UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549



FORM 10-K



[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

For the fiscal year ended December 31, 2020

Or

[ ] 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.)



3133 West Frye Road,  # 215

Chandler,  Arizona 85226

(Address of Principal Executive Offices and Zip Code)



(877)  282-7660

(Telephone Number)



Securities registered pursuant to Section 12 (b) of the Act:

None



Securities registered pursuant to section 12 (g) of the Act:

Common Stock, $.001 par value



Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes     No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes     No 

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 every Interactive Data File required to be submitted 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”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):



 

 

 

 



 

 

 

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company



 

 

Emerging growth 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes  No

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 30, 2020 was $26,270,789.

As of March 23, 2021, the registrant had 55,410,695 shares of common stock issued and outstanding. 


 

MOBIVITY HOLDINGS CORP.

ANNUAL REPORT ON FORM 10-K

FISCAL YEAR ENDED DECEMBER 31, 2020

TABLE OF CONTENTS





 

 



 

Page

Part I

 

1

 

 

 

Item 1.

Business

1

Item 1A.

Risk Factors

10

Item 1B.

Unresolved Staff Comments

13

Item 2.

Properties

14

Item 3.

Legal Proceedings

14

Item 4.

Not Applicable

14

 

 

 

Part II

 

14

 

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

14

Item 6.

Selected Financial Data

15

Item 7.

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

15

Item 8.

Financial Statements and Supplementary Data

22

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

47

Item 9A.

Controls and Procedures

47

Item 9B.

Other Information

48

 

 

 

Part III

 

48

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

48

Item 11.

Executive Compensation

51

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

53

Item 13.

Certain Relationships and Related Transactions, and Director Independence

54

Item 14.

Principal Accounting Fees and Services

54

 

 

 

Part IV

 

55

 

 

 

Item 15.

Exhibits and Financial Statement Schedules

55

 

 

 

Signatures

 

57

 

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FORWARD-LOOKING STATEMENTS



This Annual Report on Form 10-K, or Form 10-K, contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially and adversely from those expressed or implied by such forward-looking statements. The forward-looking statements are contained principally in Item 1—“Business,” Item 1.A—“Risk Factors” and Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” but appear throughout the Form 10-K. Examples of forward-looking statements include, but are not limited to our expectations, beliefs or intentions regarding our potential product offerings, business, financial condition, results of operations, strategies or prospects and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing. These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “opportunity,” “plan,” “potential,” “predicts,” “seek,” “should,” “will,” or “would,” and similar expressions and variations or negatives of these words. These forward-looking statements are based on the expectations, estimates, projections, beliefs and assumptions of our management based on information currently available to management, all of which are subject to change. Such forward-looking statements are subject to risks, uncertainties and other factors that are difficult to predict and could cause our actual results and the timing of certain events to differ materially and adversely from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below in Item 1.A – “Risk Factors”. Furthermore, such forward-looking statements speak only as of the date of this Form 10-K. We undertake no obligation to update or revise publicly any forward-looking statements to reflect events or circumstances after the date of such statements for any reason, except as otherwise required by law.

 

Part I



Item 1.    Business



General Information



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 marketing campaigns. 



Mobivity’s Recurrency platform enables multi-unit retailers to leverage the power of their own data to yield maximum customer spend, frequency and loyalty while achieving the highest Return on Marketing Spend (ROMS) possible. Mobivity’s customers use Recurrency to:

 

·

Transform messy point-of-sale (POS) data collected from thousands of points of sale into usable intelligence.

·

Measure, predict, and boost guest frequency and spend by channel.

·

Deploy and manage one-time use offer codes and attribute sales accurately across every channel, promotion and media program.

·

Deliver 1:1 promotions and offers with customized Mobile Messaging, Personalized Receipt Promotions and Integrated Loyalty programs.

 

Mobivity’s Recurrency, delivered as a Software-as-a-Service (“SaaS”) platform, is used by leading brands including Subway, Sonic Drive-In, Chick-fil-A,  Checkers/Rally’s and Circle K’s across more than 40,000 retail locations globally.

 

We’re living in a data-driven economy. In fact, by 2003 — when the concept of “big data” became common vernacular in marketing - as much data was being created every two day as had been created in all of time prior to 2003. Today, Big Data has grown at such a rate that 90% of the world’s data has been created in the past two years. Unfortunately, despite there being so much data accumulated, only one percent of data is being utilized today by most businesses.



The challenge for multi-unit retailers isn’t that they don’t have enough data; in fact, national retailers are collecting millions of detailed transactions daily from thousands of points of sale around the world. The challenge is being able to make sense of this transaction data, which is riddled with data entry errors, collected by multiple POS systems and complicated by a taxonomy compiled by thousands of different franchisee owners. To normalize such an overwhelming amount of data into usable intelligence and then leverage it to optimize media investment and promotion strategy requires numerous teams of data analysts and data scientists that many retailers and restaurant operators simply don’t have. Which is why so many technology and data companies, that can help solve these challenges, have been invested in and acquired by brands including, McDonald’s, Starbucks and Yum Brands.



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Mobivity’s Recurrency platform fills this need with a self-service SaaS offering, enabling operators to intelligently optimize their promotions, media and marketing spend. Recurrency drives system-wide sales producing on average a 13% increase in guest spend and a 26% improvement in frequency, ultimately delivering an average Return on Marketing Spend of 10X. In other words, for every dollar invested in marketing, retailers using Recurrency to manage, optimize and deliver multi-channel consumer promotions generate an average of ten dollars in incremental revenue from their customers.

   

The Recurrency Platform

Mobivity's Recurrency platform unlocks valuable POS and mobile data to help transform customer transactions into actionable and attributable marketing insights. Our technology provides transactional data, in real-time, that uncovers market-basket information and attributes both online and traditional promotions.  Recurrency is comprised of seven components.



POS Data Capture

Recurrency captures, normalizes, integrates, and stores transaction data and is compatible with most POS systems  used by restaurants and retailers today. The result is a clean useful dataset upon which to predict and influence customers’ buying behavior and deliver basket-level insights.



Analytics Powered by Machine Learning 

Recurrency uses Machine Learning (“ML”) to uncover patterns in the buying behaviors of consumers and leverages that data to suggest pricing optimizations, and guide marketing campaigns.



Offers and Promotions

Recurrency provides a digital wallet system for creating and managing dynamic offers and promotions, enabling accurate and complete closed-loop attribution across all channels, media and marketing efforts. Retailers can deploy one-time, limited-use and multi-use promotions across all online and offline marketing channels that are scannable at the POS or redeemable online, enabling fraud-free, controllable promotion delivery and attribution at scale. Marketing teams can use the comprehensive attribution analysis and insights to optimize media mix and spend for maximum Return on Marketing Spend (“ROMS”).



Predictive Offers

Recurrency leverages the normalized data captured at the POS and applies Artificial Intelligence (“AI”) to build profiles of both known and anonymous customers, analyzes pre and post-redemption behavior and then predicts offers that will drive the highest increases in customer spend and frequency at the lowest discount possible. The result is optimized, personalized promotions that produce the highest ROMS possible.



Personalized Receipt Promotions

Recurrency unlocks the power of transactional data to create relevant and timely customer messages printed on the receipts already being generated at the POS. Both clients and agencies are using Recurrency to drive better results and make decisions around offers, promotions, and customer engagement through the medium of the printed receipt. Software integrated with leading POS systems, such as Oracle, MICROS, or installed directly onto receipt printer platforms, such as Epson’s OmniLink product, dynamically controls what is printed on receipts including images, coupons, announcements, or other calls-to-action, such as invitations to participate in a survey. Recurrency offers a Web-based interface where users can design receipt content and implement business rules to dictate what receipt content is printed in particular situations. All receipt content is also transmitted to cloud-based Recurrency for storage and analysis.



Customized Mobile Messaging

Recurrency transforms standard short message service (“SMS”), multimedia messaging service (“MMS”), and rich communication services (“RCS”) into a data-driven marketing medium. Recurrency tracks and measures offer effectiveness at a more granular level than other solutions, allowing clients to create smarter offers and drive higher redemption rates. Our proprietary platform connects to all wireless carriers so that any consumer, on any wireless service (for example, Verizon), can join our customer’s SMS/MMS mobile marketing campaign. Our customers use Recurrency’s self-service interface to build, segment, target and optimize mobile messaging campaigns to drive increased guest frequency and spend. Recurrency is an industry leader in RCS messaging and has an industry leading broadcast reach.



Belly Loyalty

Mobivity’s Belly Loyalty solution drives increased customer engagement and freqency with a customer-facing digital rewards platform via an app and digital pad. Using Belly, customers can customize rewards and leverage pre-built email campaigns and triggers to encourage greater frequency as well as identify and reactivate lapsed customers.



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Company Strategy



Our objective is to build an industry-leading Software-as-a-Service (SaaS) product that connects consumers to merchants and brands. The key elements to our strategy are:



·

Exploit the competitive advantages and operating leverage of our technology platform. The core of our business is our proprietary POS Data Capture technology. Several years of development went into designing POS Data Capture such that the process of intercepting POS data and performing actions, such as controlling the receipt printer with receipt is scalable, portable to a wide variety of POS platforms, and does not impact performance factors including the print speed of a typical receipt printer. Furthermore, we believe the transmission of POS data to Mobivity’s cloud-based data stores presents a very competitive and innovative method of enabling POS data access. Additionally, we believe that our Recurrency platform is more advanced than technologies offered by our competitors and provides us with a significant competitive advantage. With more than ten years of development, we believe that our platform operates SMS/MMS text messaging transactions at a “least cost” relative to competitors while also being capable of supporting SMS/MMS text messaging transactional volume necessary to support our goal of several thousand end users. Leveraging our Recurrency platform allows for full attribution of SMS/MMS offers, which we believe is a unique combination of both SMS/MMS text messaging and POS data.

·

Evolve our sales and customer support infrastructure to uniquely serve very large customer implementations such as franchise-based brands who operate a large number of locations. Over the past few years we have focused our efforts on the development of our technology and solutions with the goal of selling and supporting small and medium-sized businesses. Going forward, we intend to increase significantly our investments in sales and customer support resources tailored to selling to customers that operate franchise brands. Today we support more than 30,000 merchant locations globally.

·

Acquire complementary businesses and technologies. We will continue to search and identify unique opportunities which we believe will enhance our product features and functionality, revenue goals, and technology. We intend to target companies with some or all of the following characteristics: (1) an established revenue base; (2) strong pipeline and growth prospects; (3) break-even or positive cash flow; (4) opportunities for substantial expense reductions through integration into our platform; (5) strong sales teams; and (6) technology and services that further build out and differentiate our platform. Our acquisitions have historically been consummated through the issuance of a combination of our common stock and cash.

·

Build our intellectual property portfolio. We currently have nine issued patents that we believe have significant potential application in the technology industry. We plan to continue our investment in building a strong intellectual property portfolio.



While these are the key elements of our current strategy, there can be no guarantees that our strategy will not change or that our strategy will be successful.



Recent Developments



We have entered into the following material transactions since January 1, 2019.



Unsecured Promissory Note Investments in 2019



During the year ended December 31, 2019, we conducted a private placement of Unsecured Promissory Notes (individually, a “Note” and collectively, the “Notes”) to one of our directors, in the principal aggregate amount of $3,500,000, which are due and payable two years after issuance. These Notes bear interest on the unpaid balance at the rate of fifteen percent (15%) per annum. The Company may prepay any of the Notes without notice, subject to a two percent (2%) pre-payment penalty. We conducted the private placement of our securities in July 2019. The Note holder participated in the private placement described below, by settling principal of $2,500,000 and accrued interest under the notes totaling  $82,916,  into 2,582,916 units of our securities.  The remaining 2019 Notes for $1,000,000 aggregated principal were settled with the December 2020 private placement described below.



2019 Private Placement



In July 2019, we commenced a private placement of 7,000,000 units of our securities, at a price of $1.00 per unit. Each unit consists of one share of our common stock and a common stock purchase warrant to purchase one-half share of our common stock, over a two- year period, at an exercise price of $1.25 per share. The offering was conducted by our management and no commission or other selling fees were paid by us.  During the year ended December 31, 2019 we issued 5,382,916 units under this placement, of which 2,582,916 units were issued in connection with a conversion of $2,582,916 of principal and accrued interest under the unsecured promissory Notes described in the preceding paragraph.



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Unsecured Promissory Note Investments in 2020



During the year ended December 31, 2020, we issued to one of our directors, unsecured Notes in the principal aggregate amount of $700,000, which are due and payable two years after issuance.  These Notes bear interest on the unpaid balance at the rate of fifteen percent (15%) per annum.  The Company may prepay any of the Notes without notice, subject to a two percent (2%) pre-payment penalty.  We conducted the private placement of our securities in December 2020. The Note holder participated in the warrant exercise described below and settled principal of $1,200,000 of principal under our 2019 and 2020 private placement Notes in addition to accrued interest under the notes totaling $192,208, into 1,113,767 shares of our common stock.  As of December 31, 2020, we have $500,000 as a remaining balance of these 2020 Notes and accrued interest of $8,958.



On April 10, 2020, we entered into a commitment loan with Chase Bank, N.A. under the CARES act and SBA Paycheck Protection Program, in the principal aggregate amount of $891,103, which is due and payable two years after issuance.  This note bears interest on the unpaid balance at the rate of one percent (1%) per annum.  The note contains a deferral period of six months, for which no interest or principal payments are due.  Forgiveness of the loan may be obtained by meeting certain SBA requirements.



On April 22, 2020, we entered into a commitment loan with TD Bank under the Canadian Emergency Business Account (“CEBA”), in the principal aggregate amount of $40,000 CAD, which is due and payable on December 31, 2022.  This note bears interest on the unpaid balance at the rate of zero percent (0%) per annum during the initial term.  Under this note no interest or principal payments are due until January 1, 2023.  Under the conditions of the loan, twenty-five percent (25%) of the loan will be forgiven if seventy-five percent (75%) is repaid prior to the initial term date.



2020 Warrant Exercises 



On March 2, 2020 one warrant holder exercised their common stock purchase warrant for 234,500 shares at the exercise price of $1.00 per share, resulting in additional capital of $234,500.  In December, 2020, warrant holders exercised warrants to purchase common stock at $1.25 per share.  At the commencement of the December warrant exercise, there were warrants outstanding that entitled their holders to purchase 2,691,459 shares of our common stock at exercise prices of $1.25 per share.  Pursuant to the offer, warrant holders exercised warrants to purchase 2,666,459 shares of our common stock, resulting in additional capital of $3,333,074.  As an inducement for the holder’s exercise of the warrants, we issued the holders 2,666,459 new warrants to purchase common stock at $2.00 per share over a three-year period expiring in December 2023.     



Industry Background



Traditionally only sophisticated e-commerce brands, such as Amazon, were capable of personalizing and targeting their marketing to consumers as they navigated online shopping experiences that tracked their every move, all the way to check out. But despite the scale and success of e-commerce, it still accounts for just around 10% of commerce conducted in the U.S. The other 90% of “offline” merchants struggle to leverage data to combine with digital marketing channels and replicate the same personalized marketing tactics employed by successful e-commerce operators. Particularly, merchants are challenged with connecting purchase data collected by traditional point-of-sale terminals and mapping those transactions back to consumers to ensure that follow on marketing messages are personalized to the consumers purchase history.



Offline marketers will increasingly invest in technologies that leverage data to power personalized, digital consumer experiences and mimic how e-commerce marketers operate. This is a trend that has growing support from various industry analysts as well. McKinsey recently reported that “data activated marketing” can boost sales 15%-20% and significantly improve the ROI on marketing spend across marketing channels. While the upside of data driven marketing may seem obvious, marketers are also converging their digital and offline worldviews when it comes to thinking about how they allocate their marketing budgets. Gartner’s 2015–2016 Chief Marketing Officer (CMO) Spend Survey reported that 98 percent of CMOs no longer make a clear distinction between marketing online and offline and say the disciplines are merging. We believe that these trends reveal a material insight into how the market is converging towards our value proposition and will further propel our growth; as the market increasingly convinces itself of the upside of targeting its marketing based off of consumer data, as suggested by the McKinsey study, and the Gartner study suggests that offline and digital marketing disciplines are merging, then our unique approach to merging offline point-of-sale data with digital channels.



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Data driven marketing will also leverage the rapidly emerging field of “cognitive computing,” where computers are becoming intelligent – often referred to as “artificial intelligence”. Google CEO, Sundar Pichai, has described how Google is shifting from a mobile first world, to an AI first world; and actions speak louder than words - Google has acquired more artificial intelligence startups than Facebook and Microsoft combined. A recent forecast by Tractica (a market intelligence firm that focuses on human interaction with technology) suggests that annual worldwide AI revenue will grow at a combined annual growth rate of more than 49% to $36.8 billion by 2025. One of the key drivers to progress in this field is called “machine learning,” which aims to give computers the ability to learn without being explicitly programmed. This could open up entirely new possibilities where marketing becomes not just automated, but autonomous and entirely free of human intervention. Machine learning is powered by collecting massive amounts of data that can “train” machines to think on their own; an article in Fortune last year went as far as calling “data the new oil”. Jim Hare, research vice president at Gartner, proclaimed "As AI accelerates up the Hype Cycle, many software providers are looking to stake their claim in the biggest gold rush in recent years.”



The Mobivity Solution



Our Recurrency platform is designed to leverage point-of-sale data, along with cognitive computing, to increase visits, spend, and loyalty from consumers. We do this by capturing transaction detail, analyzing the data, and motivating customers and employees to take actions that improve business performance.



·

Capture: Recall that more than 90% of our economy still functions “offline”. Our Recurrency solution plays an integral part in bringing brick and mortar businesses into the digital future by creating an extensible point of access to their POS data. Recapture is a lightweight software client that can be installed in just about any POS system and immediately enables applications to operate off of real-time POS data.

·

Analyze. Often times marketers spend a large portion of their budget on marketing programs with little to no visibility into attributable sales. A 2016 IAB/Winterberry study reported cross-channel measurement and attribution would be the No. 1 tactic occupying respondents’ time last year, a whopping 63 percent year-over-year increase from the previous year. This is because understanding consumers’ offline behavior is mission-critical for brands and agencies looking to bridge the gap between the online and offline worlds. Our Recurrency solution allows for easy access to POS data enabling full attribution of our campaigns, along with potentially linking offline POS data to other forms of digital marketing such as social or search advertising.

·

Motivating Consumers. We motivate consumers and employees to improve business performance through our Recurrency solution.  This is where our ability to engage consumers through their mobile phone and track their behavior to any of these offline cash registers, combines with machine learning and artificial intelligence techniques to dial-in targeted marketing engagements that cause consumers to spend more. Recurrency has engaged more than nine million consumers across more than 30,000 retail locations while examining billions of purchase transactions. In one study, we worked with the analytics and data team of one of our largest clients where we studied the behavior of consumers both before and after their enrollment in an SMS marketing program. Together, we took a universe of hundreds of thousands of consumers and examined their purchases for a period of time before they joined. We then tracked their purchases after they joined the program and learned that these consumers increased their overall spend by forty five percent. Restaurants fight tooth and nail for every 1% increase in spend, so this was an amazing result. Another brand challenged us to increase their customer frequency which had historically been an average of just one visit every 60 days. By leveraging our Recurrency platform, we were able to create a targeted offer program that printed coupons on consumers’ receipts. In some cases, consumers returned in eight days – far better than the historical average of 60 days. Within 90 days since launching the program, consumers were returning within days (instead of months) and the program is on pace to generate an ROI of more than 400%.



In the future, we intend to develop additional platform features with the goal of driving additional value by helping brick and mortar brands leverage POS data to drive business growth.



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Marketing and Sales



We market and sell the services offered over our proprietary platform directly through our own sales force, via resellers, and in some cases through agents.



·

Direct Sales. Our direct sales force is predominantly comprised of a team of representatives employed by us to promote and sell our services both domestically and internationally.

·

Resellers. We sell our services via wholesale pricing of licensing and transactional fees to various resellers who market and sell the Mobivity services under their own brand.

·

Agents. We also engage independent agents to market and sell our services under the Mobivity brand in return for payment of a commission or revenue share for customers they introduce to us.

·

In addition to our direct and indirect sales channels, we also market our services online through our Website, Facebook, Twitter, LinkedIn, and other online channels. We also participate in various trade and industry events to build awareness and promote exposure to our services and brand.



Our services are predominantly marketed and sold in the form of a recurring software licensing fee that is determined by desired features and the number of physical locations our customers would like to deploy the services in. For example, a customer who exclusively utilizes our SMS/MMS feature for one location will pay a much lower recurring licensing fee than a marketer who desires our full breadth of product features and needs to drive localized marketing campaigns across 500 locations in various cities or locales.



In addition to license fees, we also arrange for a transaction fee in special cases where our customers require greater bandwidth or throughput to process large volumes of mobile messaging transactions. For example, a customer may want to utilize our services for a major sporting event when there may be tens of thousands of fans who are expecting a “score alert” sent to their mobile phone via a SMS/MMS text message. In this case, the required resources to facilitate a large number of SMS/MMS messages in a short period of time is much higher and therefore we may charge an additional per-SMS/MMS text message fee to our customer.



Research and Development



We have developed an internal and external software development team with many years of experience in the mobile advertising and marketing industries. Our research and development activities are focused on enhancements to our platform, including extending our technology into payment processing, location-based services, application analytics, and other technical opportunities in the evolving mobile industry.



Our total engineering, research and development expenditures in 2020 and 2019 were $3,535,742 and $3,609,968, respectively.



Competition



Combining POS data, cognitive computing, and various marketing applications is relatively new. The majority of our competitors are start-ups or early stage growth companies helping to pioneer the technology necessary to extract POS data and integrate that data with technology channels such as mobile messaging, e-mail, social media, and others. Competitors in this arena include Punchh, Fishbowl Marketing, Bridg, Sparkfly, Paytronix and PosIQ.



We also believe that POS manufacturers could also pose a competitive threat by vertically integrating similar features and capabilities into their core products. Leading vendors in the POS space include Oracle/Micros, NCR, IBM, Square, First Data/Clover, and others.



We believe that the key competitive factors that differentiate us from our competitors include:



·

Intellectual Property. We currently own nine patents that cover various approaches to facilitating SMS/MMS text messaging solutions and manipulating receipt content.

·

Competitive pricing. We are unaware of any solution in the market that offers the ability to aggregate and analyze POS data, activate mobile messaging campaigns, convert print receipts into targeted marketing transactions, and shape employee performance in real-time all from a single platform (Recurrency). Our platform approach will allow for bundled pricing strategies, or a la carte tactics, that could create unfair pricing advantages.

·

Scalability. We believe that our platform is more scalable than most if not all of our competitors. We have scaled from around 1,000 POS integrations to more than 20,000 in just three years. Aside from the POS manufacturers themselves, we are unaware of any other solutions provider who is currently integrated with as many POS devices as we are.



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Seasonality



Our business, as is typical of companies in our industry, is highly seasonal. This is primarily due to traditional marketing and advertising spending being heaviest during the holiday season while brands, advertising agencies, mobile operators and media companies often close out annual budgets towards the end of the calendar year. Seasonal trends have historically contributed to, and we anticipate, will continue to contribute to fluctuations in our quarterly results, including fluctuations in sequential revenue growth rates.



Intellectual Property- 



We regard the protection of our developed technologies and intellectual property rights as an important element of our business operations and crucial to our success. We rely primarily on a combination of patent laws, trademark laws, copyright laws, trade secrets, confidentiality procedures and contractual provisions to protect our proprietary technology. We require our employees, consultants and advisors to enter into confidentiality agreements. These agreements provide that all confidential information developed or made known to the individual during the course of the individual's relationship with us is to be kept confidential and not disclosed to third parties except under specific circumstances. In the case of our employees, the agreements provide that all of the technology which is conceived by the individual during the course of employment is our exclusive property. The development of our technology and many of our processes are dependent upon the knowledge, experience and skills of key scientific and technical personnel.



As of the date of this report we own eight patents. U.S. Patent numbers 7,991,388 B1 and 8,244,216 B1 were issued on August 2, 2011 and August 14, 2012, respectively. These patents cover a geo-bio-metric personal identification number, a service that authenticates a

user from a feature phone or smart phone using a number of mobile attainable attributes: geolocation, facial image, accelerometer (which measures the physical orientation or movement of the device itself), and text messaging. The purpose of the geo-bio-metric PIN service is to authenticate a user while verifying the following: the user is currently using his or her other phone; the user is at the location that their phone is at; the user is not at another location and using their phone through a proxy; and an impostor is not using the phone.



In March 2011, we acquired US Patent number 6,788,769 B1 which covers a method and system for using telephone numbers as a key to address email and online content without the use of a look-up database. Using this system, a phone number is used to access a website or an email address in exactly the same way it is used to dial a telephone.    The patent expires in March of 2021.



U.S. Patent numbers 8,463,306 and 8,818,434 were issued on June 11, 2013 and August 26, 2014, respectively. U.S. Patent 9,307,430 was issued on April 5, 2016. These patents cover a method and system for testing a SMS/MMS text messaging network. The method and system allows for real-time testing of the initiation and completion of SMS/MMS text messages and any delivery delays across the major American mobile phone carriers, and accurately measures the progress on SMS/MMS broadcasts and records when a broadcast has been completed.



U.S Patent number 9,495,671 was granted on November 15, 2016. U.S. Patent 9,727,853 was issued on August 8, 2017.  These patents cover a system to generate value added messages on receipts printed by point-of-sale (POS) systems based on various rules determined by information conveyed on the purchase receipt such as location, time of day, or other purchase data. The patent application claims priority to a patent application filed in 2006.



U.S. Patent number 10,475,017 B2 was granted on November 12, 2019. This patent covers a point-of-sale terminal and a computer-readable storage medium that generates transaction information for a commercial transaction, the transaction information including customer information and purchase information. The point-of-sale terminal may generate nutritional information based on the purchase information. The point-of-sale terminal may send the customer information, the purchase information, and location information identifying a location of the POS terminal to an advertising server and may receive responsive advertising content from the advertising server. The point-of-sale terminal may print a receipt including the transaction information, the nutritional information, and the advertising content.



Our issued and any future patents that we may issue may not survive a legal challenge to their scope, validity or enforceability, or provide significant protection for us. The failure of our patents, or the failure of our copyright and trade secret laws to adequately protect our technology, might make it easier for our competitors to offer similar products or technologies. In addition, patents may not issue from any of our current or any future applications.



As of the date of this report we own trademarks for Boomtext, SmartReceipt, Livelenz, and several trademarks from the Belly acquisition.



-7-

 


 

Government Regulation



The growth and development of the mobile messaging market and the market for electronic storage of personal information has resulted in a variety of stringent consumer protection laws, many of which impose significant burdens on companies that store personal information. Depending on the products and services that they offer, mobile data service providers may be subject to regulations and laws applicable to providers of mobile, Internet and VOIP services, including domestic and international laws and regulations relating to user privacy and data protection, defamation, pricing, advertising, taxation, gambling, sweepstakes, promotions, billing, real estate, consumer protection, accessibility, content regulation, quality of services, telecommunications, mobile, television and intellectual property ownership and infringement. We expect that the regulation of our industry generally will continue to increase and that we will be required to devote increasing amounts of legal and other resources to address this regulation. In addition, the application of existing domestic and international laws and regulations relating to issues such as user privacy and data protection, marketing, advertising, consumer protection and mobile disclosures in many instances is unclear or unsettled.



In addition to its regulation of wireless telecommunications providers generally, the U.S. Federal Communications Commission, or FCC, has examined, or is currently examining, how and when consumers enroll in mobile services, what types of disclosures consumers receive, what services consumers are purchasing and how much consumers are charged. In addition, the Federal Trade Commission, or FTC, has been asked to regulate how mobile marketers can use consumers' personal information. Consumer advocates claim that many consumers do not know when their information is being collected from cell phones and how such information is retained, used and shared with other companies. Consumer groups have asked the FTC to identify practices that may compromise privacy and consumer welfare; examine opt-in procedures to ensure consumers are aware of what data is at issue and how it will be used; investigate marketing tactics that target children; and create policies to halt abusive practices. The FTC has expressed interest, in particular, in the mobile environment and services that collect sensitive data, such as location-based information.



The principal laws and regulations that pertain to us and our customers in connection with their utilization of our platform, include:



·

Deceptive Trade Practice Law in the U.S. The FTC and state attorneys general are given broad powers by legislatures to curb unfair and deceptive trade practices. These laws and regulations apply to mobile marketing campaigns and behavioral advertising. The general guideline is that all material terms and conditions of the offer must be "clearly and conspicuously" disclosed to the consumer prior to the buying decision. The balancing of the desire to capture a potential customer's attention, while providing adequate disclosure, can be challenging in the mobile context due to the lack of screen space available to provide required disclosures.

·

Behavioral Advertising. Behavioral advertising is a technique used by online publishers and advertisers to increase the effectiveness of their campaigns. Behavioral advertising uses information collected from an individual's web-browsing behavior, such as the pages they have visited or the searches they have made, to select which advertisements to display to that individual. This data can be valuable for online marketers looking to personalize advertising initiatives or to provide geo-tags through mobile devices. Many businesses adhere to industry self-governing principles, including an opt-out regime whereby information may be collected until an individual indicates that he or she no longer agrees to have this information collected. The FTC and EU member states are considering regulations in this area, which may include implementation of a more rigorous opt-in regime. An opt-in policy would prohibit businesses from collecting and using information from individuals who have not voluntarily consented. Among other things, the implementation of an opt-in regime could require substantial technical support and negatively impact the market for our mobile advertising products and services. A few states have also introduced bills in recent years that would restrict behavioral advertising within the state. These bills would likely have the practical effect of regulating behavioral advertising nationwide because of the difficulties behind implementing state-specific policies or identifying the location of a particular consumer. There have also been a large number of class action suits filed against companies engaged in behavioral advertising.

·

Behavioral Advertising-Privacy Regulation. Our business is affected by U.S. federal and state, as well as EU member state and foreign country, laws and regulations governing the collection, use, retention, sharing and security of data that we receive from and about our users. In recent years, regulation has focused on the collection, use, disclosure and security of information that may be used to identify or that actually identifies an individual, such as an Internet Protocol address or a name. Although the mobile and Internet advertising privacy practices are currently largely self-regulated in the U.S., the FTC has conducted numerous discussions on this subject and suggested that more rigorous privacy regulation is appropriate, including regulation of non-personally identifiable information which could, with other information, be used to identify an individual. Within the EU, member state data protection authorities typically regard IP addresses as personal information, and legislation adopted recently in the EU requires consent for the placement of a cookie on a user device. In addition, EU data protection authorities are following with interest the FTC's discussions regarding behavioral advertising and may follow suit by imposing additional privacy requirements for mobile advertising practices.

·

Marketing-Privacy Regulation. In addition, there are U.S. federal and state laws and EU member state and other country laws that govern SMS/MMS and telecommunications-based marketing, generally requiring senders to transmit messages (including those sent to mobile devices) only to recipients who have specifically consented to receiving such messages. U.S. federal, EU member state and other country laws also govern e-mail marketing, generally imposing an opt-out requirement for emails sent within an existing business relationship.

-8-

 


 

·

SMS/MMS and Location-Based Marketing Best Practices and Guidelines. We voluntarily comply with the guidelines of the Mobile Marketing Association, or MMA, a global association of 700 agencies, advertisers, mobile device manufacturers, wireless operators and service providers and others interested in the potential of marketing via the mobile channel. The MMA has published a code of conduct and best practices guidelines for use by those involved in mobile messaging activities. The guidelines were developed by a collaboration of the major carriers and they require adherence to them as a condition of service. We voluntarily comply with the MMA code of conduct, which generally require notice and user consent for delivery of location-based services. In addition, the Cellular Telephone Industry Association, or CTIA, has developed Best Practices and Guidelines to promote and protect user privacy regarding location-based services.

·

TCPA. The United States Telephone Consumer Protection Act, or TCPA, prohibits unsolicited voice and text calls to cell phones through the use of an automatic telephone-dialing system (ATDS) unless the recipient has given prior consent. The statute also prohibits companies from initiating telephone solicitations to individuals on the national Do-Not-Call list, and restricts the hours when such messages may be sent. Violations of the TCPA can result in statutory damages of $500 per violation (i.e., for each individual text message). U.S. state laws impose additional regulations on voice and text calls. We believe that our platform does not employ an ATDS within the meaning of the TCPA based on case law construing that term.

·

CAN-SPAM. The U.S. Controlling the Assault of Non-Solicited Pornography and Marketing Act, or CAN SPAM Act, prohibits all commercial e-mail messages, as defined in the law, to mobile phones unless the device owner has given "express prior authorization." Recipients of such messages must also be allowed to opt-out of receiving future messages the same way they opted-in. Senders have ten business days to honor opt-out requests. The FCC has compiled a list of domain names used by wireless service providers to which marketers may not send commercial e-mail messages. Senders have 30 days from the date the domain name is posted on the FCC site to stop sending unauthorized commercial e-mail to addresses containing the domain name. Violators are subject to fines of up to $6.0 million and up to one year in jail for some spamming activities. Carriers, the FTC, the FCC, and State Attorneys General may bring lawsuits to enforce alleged violations of the Act.

·

Communications Privacy Acts. Foreign and U.S. federal and state laws impose liability for intercepting communications while in transit or accessing the contents of communications while in storage. EU member state laws also require consent for our receiving this information, and if our carrier customers fail to obtain such consent we could be subjected to civil or even criminal penalties.

·

Security Breach Notification Requirements. EU member state laws require notice to the member state data protection authority of a data security breach involving personal data if the breach poses a risk to individuals. In addition, Germany enacted a broad requirement to notify individuals in the event of a data security breach that is likely to be followed by notification requirements to data subjects in other EU member states. In the U.S., various states have enacted data breach notification laws, which require notification of individuals and sometimes state regulatory bodies in the event of breaches involving certain defined categories of personal information. Japan and Uruguay have also enacted security breach notice requirements. This new trend suggests that breach notice statutes may be enacted in other jurisdictions, including by the U.S. at the federal level, as well.

·

Children. The Children's Online Privacy Protection Act prohibit the knowing collection of personal information from children under the age of 13 without verifiable parental consent, and strictly regulate the transmission of requests for personal information to such children. Other countries do not recognize the ability of children to consent to the collection of personal information. In addition, it is likely that behavioral advertising regulations will impose special restrictions on use of information collected from minors for this purpose.

·

Data Privacy Acts. Individual states and countries have enacted or are moving forward with privacy compliance rules based on industry and types of data collected, such as the California Consumer Privacy Act (“CCPA”), Nevada’s Senate Bill 220 and the EU’s General Data Protection Regulation (“GDPR”). The acts provide residents the right to know what data is being collected about them and have access to it, whether that information is sold and the ability to refuse that data being sold, as well as the ability to opt out of it’s collection. Penalties for non-compliance vary by state and country, for instance the maximum penalty of the CCPA is $7,500 for intentional violations. The largest financial impact of CCPA on a business is the provisioning of the right of consumers to bring forward lawsuits. These situations may arise from instances where their “non-encrypted or non-redacted personal information” is breached, regardless of the harm done to the data. Under the CCPA, consumers can collect between $100 and $750 for each event. If the damages are greater than $750, then the consumer may receive even more.



Employees



As of March 19, 2021, we had 44 employees, consisting of 23 full-time and one part-time in research and development, 15 full-time in sales and marketing, and five full-time in general and administrative.

  

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Item 1A.    Risk Factors.



Risks Relating to Our Business



We may need additional financing to execute our business plan and fund operations, which additional financing may not be available on reasonable terms or at all. As of December 31, 2020, we had working capital of $771,834.  While we  believe that our working capital on hand, along with our expected cash flow from operations, will be sufficient to fund our 12-month plan of operations, there can be no assurance that we will not require significant additional capital within 12 months. Also, we expect that we may require additional capital beyond the next 12 months unless we are able to achieve and maintain a profitable operation. In the event we require additional capital we will endeavor to raise additional funds through various financing sources, including the sale of our equity and debt securities and the procurement of commercial debt financing. However, there can be no guarantees that such funds will be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms, we may be unable to expand or continue our business as desired and operating results may be adversely affected. Any debt financing will increase expenses and must be repaid regardless of operating results and may involve restrictions limiting our operating flexibility. If we issue equity securities to raise additional funds, the percentage ownership of our existing stockholders will be reduced, and our stockholders may experience additional dilution in net book value per share.



Our ability to obtain needed financing may be impaired by such factors as the capital markets, both generally and specifically in our industry, and the fact that we are not yet profitable, which could impact the availability or cost of future financings. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, we may be required to reduce or even cease operations.



Our business may be adversely affected by the COVID-19 outbreak. In December 2019, a novel strain of coronavirus, COVID-19, was reported to have surfaced in Wuhan, China.  During 2020, this coronavirus spread to other countries, including the United States, and efforts to contain the spread of COVID-19 intensified. The United States and other countries had a series of lock-downs and self-isolation procedures, which have significantly limited business operations and restricted internal and external meetings. Further, the outbreak and any preventative or protective actions that we or our customers may take in respect of COVID-19 may result in a period of disruption to other work in progress. Our customers’ businesses could be disrupted, and our future costs and potential revenues and technology evaluations could be negatively affected. Any resulting financial impact cannot be reasonably estimated at this time but may materially affect our business and financial condition. The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted.  New information may emerge concerning the severity and variants of COVID-19 along with the development of vaccines and the actions to contain COVID-19 or treat its impact, among others.



Our sales efforts to large enterprises require significant time and effort and could hinder our ability to expand our customer base and increase revenue. Attracting new customers to our large enterprise division requires substantial time and expense, especially in an industry that is so heavily dependent on personal relationships with executives. We cannot assure that we will be successful in establishing new relationships or maintaining or advancing our current relationships. For example, it may be difficult to identify, engage and market to customers who do not currently perform mobile marketing or advertising or are unfamiliar with our current services or platform. Further, many of our customers typically require input from one or more internal levels of approval. As a result, during our sales effort, we must identify multiple people involved in the purchasing decision and devote a sufficient amount of time to presenting our products and services to those individuals. The complexity of our services often requires us to spend substantial time and effort assisting potential customers in evaluating our products and services including providing demonstrations and benchmarking against other available technologies. We expect that our sales process will become less burdensome as our products and services become more widely known and used. However, if this change does not occur, we will not be able to expand our sales effort as quickly as anticipated and our sales will be adversely affected.



-10-

 


 

We may not be able to enhance our platform to keep pace with technological and market developments, or to remain competitive against potential new entrants in our markets. The market for mobile marketing and advertising services is emerging and is characterized by rapid technological change, evolving industry standards, frequent new product introductions and short product life cycles. Our current platform and services may not in the future be acceptable to marketers and advertisers. To keep pace with technological developments, satisfy increasing customer requirements and achieve acceptance of our marketing and advertising campaigns, we will need to enhance our current mobile marketing solutions and continue to develop and introduce on a timely basis new, innovative mobile marketing services offering compatibility, enhanced features and functionality on a timely basis at competitive prices. Our inability, for technological or other reasons, to enhance, develop, introduce and deliver compelling mobile marketing services in a timely manner, or at all, in response to changing market conditions, technologies or customer expectations could have a material adverse effect on our operating results or could result in our mobile marketing services platform becoming obsolete. Our ability to compete successfully will depend in large measure on our ability to maintain a technically skilled development and engineering staff and to adapt to technological changes and advances in the industry, including providing for the continued compatibility of our mobile marketing services platform with evolving industry standards and protocols. In addition, as we believe the mobile marketing market is likely to grow substantially, other companies which are larger and have significantly more capital to invest than us may emerge as competitors.  For example, in August of 2019 Attentive Mobile raised $40M in private venture financing. Similarly, in November of 2019, Punchh raised $40M in private venture funding. New entrants could seek to gain market share by introducing new technology or reducing pricing. This may make it more difficult for us to sell our products and services, and could result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses or the loss of market share or expected market share, any of which may significantly harm our business, operating results and financial condition.



Our services are provided on mobile communications networks that are owned and operated by third parties who we do not control and the failure of any of these networks would adversely affect our ability to deliver our services to our customers. Our mobile marketing and advertising platform is dependent on the reliability of mobile operators who maintain sophisticated and complex mobile networks. Such mobile networks have historically, and particularly in recent years, been subject to both rapid growth and technological change. If the network of a mobile operator with which we are integrated should fail, including because of new technology incompatibility, the degradation of network performance under the strain of too many mobile consumers using it, or a general failure from natural disaster or political or regulatory shut-down, we will not be able provide our services to our customers through such mobile network. This in turn, would impair our reputation and business, potentially resulting in a material, adverse effect on our financial results.



If our platform does not scale as anticipated, our business will be harmed. We must be able to continue to scale to support potential ongoing substantial increases in the number of users in our actual commercial environment and maintain a stable service infrastructure and reliable service delivery for our mobile marketing and advertising campaigns. In addition, we must continue to expand our service infrastructure to handle growth in customers and usage. If our mobile marketing services platform does not efficiently and effectively scale to support and manage a substantial increase in the number of users while maintaining a high level of performance, the quality of our services could decline and our business will be seriously harmed. In addition, if we are unable to secure data center space with appropriate power, cooling and bandwidth capacity, we may not be able to efficiently and effectively scale our business to manage the addition of new customers and overall mobile marketing campaigns.



The success of our business depends, in part, on wireless carriers continuing to accept our customers' messages for delivery to their subscriber base. We depend on wireless carriers to deliver our customers' messages to their subscriber base. Wireless carriers often impose standards of conduct or practice that significantly exceed current legal requirements and potentially classify our messages as "spam," even where we do not agree with that conclusion. In addition, the wireless carriers use technical and other measures to attempt to block non-compliant senders from transmitting messages to their customers; for example, wireless carriers block short codes or Internet Protocol addresses associated with those senders. There can be no guarantee that we, or short codes registered to us, will not be blocked or blacklisted or that we will be able to successfully remove ourselves from those lists. Although our services typically require customers to opt-in to a campaign, minimizing the risk that our customers' messages will be characterized as spam, blocking of this type could interfere with our ability to market products and services of our customers and communicate with end users and could undermine the effectiveness of our customers' marketing campaigns. To date we have not experienced any material blocking of our messages by wireless carriers, but any such blocking could have an adverse effect on our business and results of operations.



We depend on third party providers for a reliable Internet infrastructure and the failure of these third parties, or the Internet in general, for any reason would significantly impair our ability to conduct our business. We outsource all of our data center facility management to third parties who host the actual servers and provide power and security in multiple data centers in each geographic location. These third-party facilities require uninterrupted access to the Internet. If the operation of our servers is interrupted for any reason, including natural disaster, financial insolvency of a third-party provider, or malicious electronic intrusion into the data center, our business would be significantly damaged. As has occurred with many Internet-based businesses, on occasion in the past, we have been subject to "denial-of-service" attacks in which unknown individuals bombarded our computer servers with requests for data, thereby degrading the servers' performance. While we have historically been successful in relatively quickly identifying and neutralizing these attacks, we cannot be certain that we will be able to do so in the future. If either a third-party facility failed, or our ability to access the Internet was interfered with because of the failure of Internet equipment in general or we become subject to malicious attacks of computer intruders, our business and operating results will be materially adversely affected.

-11-

 


 



Failure to adequately manage our growth may seriously harm our business. We operate in an emerging technology market and have experienced, and may continue to experience, significant growth in our business. If we do not effectively manage our growth, the quality of our products and services may suffer, which could negatively affect our brand and operating results. Our growth has placed, and is expected to continue to place, a significant strain on our managerial, administrative, operational and financial resources and our infrastructure. Our future success will depend, in part, upon the ability of our senior management to manage growth effectively. This will require us to, among other things:



·

implement additional management information systems;

·

develop additional levels of management within our company;

·

locate additional office space in various countries; and

·

maintain close coordination among our engineering, operations, legal, finance, sales and marketing and customer service and support organizations.



Moreover, as our sales increase, we may be required to concurrently deploy our services infrastructure at multiple additional locations or provide increased levels of customization. As a result, we may lack the resources to deploy our mobile marketing services on a timely and cost-effective basis. Failure to accomplish any of these requirements would seriously harm our ability to deliver our mobile marketing services platform in a timely fashion, fulfill existing customer commitments or attract and retain new customers.



The gathering, transmission, storage and sharing or use of personal information could give rise to liabilities or additional costs of operation as a result of governmental regulation, legal requirements, civil actions or differing views of personal privacy rights. We transmit and store a large volume of personal information in the course of providing our services. Federal, state and international laws and regulations govern the collection, use, retention, sharing and security of data that we receive from our customers and their users. Any failure, or perceived failure, by us to comply with U.S. federal, state, or international privacy or consumer protection-related laws, regulations or industry self-regulatory principles could result in proceedings or actions against us by governmental entities or others, which could potentially have an adverse effect on our business, operating results and financial condition. Additionally, we may also be contractually liable to indemnify and hold harmless our customers from the costs or consequences of inadvertent or unauthorized disclosure of their customers' personal data which we store or handle as part of providing our services.



The interpretation and application of privacy, data protection and data retention laws and regulations are currently unsettled in the U.S. and internationally, particularly with regard to location-based services, use of customer data to target advertisements and communication with consumers via mobile devices. Such laws may be interpreted and applied inconsistently from country to country and inconsistently with our current data protection policies and practices. Complying with these varying international requirements could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business, operating results or financial condition.



As privacy and data protection have become more sensitive issues, we may also become exposed to potential liabilities as a result of differing views on the privacy of personal information. These and other privacy concerns, including security breaches, could adversely impact our business, operating results and financial condition.



In the U.S., we have voluntarily agreed to comply with wireless carrier technological and other requirements for access to their customers' mobile devices, and also trade association guidelines and codes of conduct addressing the provision of location-based services, delivery of promotional content to mobile devices and tracking of users or devices for the purpose of delivering targeted advertising. We could be adversely affected by changes to these requirements, guidelines and codes, including in ways that are inconsistent with our practices or in conflict with the rules or guidelines in other jurisdictions.



We currently rely on a small concentration of customers to use our products to generate our revenues, and the loss or change in any of these significant relationships could materially reduce our revenues.  Although we believe we have a good relationship with these customers, our contracts with these customers are short-term in nature.  Should these customers choose to terminate their contracts with us or if material events occur that are detrimental to these customers or their operations, it could have a significant negative impact on our financial performance.  



We currently operate in limited vertical markets. Our customers primarily operate in the quick serve restaurant (“QSR”) industry and we expanded to the convenience store market. Should this industry be impacted by economical or other unforeseen events, it could have a significant negative impact on our financial performance.



-12-

 


 

Risks Related to our Common Stock



There has been a limited trading market for our common stock. There has been a limited trading market for our common stock on the Over-the-Counter Bulletin Board. The lack of an active market may impair the ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital by selling shares of capital stock and may impair our ability to acquire other companies or technologies by using common stock as consideration.



The market price of our common stock may be, and is likely to continue to be, highly volatile and subject to wide fluctuations. The market price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our control, including:



·

dilution caused by our issuance of additional shares of common stock and other forms of equity securities, which we expect to make in connection with future acquisitions or capital financings to fund our operations and growth, to attract and retain valuable personnel and in connection with future strategic partnerships with other companies;

·

announcements of new acquisitions or other business initiatives by our competitors;

·

our ability to take advantage of new acquisitions or other business initiatives;

·

quarterly variations in our revenues and operating expenses;

·

changes in the valuation of similarly situated companies, both in our industry and in other industries;

·

changes in analysts’ estimates affecting us, our competitors and/or our industry;

·

changes in the accounting methods used in or otherwise affecting our industry;

·

additions and departures of key personnel;

·

announcements by relevant governments pertaining to additional quota restrictions; and

·

fluctuations in interest rates and the availability of capital in the capital markets.



Some of these factors are beyond our control, and the impact of these risks, singly or in the aggregate, may result in material adverse changes to the market price of our common stock and/or our results of operations and financial condition.



We do not expect to pay dividends in the foreseeable future. We do not intend to declare dividends for the foreseeable future, as we anticipate that we will reinvest any future earnings in the development and growth of our business. Therefore, investors will not receive any funds unless they sell their common stock, and stockholders may be unable to sell their shares on favorable terms or at all. Investors cannot be assured of a positive return on investment or that they will not lose the entire amount of their investment in the common stock.



Our common stock may be considered to be a “penny stock” and, as such, any the market for our common stock may be further limited by certain SEC rules applicable to penny stocks. To the extent the price of our common stock remains below $5.00 per share or we have net tangible assets of $2,000,000 or less, our common shares will be subject to certain “penny stock” rules promulgated by the SEC. Those rules impose certain sales practice requirements on brokers who sell penny stock to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000). For transactions covered by the penny stock rules, the broker must make a special suitability determination for the purchaser and receive the purchaser’s written consent to the transaction prior to the sale. Furthermore, the penny stock rules generally require, among other things, that brokers engaged in secondary trading of penny stocks provide customers with written disclosure documents, monthly statements of the market value of penny stocks, disclosure of the bid and asked prices and disclosure of the compensation to the brokerage firm and disclosure of the sales person working for the brokerage firm. These rules and regulations adversely affect the ability of brokers to sell our common shares and limit the liquidity of our securities.



We are a “smaller reporting company” and, as such are allowed to provide less disclosure than larger public companies. We are currently a “smaller reporting company,” meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of less than $75 million and annual revenues of less than $50 million during the most recently completed fiscal year. As a “smaller reporting company”, we are able to provide simplified executive compensation disclosures in our SEC filings, are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting, and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports. Decreased disclosures in our SEC filings due to our status as a “smaller reporting company” may make it harder for investors to analyze our results of operations and financial prospects.

  

Item 1B.  Unresolved Staff Comments.



Not applicable.

  

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Item 2.  Properties.



We have a lease through January 2021 for 10,395 square feet of office space located at 55 N. Arizona Ave., Suite 310, Chandler, Arizona. Monthly rental payments, excluding common area maintenance charges, are $20,140.  We have entered into a new lease starting in February of 2021 for 8,898 square feet of office space located at 3133 W. Frye Road, Suite 215, Chandler, Arizona.  Monthly rental payments, excluding common area maintenance charges, will be $25,953 to $28,733.  The first twelve months of the lease includes a 50% abatement period. 



We have a lease through April 2022 for 3,248 square feet of office space located in Halifax, Nova Scotia, at a monthly rental expense of $3,371 per month, excluding common area maintenance charges.

 

Item 3.  Legal Proceedings.



None.

 

Item 4.  Not applicable.

 

Part II



Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matter and Issuer Purchases of Equity Securities



Our common stock is quoted on the OTC Bulletin Board under the stock symbol “MFON”.



Our common stock trades only sporadically and has experienced in the past, and is expected to experience in the future, significant price and volume volatility.



The following table shows the reported high and low closing bid quotations per share for our common stock based on information provided by the OTC Bulletin Board for the periods indicated. Quotations reflect inter-dealer prices, without markup, markdown or commissions and may not represent actual transactions.







 

 

 

 

 



 

 

 

 

 

Year Ended December 31, 2020

High

 

Low

Fourth Quarter

$

1.85 

 

$

0.88 

Third Quarter

$

0.95 

 

$

0.65 

Second Quarter

$

0.89 

 

$

0.56 

First Quarter

$

1.11 

 

$

0.65 







 

 

 

 

 



 

 

 

 

 

Year Ended December 31, 2019

High

 

Low

Fourth Quarter

$

1.04 

 

$

0.88 

Third Quarter

$

1.14 

 

$

0.85 

Second Quarter

$

1.19 

 

$

0.79 

First Quarter

$

1.20 

 

$

0.90 



Holders of Record



As of March 19, 2021, there were 161 holders of record of our common stock, not including shares held in street name.



Dividend Policy



We have not paid any cash dividends since our inception and do not contemplate paying dividends in the foreseeable future. It is anticipated that earnings, if any, will be retained for the operation of our business.



Stock Repurchases



We did not repurchase any of our common stock in 2020 or 2019.



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Securities Authorized for Issuance Under Equity Compensation Plans



The following table sets forth additional information as of December 31, 2020 with respect to the shares of common stock that may be issued upon the exercise of options and other rights under our existing equity compensation plans and arrangements in effect as of December 31, 2020. The information includes the number of shares covered by, and the weighted average exercise price of, outstanding options and the number of shares remaining available for future grant, excluding the shares to be issued upon exercise of outstanding options.







 

 

 

 

 

 



 

 

 

 

 

 

Plan Category

Number of

securities to be

issued upon

exercise of

outstanding

options

 

Weighted-

average

exercise price

of

outstanding

options

 

Number of securities

remaining available

for future issuance

under equity

compensation plans

(excluding securities

reflected in

column (a)



(a)

 

 

 

 

 

Equity compensation plans not approved by security holders (1)

6,007,552 

 

$

1.24 

 

77,463 

Equity compensation plans approved by security holders

 —

 

 

 —

 

 —

Total

6,007,552 

 

$

1.24 

 

77,463 



(1)Comprised of our 2010 and 2013 Incentive Stock Plans.

 

Item 6.  Selected Financial Data



As a smaller reporting company, as defined by Section 10(f)(1) of Regulation S-K, we are not required to provide the information set forth in this Item.

  

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations



The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the related notes and other information that are included elsewhere in this Form 10-K. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward looking statements as a result of a number of factors, including those set forth under the cautionary note regarding “Forward Looking Statements” contained in Item 1.A – “Risk Factors”.



Overview



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 marketing campaigns. 



Mobivity’s Recurrency platform enables multi-unit retailers to leverage the power of their own data to yield maximum customer spend, frequency and loyalty while achieving the highest Return on Marketing Spend (ROMS) possible. Mobivity’s customers use Recurrency to:

 

·

Transform messy point-of-sale (POS) data collected from thousands of points of sale into usable intelligence.

·

Measure, predict, and boost guest frequency and spend by channel.

·

Deploy and manage one-time use offer codes and attribute sales accurately across every channel, promotion and media program.

·

Deliver 1:1 promotions and offers with customized Mobile Messaging, Personalized Receipt Promotions and Integrated Loyalty programs.

 

Mobivity’s Recurrency, delivered as a SaaS platform, is used by leading brands including Subway, Sonic Drive-In, Chick-fil-A,  Checkers/Rally’s and Circle K’s across more than 40,000 retail locations globally.

 

We’re living in a data-driven economy. In fact, by 2003 — when the concept of “big data” became common vernacular in marketing - as much data was being created every two day as had been created in all of time prior to 2003. Today, Big Data has grown at such a rate that 90% of the world’s data has been created in the past two years. Unfortunately, despite there being so much data accumulated, only one percent of data is being utilized today by most businesses.



-15-

 


 

The challenge for multi-unit retailers isn’t that they don’t have enough data; in fact, national retailers are collecting millions of detailed transactions daily from thousands of points of sale around the world. The challenge is being able to make sense of this transaction data, which is riddled with data entry errors, collected by multiple POS systems and complicated by a taxonomy compiled by thousands of different franchisee owners. To normalize such an overwhelming amount of data into usable intelligence and then leverage it to optimize media investment and promotion strategy requires numerous teams of data analysts and data scientists that many retailers and restaurant operators simply don’t have. Which is why so many technology and data companies, that can help solve these challenges, have been invested in and acquired by brands including, McDonald’s, Starbucks and Yum Brands.



Mobivity’s Recurrency platform fills this need with a self-service SaaS offering, enabling operators to intelligently optimize their promotions, media and marketing spend. Recurrency drives system-wide sales producing on average a 13% increase in guest spend and a 26% improvement in frequency, ultimately delivering an average Return on Marketing Spend of 10X. In other words, for every dollar invested in marketing, retailers using Recurrency to manage, optimize and deliver multi-channel consumer promotions generate an average of ten dollars in incremental revenue from their customers.

 

Recent Events



Unsecured Promissory Note Investments in 2019



During the year ended December 31, 2019, we conducted a private placement of Unsecured Promissory Notes (individually, a “Note” and collectively, the “Notes”) to one of our directors in the principal aggregate amount of $3,500,000, which are due and payable two years after issuance. These Notes bear interest on the unpaid balance at the rate of fifteen percent (15%) per annum. The Company may prepay any of the Notes without notice, subject to a two percent (2%) pre-payment penalty. We conducted the private placement of our securities in July 2019. The Note holder participated in the private placement described below, by settling principal of $2,500,000 and accrued interest under the notes totaling  $82,916,  into 2,582,916 units of our securities.  The remaining 2019 Notes for $1,000,000 aggregated principal were settled with the December of 2020 private placement described below.



2019 Private Placement



In July 2019, we commenced a private placement of 7,000,000 units of our securities, at a price of $1.00 per unit. Each unit consists of one share of our common stock and a common stock purchase warrant to purchase one-half share of our common stock, over a two- year period, at an exercise price of $1.25 per share. The offering was conducted by our management and no commission or other selling fees were paid by us.  During the year ended December 31, 2019 we issued 5,382,916 units under this placement, of which 2,582,916 units were issued in connection with a settlement of $2,582,916 of principal and accrued interest under the unsecured promissory Notes described in the preceding paragraph.



Unsecured Promissory Note Investments in 2020



During the year ended December 31, 2020, we issued to one of our directors, unsecured Notes in the principal aggregate amount of $700,000, which are due and payable two years after issuance.  These Notes bear interest on the unpaid balance at the rate of fifteen percent (15%) per annum.  The Company may prepay any of the Notes without notice, subject to a two percent (2%) pre-payment penalty.  We conducted the private placement of our securities in December 2020. The Note holder participated in the warrant exercise described below and settled principal of $1,200,000 principal under our 2019 and 2020 private placement Notes in addition to accrued interest under the notes totaling $192,208, into 1,113,767 shares of our common stock. As of December 31, 2020, we have $500,000 as a remaining balance of these 2020 Notes and accrued interest of $8,958.



On April 10, 2020, we entered into a commitment loan with Chase Bank, N.A. under the CARES act and SBA Paycheck Protection Program, in the principal aggregate amount of $891,103, which is due and payable two years after issuance.  This note bears interest on the unpaid balance at the rate of one percent (1%) per annum.  The note contains a deferral period of six months, for which no interest or principal payments are due.  Forgiveness of the loan may be obtained by meeting certain SBA requirements.



On April 22, 2020, we entered into a commitment loan with TD Bank under the Canadian Emergency Business Account (“CEBA”), in the principal aggregate amount of $40,000 CAD, which is due and payable on December 31, 2022.  This note bears interest on the unpaid balance at the rate of zero percent (0%) per annum during the initial term.  Under this note no interest or principal payments are due until January 1, 2023.  Under the conditions of the loan, twenty-five percent (25%) of the loan will be forgiven if seventy-five percent (75%) is repaid prior to the initial term date.



-16-

 


 

2020 Warrant Exercises 



On March 2, 2020 one warrant holder exercised their common stock purchase warrant for 234,500 shares at the exercise price of $1.00 per share, resulting in additional capital of $234,500.  In December 2020, we conducted an offer to the holders of our outstanding common stock purchase warrants pursuant to which our warrant holders will be permitted to exercise their warrants at a reduced exercise price for a period expiring on December 18, 2020.  At the commencement of the December warrant offer, there were warrants outstanding that entitled their holders to purchase 2,691,459 shares of our common stock at exercise prices of $1.25 per share.  Pursuant to the offer, warrant holders exercised warrants to purchase 2,666,459 shares of our common stock, resulting in additional capital of $3,333,074.  As an inducement for the holders’ exercise of the warrants, we issued the holders 2,666,459 new warrants to purchase common stock at $2.00 per share over a three-year period expiring in December 2023.  The warrant offer was conducted by our management and there were no commissions paid by us in connection with the solicitation.



Results of Operations



Year Ended December 31, 2020 Compared to Year Ended December 31, 2019



Revenues



Revenues consist primarily of a suite of products under the Recurrency platform.  The Recurrency platform is comprised of POS Data Capture,  Analytics,  Offers and Promotions,  Predictive Offers,  Personalized Receipt Promotions,  Customized Mobile Messaging, Belly Loyalty, and other revenues.



Revenues for the twelve months ended December 31, 2020 were $13,255,887, an increase of $3,198,965, or 32%, compared to $10,056,922 for the twelve months ended December 31, 2019. This increase is primarily due to the addition of $3,061,931 of revenue from non-recurring engineering fees paid by a large customer to accelerate expanded capabilities of our Offers and Promotions solution. 



Cost of Revenues



Cost of revenues consist primarily of cloud-based software licensing fees, short code maintenance expenses, personnel related expenses, and other expenses.



Cost of revenues for the twelve months ended December 31, 2020 was $4,748,444, a decrease of $1,189,854, or 20%, compared to $5,938,298 for the twelve months ended December 31, 2019. This decrease is primarily due to lower MMS messaging volume and decreased application costs associated with cost reduction initiatives by the Company, along with new revenues during the year that yielded higher margin. The gross profit margin was 64% and 41% for the for the twelve months ended December 31, 2020 and 2019, respectively.



General and Administrative



General and administrative expenses consist primarily of salaries and personnel related expenses, stock-based compensation expense, consulting costs and other expenses.



General and administrative expenses for the twelve months ended December 31, 2020 were $3,917,935, a decrease of $1,670,394, or 30%, compared to $5,588,329 for the twelve months ended December 31, 2019The decrease in general and administrative expense was primarily due to an decrease in personnel, legal fees related to a one-time non-recurring legal charge incurred in 2019, and stock-based compensation expenses. 



Sales and Marketing Expense



Sales and marketing expenses consist primarily of salaries and personnel related expenses, stock-based compensation expense, sales travel, consulting costs and other expenses.



Sales and marketing expenses for the twelve months ended December 31, 2020 were $2,325,709, a decrease of $381,647, or 14%, compared to $2,707,356 for the twelve months ended December 31, 2019The decrease was primarily due to lower personnel and share based compensation expenses.



Engineering, Research, and Development Expense



Engineering, research, and development expenses consist primarily of salaries and personnel related expenses, stock-based compensation expense, consulting costs and other expenses.



-17-

 


 

Engineering, research, and development expenses for the twelve months ended December 31, 2020 were $3,535,742, a decrease of $74,226, or 2%, compared to $3,609,968 for the twelve months ended December 31, 2019. The decrease in engineering, research, and development expense was primarily due to the company proactively reducing vendor costs.



Depreciation and Amortization Expense



Depreciation and amortization expense consist of depreciation on our equipment and amortization of our intangible assets.



Depreciation and amortization expenses for the twelve months ended December 31, 2020 were $674,942, an increase of $74,876, or 12%, compared to $600,066 for the twelve months ended December 31, 2019. This increase is primarily attributable to the increased amortization of our developed and acquired technologies.



Interest Income



Interest income consists of stated interest income on our cash balances. 



Interest income for the twelve months ended December 31, 2020 was $1,221, compared to $28,160 for the twelve months ended December 31, 2019.  This decrease of $26,939, or 96%, related to lower earnings on cash positions held throughout the year as compared to the prior year.



Interest Expense



Interest expense consists of stated or implied interest expense on our notes payable, amortization of note discounts, and amortization of deferred financing costs.



Interest expense for the twelve months ended December 31, 2020  was  $286,896, an increase of $50,190, or 21%, compared to $236,706 for the twelve months ended December 31, 2019. The increase is primarily attributable to the interest on short- and long-term borrowings during the year.



Loss on Disposal of Fixed Assets



Loss on disposal of fixed assets consists of an asset being disposed of for less than its carrying value.



Loss on disposal of fixed assets for the twelve months ended December 31, 2020  was  $8,808, an increase of 100%, compared to the twelve months ended December 31, 2019.  



Impairment on Intangible Assets



Impairment of intangible assets consists of an intangible asset valued at less than its carrying value. 



Loss on the impairment of intangible assets for the twelve months ended December 31, 2020  was  $8,886, an increase of 100%, compared to the twelve months ended December 31, 2019.  



Loss on Settlement of Debt



Loss on settlement of debt consists of loss recognized with the conversion of related party notes that were converted to equity.



The loss on settlement for the twelve months ended December 31, 2020  was  $668,260, an increase of $435,798, or 187%, compared to $232,462 for the twelve months ended December 31, 2019.  



-18-

 


 

Foreign Currency



The Company’s financial results are impacted by volatility in the Canadian/U.S. Dollar exchange rate. The average U.S. Dollar exchange rate for the year ended December 31, 2020 and 2019 was $1 Canadian equals $0.75 and $0.75 U.S. Dollars, respectively.  The Company’s functional or measurement currency is the U.S. Dollar. Based on a U.S. Dollar functional currency, the following are the key areas impacted by foreign currency volatility:



·

The Company sells products primarily in U.S. Dollars; therefore, reported revenues are not highly impacted by foreign currency volatility.

·

A portion of the Company’s expenses are incurred in Canadian Dollars and therefore fluctuate in U.S. Dollars as the U.S. Dollar varies. A weaker U.S. Dollar results in an increase in translated expenses, and a stronger U.S. Dollar results in a decrease.

·

Changes in foreign currency rates also impact the translated value of the Company’s working capital that is held in Canadian Dollars. Foreign exchange rate fluctuations result in foreign exchange gains or losses based upon movement in the translated value of Canadian working capital into U.S. Dollars.



The change in foreign currency was a gain of $117 and $6,129 for the years ended December 31, 2020 and 2019, respectively.

 

Liquidity and Capital Resources



We have $3,282,820 of cash as of December 31, 2020. We had a net loss of $2.9 million for the year then ended, and we used $1.3 million of cash in our operating activities during 2020.  Based on our projected 2021 results and, if necessary, our ability to reduce certain variable operating expenses, we believe that our existing capital, and operations, will be sufficient to finance our operations through 2021.



If our cash reserves prove insufficient to sustain operations, we plan to raise additional capital by selling shares of capital stock or other equity or debt securities. However, there are no commitments or arrangements for future financings in place at this time, and we can give no assurance that such capital will be available on favorable terms or at all. We may need additional financing thereafter until we can achieve profitability. If we cannot, we will be forced to curtail our operations or possibly be forced to evaluate a sale or liquidation of our assets. Any future financing may involve substantial dilution to existing investors.



Although we are actively pursuing financing opportunities, we may not be able to raise cash on terms acceptable to us or at all. There can be no assurance that we will be successful in obtaining additional funding. Financings, if available, may be on terms that are dilutive to our shareholders, and the prices at which new investors would be willing to purchase our securities may be lower than the current price of our ordinary shares. The holders of new securities may also receive rights, preferences or privileges that are senior to those of existing holders of our ordinary shares. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations in the short term.



Cash Flows







 

 

 

 

 



 

 

 

 

 



For the Year Ended



December 31,

   

2020

   

2019

Net cash provided by (used in):

 

 

   

 

 

Operating activities

$

(1,329,111)

 

$

(5,749,595)

Investing activities

 

(297,195)

 

 

(557,233)

Financing activities

 

4,661,479 

 

 

6,003,963 

Effect of foreign currency translation on cash flow

 

(25,952)

 

 

22,209 

Net change in cash

$

3,009,221 

 

$

(280,656)



Operating Activities



We used cash in operating activities totaling $1,329,111 in 2020 and $5,749,595 in 2019, respectively. The decrease in cash used in operating activities in 2020 compared to 2019 was due primarily to a decrease in net loss by $5,903,577 offset by non-cash adjustments related to contracts receivable of ($572,441) and changes in accounts payable of ($1,321,012). 



-19-

 


 

Investing Activities



Investing activities during 2020 included  $266,365 of capitalized software development costs, $17,505 of purchases related to securing new patents and $13,325 of equipment purchases. Investing activities during 2019 included $539,931 of capitalized software development costs, $5,025 of purchases related to securing new patents, and $12,277 of equipment purchases.



Financing Activities



Financing activities for 2020 include net proceeds from the sale of common stock units of $3,574,775, proceeds from related party notes payable of $700,000 and $920,990 from other notes payable, offset by payments on notes payable of $473,586 and payments of related party notes payable of $60,700. Financing activities for 2019 include net proceeds from the sale of common stock units of $2,800,000, proceeds from related party notes payable of $3,500,000 offset by payments on notes payable of $305,345



Critical Accounting Policies and Estimates



We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Our management periodically evaluates the estimates and judgments made, including those related to share-based compensation and valuation of the derivative liability. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.



The following critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company’s consolidated financial statements.



Income Taxes



We account for income taxes using the assets and liability method, which recognizes deferred tax assets and liabilities determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established to reduce deferred tax assets when, based on available objective evidence, it is more likely than not that the benefit of such assets will not be realized. We recognize in the consolidated financial statements only those tax positions determined to be more likely than not of being sustained.



Revenue Recognition and Concentrations



Our Recurrency platform is a hosted solution. 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. Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. 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 are collected by credit card or electronic funds transfer. 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.



Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Accounting Standards Codification 606 (“ASC 606”), is a comprehensive revenue recognition standard that superseded nearly all existing revenue recognition guidance. The Company adopted this standard effective January 1, 2018, applying the modified retrospective method. Upon adoption, the Company discontinued revenue deferral under the sell-through model and commenced recording revenue upon delivery to distributors, net of estimated returns. Generally, the new standard results in earlier recognition of revenues.



We determine revenue recognition through the following steps:



·

identification of the contract, or contracts, with a customer;

·

identification of the performance obligations in the contract;

·

determination of the transaction price;

·

allocation of the transaction price to the performance obligations in the contract; and

·

recognition of revenue when, or as, we satisfy a performance obligation.



During the years ended December 31, 2020 and 2019, two customers accounted for 77% and 70% of our revenues, respectively.

-20-

 


 



Share-based compensation expense



Share-based compensation cost is measured at the date of grant, based on the calculated fair value of the stock-based award, and is recognized as expense over the employee’s requisite service period (generally the vesting period of the award). We estimate the fair value of employee stock options granted using the Black-Scholes Option Pricing Model. Key assumptions used to estimate the fair value of stock options include the exercise price of the award, the fair value of our common stock on the date of grant, the expected option term, the risk-free interest rate at the date of grant, the expected volatility and the expected annual dividend yield on our Company’s common stock. We have elected to account for forfeitures as they occur to determine the amount of compensation cost to be recognized in each period.



Derivative Financial Instruments



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



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



Off-Balance Sheet Arrangements



We have no off-balance sheet arrangements.

-21-

 


 



Item 8.  Financial Statements 

G:\Clients\MKACPAS.com\designs\M&K-CPAS-PLLC-v2.jpg



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and

Stockholders of Mobivity Holdings Corp.



Opinion on the Consolidated Financial Statements



We have audited the accompanying consolidated balance sheets of Mobivity Holdings Corp. (the Company) as of December 31, 2020 and 2019, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.



Basis for Opinion



These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.



We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.



Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.



Critical Audit Matters



The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.



-22-

 


 

Revenue and Improper Revenue Recognition



As discussed in Note 1, the Company recognizes revenue upon transfer of control of promised services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services.



Auditing management’s evaluation of agreements with customers involves significant judgment, given the fact that some agreements require management’s evaluation and allocation of the standalone transaction prices to the performance obligations.



To evaluate the appropriateness and accuracy of the assessment by management, we evaluated management’s assessment in relationship to the relevant agreements.   



M&K CPAS, PLLC



We have served as the Company’s auditor since 2012.



Houston, TX

March 30, 2021

 

-23-

 


 

Mobivity Holdings Corp.

Consolidated Balance Sheets







 

 

 

 

 



 

 

 

 

 



December 31,

 

December 31,



2020

 

2019

ASSETS

 

 

 

 

 

Current assets

 

 

 

 

 

Cash

$

3,282,820 

 

$

273,599 

Accounts receivable, net of allowance for doubtful accounts of $33,848 and $88,071, respectively

 

305,693 

 

 

614,726 

Contracts receivable, current

 

943,904 

 

 

526,948 

Right to use lease assets

 

47,038 

 

 

 —

Other current assets

 

272,736 

 

 

601,749 

Total current assets

 

4,852,191 

 

 

2,017,022 

Goodwill

 

496,352 

 

 

496,352 

Right to use lease assets

 

10,444 

 

 

260,645 

Intangible assets, net

 

1,368,329 

 

 

1,762,211 

Contracts receivable, long term

 

1,415,856 

 

 

1,260,371 

Other assets

 

25,230 

 

 

67,787 

TOTAL ASSETS

$

8,168,402 

 

$

5,864,388 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

$

1,935,411 

 

$

3,256,888 

Accrued interest

 

47,316 

 

 

35,292 

Accrued and deferred personnel compensation

 

224,881 

 

 

244,953 

Deferred revenue and customer deposits

 

606,597 

 

 

440,309 

Related party notes payable, net - current maturities

 

80,000 

 

 

140,700 

Notes payable, net - current maturities

 

561,676 

 

 

540,576 

Operating lease liability

 

58,173 

 

 

258,343 

Other current liabilities

 

566,303 

 

 

308,465 

Total current liabilities

 

4,080,357 

 

 

5,225,526 



 

 

 

 

 

Non-current liabilities

 

 

 

 

 

Related party notes payable, net - long-term

 

 —

 

 

1,000,000 

Notes payable, net - long-term

 

1,499,001 

 

 

567,529 

Operating lease liability

 

13,296 

 

 

45,460 

Other long-term liabilities

 

831,535 

 

 

740,218 

Total non-current liabilities

 

2,343,832 

 

 

2,353,207 

Total liabilities

 

6,424,189 

 

 

7,578,733 

Commitments and Contingencies (See Note 13)

 

 

 

 

 

Stockholders' equity (deficit)

 

 

 

 

 

Common stock, $0.001 par value; 100,000,000 shares authorized; 55,410,695 and 51,380,969, shares issued and outstanding

 

55,411 

 

 

51,381 

Equity payable

 

100,862 

 

 

100,862 

Additional paid-in capital

 

101,186,889 

 

 

94,781,738 

Accumulated other comprehensive income (loss)

 

(23,446)

 

 

8,780 

Accumulated deficit

 

(99,575,503)

 

 

(96,657,106)

Total stockholders' equity (deficit)

 

1,744,213 

 

 

(1,714,345)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

$

8,168,402 

 

$

5,864,388 



See accompanying notes to consolidated financial statements.

 

 

-24-

 


 

 

Mobivity Holdings Corp.

Consolidated Statements of Operations and Comprehensive Loss







 

 

 

 

 



 

 

 

 

 



For the Year Ended



December 31,



2020

 

2019

Revenues

 

 

 

 

 

Revenues

$

13,255,887 

 

$

10,056,922 

Cost of revenues

 

4,748,444 

 

 

5,938,298 

Gross profit

 

8,507,443 

 

 

4,118,624 

Operating expenses

 

 

 

 

 

General and administrative

 

3,917,935 

 

 

5,588,329 

Sales and marketing

 

2,325,709 

 

 

2,707,356 

Engineering, research, and development

 

3,535,742 

 

 

3,609,968 

Intangible asset impairment

 

8,886 

 

 

 —

Depreciation and amortization

 

674,942 

 

 

600,066 

Total operating expenses

 

10,463,214 

 

 

12,505,719 

Loss from operations

 

(1,955,771)

 

 

(8,387,095)

Other income/(expense)

 

 

 

 

 

Interest income

 

1,221 

 

 

28,160 

Interest expense

 

(286,896)

 

 

(236,706)

Loss on disposal of fixed assets

 

(8,808)

 

 

 —

Loss on settlement of debt

 

(668,260)

 

 

(232,462)

Foreign currency gain (loss)

 

117 

 

 

6,129 

Total other expense

 

(962,626)

 

 

(434,879)

Loss before income taxes

 

(2,918,397)

 

 

(8,821,974)

Income tax expense

 

 —

 

 

 —

Net Loss

 

(2,918,397)

 

 

(8,821,974)

Other comprehensive income (loss), net of income tax

 

 

 

 

 

Foreign currency translation adjustments

 

(32,226)

 

 

4,021 

Comprehensive loss

$

(2,950,623)

 

$

(8,817,953)

Net loss per share:

 

 

 

 

 

Basic and Diluted

$

(0.06)

 

$

(0.18)

Weighted average number of shares:

 

 

 

 

 

Basic and Diluted

 

51,575,454 

 

 

47,720,507 



See accompanying notes to consolidated financial statements.

 



 

-25-

 


 

Mobivity Holdings Corp.

Consolidated Statement of Stockholders' Equity (Deficit)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Common Stock

 

Equity

 

Additional

 

Accumulated Other

 

Accumulated

 

Total Stockholders'



Shares

 

Dollars

 

Payable

 

Paid-in Capital

 

Comprehensive Income (Loss)

 

Deficit

 

Equity (Deficit)

Balance, December 31, 2018

45,998,053 

 

$

45,998 

 

$

100,862 

 

$

88,008,473 

 

$

4,759 

 

$

(87,835,132)

 

$

324,960 

Issuance of common stock for cash

2,800,000 

 

 

2,800 

 

 

 —

 

 

2,797,200 

 

 

 —

 

 

 —

 

 

2,800,000 

Issuance of common stock for debt settlement

2,582,916 

 

 

2,583 

 

 

 —

 

 

2,812,795 

 

 

 —

 

 

 —

 

 

2,815,378 

Stock based compensation

 —

 

 

 —

 

 

 —

 

 

1,163,270 

 

 

 —

 

 

 —

 

 

1,163,270 

Foreign currency translation adjustment

 —

 

 

 —

 

 

 —

 

 

 —

 

 

4,021 

 

 

 —

 

 

4,021 

Net loss

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(8,821,974)

 

 

(8,821,974)

Balance, December 31, 2019

51,380,969 

 

$

51,381 

 

$

100,862 

 

$

94,781,738 

 

$

8,780 

 

$

(96,657,106)

 

$

(1,714,345)

Issuance of common stock for options exercised

1,556,459 

 

 

1,556 

 

 

 —

 

 

1,932,411 

 

 

 —

 

 

 —

 

 

1,933,967 

Issuance of common stock for warrants exercised

1,359,500 

 

 

1,360 

 

 

 —

 

 

1,639,448 

 

 

 —

 

 

 —

 

 

1,640,808 

Issuance of common stock for debt settlement

1,113,767 

 

 

1,114 

 

 

 —

 

 

2,059,354 

 

 

 —

 

 

 —

 

 

2,060,468 

Stock based compensation

 —

 

 

 —

 

 

 —

 

 

773,938 

 

 

 —

 

 

 —

 

 

773,938 

Foreign currency translation adjustment

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(32,226)

 

 

 —

 

 

(32,226)

Net loss

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(2,918,397)

 

 

(2,918,397)

Balance, December 31, 2020

55,410,695 

 

$

55,411 

 

$

100,862 

 

$

101,186,889 

 

$

(23,446)

 

$

(99,575,503)

 

$

1,744,213 



See accompanying notes to consolidated financial statements.

 



 

-26-

 


 

Mobivity Holdings Corp.

Consolidated Statements of Cash Flows







 

 

 

 

 



 

 

 

 

 



For the Year Ended



December 31,



2020

 

2019

OPERATING ACTIVITIES

 

 

 

 

 

Net loss

$

(2,918,397)

 

$

(8,821,974)

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

 

 

 

 

 

Bad debt expense

 

25,583 

 

 

103,284 

Loss on settlement of debt

 

668,260 

 

 

232,462 

Stock-based compensation

 

773,938 

 

 

1,163,270 

Loss on disposal of fixed assets

 

8,808 

 

 

 —

Intangible Asset Impairment

 

8,886 

 

 

 —

Depreciation and amortization expense

 

696,574 

 

 

600,066 

Increase (decrease) in cash resulting from changes in:

 

 

 

 

 

Accounts receivable

 

282,734 

 

 

(115,288)

Contracts receivable, current

 

(416,956)

 

 

(51,921)

Other current assets

 

338,233 

 

 

569,430 

Operating lease assets/liabilities

 

(33,590)

 

 

14,887 

Contracts receivable, long-term

 

(155,485)

 

 

516,431 

Other assets

 

14,040 

 

 

8,615 

Accounts payable

 

(1,321,012)

 

 

1,581,238 

Accrued interest

 

204,232 

 

 

109,041 

Accrued and deferred personnel compensation

 

(20,402)

 

 

(106,098)

Other liabilities - non-current

 

91,317 

 

 

(31,028)

Other liabilities - current

 

257,838 

 

 

(5,178)

Deferred revenue and customer deposits

 

166,288 

 

 

(1,516,832)

Net cash used in operating activities

 

(1,329,111)

 

 

(5,749,595)

INVESTING ACTIVITIES

 

 

 

 

 

Purchases of equipment

 

(13,325)

 

 

(12,277)

Cash paid for patent

 

(17,505)

 

 

(5,025)

Capitalized software development costs

 

(266,365)

 

 

(539,931)

Net cash used in investing activities

 

(297,195)

 

 

(557,233)

FINANCING ACTIVITIES

 

 

 

 

 

Payments on notes payable

 

(473,586)

 

 

(305,345)

Payments on related party notes payable

 

(60,700)

 

 

9,308 

Proceeds from notes payable

 

920,990 

 

 

 —

Proceeds from related party notes payable

 

700,000 

 

 

3,500,000 

Proceeds from issuance of common stock, net of issuance costs

 

3,574,775 

 

 

2,800,000 

Net cash provided by financing activities

 

4,661,479 

 

 

6,003,963 



 

 

 

 

 

Effect of foreign currency translation on cash flow

 

(25,952)

 

 

22,209 



 

 

 

 

 

Net change in cash

 

3,009,221 

 

 

(280,656)

Cash at beginning of period

 

273,599 

 

 

554,255 

Cash at end of period

$

3,282,820 

 

$

273,599 

Supplemental disclosures:

 

 

 

 

 

Cash paid during period for:

 

 

 

 

 

Interest

$

75,464 

 

$

210,581 

Taxes

$

851 

 

$

 —

Non cash investing and financing activities:

 

 

 

 

 

Issuance of common stock for cashless exercise

$

 —

 

$

 —

Issuance of common stock for debt settlement

$

1,392,208 

 

$

2,582,916 

Lease adoption

$

 —

 

$

538,740 



See accompanying notes to consolidated financial statements.

 



 

-27-

 


 

Mobivity Holdings Corp.

Notes to Consolidated Financial Statements

 

1. The Company and Summary of Significant Accounting Policies



The Company



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 marketing campaigns. 



Mobivity’s Recurrency platform enables multi-unit retailers to leverage the power of their own data to yield maximum customer spend, frequency and loyalty while achieving the highest Return on Marketing Spend (ROMS) possible. Mobivity’s customers use Recurrency to:

 

·

Transform messy point-of-sale (POS) data collected from thousands of points of sale into usable intelligence.

·

Measure, predict, and boost guest frequency and spend by channel.

·

Deploy and manage one-time use offer codes and attribute sales accurately across every channel, promotion and media program.

·

Deliver 1:1 promotions and offers with customized Mobile Messaging, Personalized Receipt Promotions and Integrated Loyalty programs.

 

Mobivity’s Recurrency, delivered as a SaaS platform, is used by leading brands including Subway, Sonic Drive-In, Chick-fil-A, Checkers/Rally’s and Circle K’s across more than 40,000 retail locations globally.

 

We’re living in a data-driven economy. In fact, by 2003 — when the concept of “big data” became common vernacular in marketing - as much data was being created every two day as had been created in all of time prior to 2003. Today, Big Data has grown at such a rate that 90% of the world’s data has been created in the past two years. Unfortunately, despite there being so much data accumulated, only one percent of data is being utilized today by most businesses.



The challenge for multi-unit retailers isn’t that they don’t have enough data; in fact, national retailers are collecting millions of detailed transactions daily from thousands of points of sale around the world. The challenge is being able to make sense of this transaction data, which is riddled with data entry errors, collected by multiple POS systems and complicated by a taxonomy compiled by thousands of different franchisee owners. To normalize such an overwhelming amount of data into usable intelligence and then leverage it to optimize media investment and promotion strategy requires numerous teams of data analysts and data scientists that many retailers and restaurant operators simply don’t have. Which is why so many technology and data companies, that can help solve these challenges, have been invested in and acquired by brands including, McDonald’s, Starbucks and Yum Brands.



Mobivity’s Recurrency platform fills this need with a self-service SaaS offering, enabling operators to intelligently optimize their promotions, media and marketing spend. Recurrency drives system-wide sales producing on average a 13% increase in guest spend and a 26% improvement in frequency, ultimately delivering an average Return on Marketing Spend of 10X. In other words, for every dollar invested in marketing, retailers using Recurrency to manage, optimize and deliver multi-channel consumer promotions generate an average of ten dollars in incremental revenue from their customers.



We generate revenue by charging the resellers, brands and enterprises a per-message transactional fee, or through fixed or variable software licensing fees.



Liquidity



We have $3,282,820 of cash as of December 31, 2020. We had a net loss of $2.9 million for the year then ended, and we used $1.3 million of cash in our operating activities during 2020.  In 2019, we had a net loss of $8.8 million and used $5.7 million of cash in our operating expenses.  Based on our projected results for the 12 month period from the date of this report and, if necessary, our ability to reduce certain variable operating expenses, we believe that our existing capital, and operations, will be sufficient to finance our operations through 2021.



Principles of Consolidation and Basis of Presentation



The accompanying financial statements are consolidated and include the financial statements of Mobivity Holdings Corp., and our wholly-owned subsidiary. Intercompany transactions are eliminated.



-28-


 

Use of Estimates



Preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates are based on management's best knowledge of current events and actions we may undertake in the future. Significant estimates used are those related to: stock-based compensation; valuation of acquired assets, intangible assets and liabilities; useful lives for depreciation and amortization of long-lived assets; future cash flows associated with impairment testing for goodwill, indefinite-lived intangible assets and other long-lived assets; valuation of derivative liabilities; valuation allowance for deferred tax assets; and contingencies.



Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the consolidated financial statements in any individual year. However, in regard to ongoing impairment testing of goodwill and indefinite-lived intangible assets, significant deterioration in future cash flow projections or other assumptions used in estimating fair values versus those anticipated at the time of the initial valuations, could result in impairment charges that materially affect the consolidated financial statements in a given year.



Reclassifications



Certain prior year amounts have been reclassified to conform to the current year’s presentation. The reclassifications had no effect on previously reported net loss.



Acquisitions



We account for acquired businesses using the purchase method of accounting. Under the purchase method, our consolidated financial statements reflect the operations of an acquired business starting from the completion of the acquisition. In addition, the assets acquired and liabilities assumed are recorded at the date of acquisition at their respective estimated fair values, with any excess of the purchase price over the estimated fair values of the net assets acquired recorded as goodwill.



Cash and Cash Equivalents



We minimize our credit risk associated with cash by periodically evaluating the credit quality of our primary financial institution. Our balances at times may exceed federally insured limits. We have not experienced any losses on our cash accounts.



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 December 31, 2020 and 2019, we recorded an allowance for doubtful accounts of $33,848 and $88,071, respectively.



From time to time, we may have a limited number of customers with individually large amounts due. Any unanticipated change in one of the customer’s credit worthiness could have a material effect on the results of operations in the period in which such changes or events occurred.



As of December 31, 2020, we had two customer whose balance represented 75% of total accounts receivable. As of December 31, 2019, we had two customers whose balance represented 53% of total accounts receivable.



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.



We conducted our annual impairment tests of goodwill as of December 31, 2020 and 2019. As a result of these tests, we did not record impairment charges.



-29-


 

Intangible assets consist of patents and trademarks, purchased customer contracts, purchased customer and merchant relationships, purchased trade names, purchased technology, and non-compete agreements. 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. 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.



The Company’s evaluation of its long-lived assets completed resulted in no impairment charges during the years ended December 31, 2020 and December 31, 2019.



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. 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 impairment 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. The Company’s evaluation of its capitalized software development asset resulted in impairment charges of $8,886 for the year ended December 30, 2020 and $0 for the year ended December 31, 2019.



Derivative Financial Instruments



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



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



Revenue Recognition and Concentrations



Our Recurrency platform is a hosted solution. 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. Under Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. 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 are 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.



During the years ended December 31, 2020 and 2019,  two customers accounted for 77% and 70% of our revenues, respectively.



Stock-based Compensation



We primarily issue stock-based awards to employees in the form of stock options. We determine compensation expense associated with stock options based on the estimated grant date fair value method using the Black-Scholes valuation model. We recognize compensation expense using a straight-line amortization method over the respective vesting period. 



-30-


 

Research and Development Expenditures



Research and development expenditures are expensed as incurred, and consist primarily of compensation costs, outside services, and expensed materials.



Advertising Expense



Direct advertising costs are expensed as incurred and consist primarily of E-commerce advertisements, sales enablement, content creation, and other direct costs. Advertising expense was $399,266 and $40,993 for years ended December 31, 2020 and 2019, respectively. We also include the cost of attending trade shows under marketing expense. We recorded $81,852 and $139,392 of expense related to those activities for the years ended December 31, 2020 and 2019, respectively.



Income Taxes



We account for income taxes using the assets and liability method, which recognizes deferred tax assets and liabilities determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established to reduce deferred tax assets when, based on available objective evidence, it is more likely than not that the benefit of such assets will not be realized. We recognize in the consolidated financial statements only those tax positions determined to be more likely than not of being sustained.



Computation of Net Loss per Common Share



Basic net loss per share is based upon the weighted average number of common shares outstanding. Diluted net loss per share is based on the assumption that all potential common stock equivalents (convertible notes payable, stock options, and warrants) are converted or exercised. The calculation of diluted net loss per share excludes potential common stock equivalents if the effect is anti-dilutive. Our weighted average common shares outstanding for basic and diluted are the same because the effect of the potential common stock equivalents is anti-dilutive.



We had the following dilutive common stock equivalents as of December 31, 2020 and 2019 which were excluded from the calculation because their effect was anti-dilutive.







 

 

 



 

 

 



December 31,



2020

 

2019

Outstanding employee options

6,007,552 

 

5,781,884 

Outstanding restricted stock units

1,436,728 

 

1,152,248 

Outstanding warrants

2,691,459 

 

3,358,459 



10,135,739 

 

10,292,591 



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 adopted this standard as of January 1, 2019.



In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230).” ASU No. 2016-18 requires that restricted cash be included with cash and cash equivalents when reconciling the change in cash flow.    The Company adopted this standard as of January 1, 2019. 

 

2. Acquisitions



We did not have any acquisitions in 2020 or 2019.

 

-31-


 





3.  Goodwill and Intangible Assets



Goodwill



The following table presents goodwill and impairment for the years ended December 31, 2020 and 2019:







 

 



 

 



Goodwill

December 31, 2018

$

537,550 

Acquired

 

(41,198)

Impairment

 

 —

December 31, 2019

 

496,352 

Acquired

 

 —

Impairment

 

 —

December 31, 2020

$

496,352 



We conducted our annual impairment test of goodwill as of December 31, 2020 and 2019, which resulted in no impairment charges.  During the year ended December 31, 2019, there was an adjustment for $41,198 to correct the goodwill recorded related to the acquisition of Belly.



Intangible assets



The following table presents components of identifiable intangible assets for the years ended December 31, 2020 and 2019:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



December 31, 2020

 

December 31, 2019



Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net Carrying
Amount

 

Weighted
Average
Useful
Life
(Years)

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net Carrying
Amount

 

Weighted
Average
Useful
Life
(Years)

Patents and trademarks

$

197,528 

 

$

(126,499)

 

$

71,029 

 

14 

 

$

183,583 

 

$

(113,730)

 

$

69,853 

 

14 

Customer and merchant
relationships

 

2,321,112 

 

 

(1,678,727)

 

 

642,385 

 

10 

 

 

2,321,112 

 

 

(1,581,876)

 

 

739,236 

 

10 

Trade name

 

197,950 

 

 

(156,506)

 

 

41,444 

 

10 

 

 

197,924 

 

 

(147,192)

 

 

50,732 

 

10 

Acquired technology

 

621,030 

 

 

(492,539)

 

 

128,491 

 

10 

 

 

684,540 

 

 

(539,748)

 

 

144,792 

 

10 

Non-compete agreement

 

79,299 

 

 

(34,228)

 

 

45,071 

 

 

 

79,299 

 

 

(18,368)

 

 

60,931 

 



$

3,416,919 

 

$

(2,488,499)

 

$

928,420 

 

 

 

$

3,466,458 

 

$

(2,400,914)

 

$

1,065,544 

 

 



During the years ended December 31, 2020 and 2019, we recorded amortization expense related to our intangible assets of $150,701 and $178,653, respectively, which is included in depreciation and amortization in the consolidated statement of operations.



During the years ended December 31, 2020 and 2019, we recorded no impairment charges related to our intangible assets.



Expected future intangible asset amortization as of December 31, 2020 is as follows:







 

 



 

 

Year ending December 31,

Amount

2021

$

147,992 

2022

 

147,868 

2023

 

145,359 

2024

 

108,763 

2025

 

101,015 

Thereafter

 

277,423 

Total

$

928,420 







-32-


 

4.  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 for the years ended December 31, 2020 and 2019:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

December 31, 2019

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net Carrying
Amount

 

Weighted
Average
Useful
Life
(Years)

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net Carrying
Amount

 

Weighted
Average
Useful
Life
(Years)

$

2,266,272 

 

$

(1,826,364)

 

$

439,908 

 

 

$

2,245,811 

 

$

(1,549,144)

 

$

696,667 

 

$

2,266,272 

 

$

(1,826,364)

 

$

439,908 

 

 

 

$

2,245,811 

 

$

(1,549,144)

 

$

696,667 

 

 



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



During the years ended December 31, 2020 and 2019,  we capitalized $266,365 and 539,932 respectively of software development.  We recorded amortization expense for software development costs of $518,087 and $309,736, respectively which is included in depreciation and amortization in the consolidated statement of operations.



During the years ended December 31, 2020 and 2019, we recorded impairment charges of $8,886 and $0, respectively related to our software development costs.



The estimated future amortization expense of software development costs as of December 31, 2020 is as follows:







 

 



 

 

Year ending December 31,

Amount

2021

 

345,643 

2022

 

94,265 

2023

 

 —

2024

 

 —

2025

 

 —

Thereafter

 

 —

Total

$

439,908 

 

5.  Operating Lease Assets



Adoption of Accounting Standards Codification (“ASC”) Topic 842, “Leases." The Company adopted Topic 842 on January 1, 2019, using the modified retrospective method and the optional transition method to record the adoption impact through a cumulative adjustment to equity. Results for reporting periods beginning after January 1, 2019, are presented under Topic 842, while prior periods are not adjusted and continue to be reported under the accounting standards in effect for those periods.



-33-


 

The following are additional details related to leases recorded on our balance sheet as of December 31, 2020:





 

 

 

 



 

 

 

 

Leases

Classification

 

Balance at
December 31,
2020

Assets

 

 

 

 

Current

 

 

 

 

    Operating lease assets

Operating lease assets

 

$

47,038 

Noncurrent

 

 

 

 

    Operating lease assets

Noncurrent operating lease assets

 

 

10,444 

Total lease assets

 

 

$

57,482 



 

 

 

 

Liabilities

 

 

 

 

Current

 

 

 

 

    Operating lease liabilities

Operating lease liabilities

 

$

58,173 

Noncurrent

 

 

 

 

    Operating lease liabilities

Noncurrent operating lease liabilities

 

$

13,296 

Total lease liabilities

 

 

$

71,469 



During the year ended December 31, 2020, we recorded a credit to amortization expense of $17,214 and during the year ended December 31, 2019, we recorded expenses of $4,419 related to the accretion of the lease liability, which is included in depreciation and amortization in the consolidated statement of operations.



Rent expense was $317,774 and $320,496 for the years ended December 31, 2020 and 2019, respectively.



We have entered into a new lease starting in February of 2021 for 8,898 square feet of office space located at 3133 W. Frye Road, Suite 215, Chandler, Arizona.  Monthly rental payments, excluding common area maintenance charges, will be $25,953 to $28,733.  The first twelve months of the lease includes a 50% abatement period.  An operating lease asset and liability will be recorded when the lease commences in accordance with ASC 842.



The maturity analysis below summarizes the remaining future undiscounted cash flows for our operating leases, a reconciliation to operating lease liabilities reported on the Condensed Consolidated Balance Sheet, our weighted-average remaining lease term and weighted average discount rate:







 

 



 

 

Year ending December 31,

Amount

2021

$

60,592 

2022

 

13,484 

2023

 

 —

2024

 

 —

2025

 

 —

Thereafter

 

 —

  Total future lease payments

 

74,076 

   Less: imputed interest

 

(2,607)

Total

$

71,469 







 

 



 

 

Weighted Average Remaining Lease Term (years)

 

 

   Operating leases

 

0.57 



 

 

Weighted