares of the Company common stock at the closing price as of January 19, 2016 of $0.70 per share. The options vest 300,000 in equal monthly installments over 48 months, 100,000 upon a four-year cliff or $13 million in annual reported revenue, whichever is earlier to occur, and 100,000 upon a four-year cliff or $22 million in annual reported revenue, whichever is earlier to occur and are exercisable until January 15, 2026. The total estimated value using the Black-Scholes Model, based on a volatility rate of 114% and a call option value of $0.59 was $295,000.



On March 24, 2016, the Company granted nine employees 258,000 options to purchase shares of the Company common stock at the closing price as of March 24, 2016 of $0.70 per share. The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until March 24, 2026. The total estimated value using the Black-Scholes Model, based on a volatility rate of 114% and a call option value of $0.59 was $152,220.



On August 23, 2016, the Company granted four employees 695,000 options to purchase shares of the Company common stock at the closing price as of August 23, 2016 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 23, 2026. The total estimated value using the Black-Scholes Model, based on a volatility rate of 114% and a call option value of $0.63 was $440,573.



On November 17, 2016, the Company granted three employees 150,000 options to purchase shares of the Company common stock at the closing price as of November 17, 2016 of $0.70 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 17, 2026. The total estimated value using the Black-Scholes Model, based on a volatility rate of 114% and a call option value of $0.59 was $89,048.



2017



On March 23, 2017, the Company granted seven employees 322,500 options to purchase shares of the Company common stock at the closing price as of March 23, 2017 of $0.72 per share. The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until March 23, 2027. The total estimated value using the Black-Scholes Model, based on a volatility rate of 86% and an option value of $0.52 was $167,700.



On May 15, 2017, the Company granted eight employees 2,105,000 options to purchase shares of the Company common stock at the closing price as of May 15, 2017 of $0.60 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 15, 2027. The total estimated value using the Black-Scholes Model, based on a volatility rate of 85% and an option value of $0.43 was $905,150.



On June 28, 2017, the Company granted two employees 150,000 options to purchase shares of the Company common stock at the closing price as of June 28, 2017 of $0.76 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 28, 2027. The total estimated value using the Black-Scholes Model, based on a volatility rate of 86% and an option value of $0.55 was $82,500.



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 six months ended June 30, 2017 and 2016 were as follows:







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Six Months Ended



 

June 30,

 

June 30,



 

2017

 

2016

 

2017

 

2016

General and administrative

 

$

224,817 

 

$

232,003 

 

$

447,361 

 

$

485,990 

Sales and marketing

 

 

31,440 

 

 

81,658 

 

 

63,604 

 

 

172,001 

Engineering, research, and development

 

 

55,749 

 

 

38,599 

 

 

75,935 

 

 

83,615 



 

$

312,006 

 

$

352,260 

 

$

586,900 

 

$

741,606 



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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 six months ended June 30, 2017 and 2016.







 

 

 

 

 

 



 

 

 

 

 

 

   

   

Six Months Ended



 

June 30,

   

   

2017

 

2016

Risk-free interest rate

   

1.97 

%

 

1.56 

%

Expected life (years)

   

6.00 

 

 

6.00 

 

Expected dividend yield

   

 -

%

 

 -

%

Expected volatility

   

85 

%

 

114 

%



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 2017 and 2016 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 for the year ended December 31, 2016 and for the six months ended June 30, 2017:



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

   

 

Shares