SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549



FORM 10-Q



(Mark One)



 

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

 

For the quarterly period ended March 31, 2018





 

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



For the transition period from ___________ to __________

 

Commission file number 000-53851



Mobivity Holdings Corp.

(Exact Name of Registrant as Specified in Its Charter)





 

 

Nevada

   

26-3439095

(State or Other Jurisdiction of

   

(I.R.S. Employer

Incorporation or Organization)

   

Identification No.)



55 N. Arizona Place, Suite 310

Chandler, Arizona 85225

 (Address of Principal Executive Offices & Zip Code)



(877) 282-7660

(Registrant’s Telephone Number)



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),

and (2) has been subject to such filing requirements for the past 90 days.  Yes    No 



Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes    No 



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





 

 

 

 

Large accelerated filer

   

Accelerated filer

Non-accelerated filer 

(Do not check if a smaller reporting company)

   

Smaller reporting company 



 

 

Emerging Company



 

 

 

 



 

 

 

 

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



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



As of May 8, 2018, the registrant had 39,057,573 shares of common stock issued and outstanding.





 



 

 


 

 

MOBIVITY HOLDINGS CORP.



TABLE OF CONTENTS





 

 



 

Page

PART  I

FINANCIAL INFORMATION

Item 1.

Financial Statements



Condensed Consolidated Balance Sheets as of March 31, 2018 (Unaudited) and December 31, 2017



Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2018 and 2017 (Unaudited)



Condensed Consolidated Statement of Stockholders’ Equity for the three months ended March 31, 2018 (Unaudited) and the year ended December 31, 2017



Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017 (Unaudited)



Notes to Condensed Consolidated Financial Statements (Unaudited)

Item 2.

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

18 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23 

Item 4.

Controls and Procedures

23 



 

 

PART II

OTHER INFORMATION

 

Item 1.

Legal Proceedings

23 

Item 1A.

Risk Factors

23 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

23 

Item 3.

Defaults upon Senior Securities

24 

Item 4.

Mine Safety Disclosures

24 

Item 5.

Other Information

24 

Item 6.

Exhibits

24 

Signature Page

24 







 

 



 

 


 

Table of Contents

 

PART I  FINANCIAL INFORMATION

Item 1.  Financial Statements

Mobivity Holdings Corp.

Condensed Consolidated Balance Sheets







 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,

 

December 31,



 

2018

 

2017



 

(Unaudited)

 

(Audited)

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$

419,373 

 

$

460,059 

Accounts receivable, net of allowance for doubtful accounts of $1,189 and $2,280, respectively

 

 

1,457,634 

 

 

885,743 

Other current assets

 

 

202,412 

 

 

209,536 

Total current assets

 

 

2,079,419 

 

 

1,555,338 

Goodwill

 

 

803,118 

 

 

803,118 

Intangible assets, net

 

 

600,296 

 

 

676,436 

Accounts receivable, long term

 

 

824,272 

 

 

 -

Other assets

 

 

91,124 

 

 

88,916 

TOTAL ASSETS

 

$

4,398,229 

 

$

3,123,808 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

1,148,953 

 

$

1,096,003 

Accrued interest

 

 

15,083 

 

 

1,168 

Accrued and deferred personnel compensation

 

 

761,805 

 

 

590,500 

Deferred revenue and customer deposits

 

 

1,602,711 

 

 

1,429,266 

Notes payable, net - current maturities

 

 

170,592 

 

 

2,236,224 

Other current liabilities

 

 

429,789 

 

 

226,355 

Total current liabilities

 

 

4,128,933 

 

 

5,579,516 



 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

Notes payable, net - long term

 

 

1,423,495 

 

 

180,810 

Other long term liabilities

 

 

582,626 

 

 

 -

Total non-current liabilities

 

 

2,006,121 

 

 

180,810 

Total liabilities

 

 

6,135,054 

 

 

5,760,326 

Commitments and Contingencies (See Note 9)

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Common stock, $0.001 par value; 100,000,000 shares authorized; 39,057,573 and 37,025,140, shares issued and outstanding

 

 

39,058 

 

 

37,025 

Equity payable

 

 

100,862 

 

 

100,862 

Additional paid-in capital

 

 

80,325,094 

 

 

77,910,842 

Accumulated other comprehensive loss

 

 

(78,379)

 

 

(65,764)

Accumulated deficit

 

 

(82,123,460)

 

 

(80,619,483)

Total stockholders' equity

 

 

(1,736,825)

 

 

(2,636,518)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

4,398,229 

 

$

3,123,808 



See accompanying notes to these unaudited condensed consolidated financial statements.



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Mobivity Holdings Corp.

Condensed Consolidated Statements of Operations and Comprehensive Income 

(Unaudited)







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,



 

2018

 

2017

Revenues

 

 

 

 

 

 

Revenues

 

$

3,693,328 

 

$

2,113,283 

Cost of revenues

 

 

793,389 

 

 

557,388 

Gross profit

 

 

2,899,939 

 

 

1,555,895 

Operating expenses

 

 

 

 

 

 

General and administrative

 

 

1,248,343 

 

 

1,015,418 

Sales and marketing

 

 

1,461,580 

 

 

1,208,785 

Engineering, research, and development

 

 

1,531,598 

 

 

589,322 

Depreciation and amortization

 

 

96,970 

 

 

68,746 

Total operating expenses

 

 

4,338,491 

 

 

2,882,271 

Loss from operations

 

 

(1,438,552)

 

 

(1,326,376)

Other income/(expense)

 

 

 

 

 

 

Interest income

 

 

456 

 

 

904 

Interest expense

 

 

(57,489)

 

 

(21,106)

Gain on sale of fixed assets

 

 

(8,722)

 

 

 -

Foreign currency (loss) gain

 

 

330 

 

 

(2,648)

Total other income/(expense)

 

 

(65,425)

 

 

(22,850)

Loss before income taxes

 

 

(1,503,977)

 

 

(1,349,226)

Income tax expense

 

 

 -

 

 

 -

Net loss

 

 

(1,503,977)

 

 

(1,349,226)

Other comprehensive loss, net of income tax

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(12,615)

 

 

(5,221)

Comprehensive loss

 

$

(1,516,592)

 

$

(1,354,447)



 

 

 

 

 

 

Net loss per share - basic and diluted

 

$

(0.04)

 

$

(0.04)



 

 

 

 

 

 

Weighted average number of shares

  during the period - basic and diluted

 

 

38,018,733 

 

 

36,388,997 



 

 

 

 

 

 



See accompanying notes to these unaudited condensed consolidated financial statements.

 

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Mobivity Holdings Corp.

Consolidated Statement of Stockholders’ Equity







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Common Stock

 

Equity

 

Additional

 

Accumulated Other

 

Accumulated

 

Total Stockholders'



 

Shares

 

Dollars

 

Payable

 

Paid-in Capital

 

Comprehensive Loss

 

Deficit

 

Equity (Deficit)

Balance, December 31, 2016

 

36,388,997 

 

$

36,389 

 

$

100,862 

 

$

76,698,383 

 

$

(32,999)

 

$

(74,673,471)

 

 

2,129,164 

Issuance of common stock for options exercised

 

152,085 

 

 

152 

 

 

 -

 

 

82,646 

 

 

 -

 

 

 -

 

 

82,798 

Issuance of common stock for restricted stock awards

 

484,058 

 

 

484 

 

 

 -

 

 

(484)

 

 

 -

 

 

 -

 

 

 -

Stock based compensation

 

 -

 

 

 -

 

 

 -

 

 

1,130,297 

 

 

 -

 

 

 -

 

 

1,130,297 

Foreign currency translation adjustment

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(32,765)

 

 

 -

 

 

(32,765)

Net loss

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(5,946,012)

 

 

(5,946,012)

Balance, December 31, 2017

 

37,025,140 

 

$

37,025 

 

$

100,862 

 

$

77,910,842 

 

$

(65,764)

 

$

(80,619,483)

 

$

(2,636,518)

Issuance of common stock for warrant conversion

 

2,018,125 

 

 

2,018 

 

 

 -

 

 

2,151,829 

 

 

 -

 

 

 -

 

 

2,153,847 

Issuance of common stock for cashless warrant conversion

 

1,808 

 

 

 

 

 -

 

 

(2)

 

 

 -

 

 

 -

 

 

 -

Issuance of common stock for options exercised

 

12,500 

 

 

13 

 

 

 -

 

 

9,582 

 

 

 -

 

 

 -

 

 

9,595 

Stock based compensation

 

 -

 

 

 -

 

 

 -

 

 

252,843 

 

 

 -

 

 

 -

 

 

252,843 

Foreign currency translation adjustment

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(12,615)

 

 

 -

 

 

(12,615)

Net loss

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(1,503,977)

 

 

(1,503,977)

Balance, March 31, 2018

 

39,057,573 

 

$

39,058 

 

$

100,862 

 

$

80,325,094 

 

$

(78,379)

 

$

(82,123,460)

 

$

(1,736,825)



See accompanying notes to these unaudited condensed consolidated financial statements.

 

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Mobivity Holdings Corp.

Consolidated Statements of Cash Flows

(Unaudited)







 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 31,



 

2018

 

2017

OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss

 

$

(1,503,977)

 

$

(1,349,226)

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

 

 

 

 

 

 

Bad debt expense

 

 

 -

 

 

(9,787)

Amortization of deferred financing costs

 

 

 -

 

 

4,245 

Stock-based compensation

 

 

252,842 

 

 

337,417 

Amortization of debt discount

 

 

7,786 

 

 

 -

Loss on disposal of fixed assets

 

 

8,722 

 

 

 -

Depreciation and amortization expense

 

 

96,970 

 

 

68,746 

Adjustments due to ASC 606

 

 

(713,568)

 

 

 -

Increase (decrease) in cash resulting from changes in:

 

 

 

 

 

 

Accounts receivable

 

 

265,936 

 

 

1,140,079 

Other current assets

 

 

4,151 

 

 

(42,760)

Other assets

 

 

264 

 

 

225 

Accounts payable

 

 

41,690 

 

 

(59,548)

Accrued interest

 

 

13,915 

 

 

1,999 

Accrued and deferred personnel compensation

 

 

149,156 

 

 

(93,297)

Other liabilities - non-current

 

 

58,474 

 

 

 -

Other liabilities - current

 

 

(185,652)

 

 

(8,529)

Deferred revenue and customer deposits

 

 

166,750 

 

 

247,289 

Net cash provided by (used in) operating activities

 

 

(1,336,541)

 

 

236,853 

INVESTING ACTIVITIES

 

 

 

 

 

 

Purchases of equipment

 

 

(18,078)

 

 

(2,490)

Cash paid for patent

 

 

 -

 

 

(6,549)

Capitalized software development costs

 

 

(13,948)

 

 

(246,178)

Net cash used in investing activities

 

 

(32,026)

 

 

(255,217)

FINANCING ACTIVITIES

 

 

 

 

 

 

Payments on notes payable

 

 

(1,902,947)

 

 

 -

Deferred financing costs

 

 

 -

 

 

(15,000)

Proceeds from notes payable

 

 

1,080,000 

 

 

53,051 

Proceeds from issuance of common stock, net of issuance costs

 

 

2,163,443 

 

 

 -

Net cash provided by financing activities

 

 

1,340,496 

 

 

38,051 



 

 

 

 

 

 

Effect of foreign currency translation on cash flow

 

 

(12,615)

 

 

(1,152)



 

 

 

 

 

 

Net change in cash

 

 

(40,686)

 

 

18,535 

Cash at beginning of period

 

 

460,059 

 

 

1,188,485 

Cash at end of period

 

$

419,373 

 

$

1,207,020 

Supplemental disclosures:

 

 

 

 

 

 

Cash paid during period for:

 

 

 

 

 

 

Interest

 

$

57,489 

 

$

52,960 

Non cash investing and financing activities:

 

 

 

 

 

 

Issuance of common stock for cashless exercise

 

$

 

$

 -



See accompanying notes to these unaudited condensed consolidated financial statements.















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Mobivity Holdings Corp.

Notes to Condensed Consolidated Financial Statements

(Unaudited)



1.  Nature of Operations and Basis of Presentation



Mobivity Holdings Corp. (the “Company” or “we”) is in the business of developing and operating proprietary platforms over which brands and enterprises can conduct national and localized, data-driven mobile marketing campaigns. Our proprietary platforms, consisting of software available to phones, tablets, PCs, and Point of Sale (POS) systems, allow resellers, brands and enterprises to market their products and services to consumers through text messages sent directly to consumers via mobile phones, mobile smartphone applications, and dynamically printed receipt content. On January 15, 2016, we completed the acquisition of LiveLenz Inc., a Nova Scotia corporation (“LiveLenz”), a wholly-owned subsidiary. We generate revenue by charging the resellers, brands and enterprises a per-message transactional fee, through fixed or variable software licensing fees, or via advertising fees.



The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and disclosures required by GAAP for annual financial statements. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on April 11, 2018.



In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of our condensed consolidated financial statements as of March 31, 2018, and for the three months ended March 31, 2018 and 2017. The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the operating results for the full year ending December 31, 2018

 

2.  Summary of Significant Accounting Policies



Principles of Consolidation



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



Use of Estimates



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



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 March 31, 2018 and December 31, 2017, we recorded an allowance for doubtful accounts of $1,189 and $2,280 respectively.



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

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considered impaired if the carrying value of the reporting unit exceeds its fair value. The discounted cash flow approach uses expected future operating results. Failure to achieve these expected results may cause a future impairment of goodwill at the reporting unit.



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



Software Development Costs

 

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

 

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

 

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



Impairment of Long-Lived Assets



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



Foreign Currency Translation



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



Revenue Recognition and Concentrations



Our re•ceipt and re•ach and customer relationship management are hosted solutions. We generate revenue from licensing our software to clients in our software as a service model, per-message and per-minute transactional fees, and customized professional services. We recognize license/subscription fees over the period of the contract, service fees as the services are performed, and per-message or per-minute transaction revenue when the transaction takes place. We recognize revenue at the time that the services are rendered, the selling price is fixed, and collection is reasonably assured, provided no significant obligations remain. We consider authoritative guidance on multiple deliverables in determining whether each deliverable represents a separate unit of accounting. Some customers are billed on a month-to-month basis with no contractual term and 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 three months ended March 31, 2018,  two customers accounted for 66% of our revenues. During the three months ended March 31, 2017,  one customer accounted for 69% of our revenues.



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Comprehensive Income (Loss)



Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. We are required to record all components of comprehensive income (loss) in the consolidated financial statements in the period in which they are recognized. Net income (loss) and other comprehensive income (loss), including foreign currency translation adjustments and unrealized gains and losses on investments, are reported, net of their related tax effect, to arrive at comprehensive income (loss). For the three months ended March 31, 2018 and 2017, the comprehensive loss was $1,516,592 and  $1,354,447, respectively. 



Net Loss Per Common Share



Basic net loss per share excludes any dilutive effects of options, shares subject to repurchase and warrants. Diluted net loss per share includes the impact of potentially dilutive securities. During the three months ended March 31, 2018 and 2017, we had securities outstanding which could potentially dilute basic earnings per share in the future, but were excluded from the computation of diluted net loss per share, as their effect would have been anti-dilutive.



Reclassifications



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



Recent Accounting Pronouncements



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



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



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









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



In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which removes the second step of the two-step goodwill impairment test. Under ASU 2017-04, an entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. ASU 2017-04 does not amend the optional qualitative assessment of goodwill impairment. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019; early adoption is permitted for interim or annual goodwill impairment tests performed

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on testing dates after January 1, 2017. The Company is currently in the process of evaluating the impact of adopting ASU 2017-04 and cannot currently estimate the financial statement impact of adoption.

 

3.  New Accounting Standards



Revenue from Contracts with Customers.



In May 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-09, Revenue from Contracts with Customers (“ASC 606”), which creates a single source of revenue guidance under U.S. GAAP for all companies in all industries and replaces most existing revenue recognition guidance in U.S. GAAP. Under the new standard, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.



Our transition to ASC 606 represents a change in accounting principle. ASC 606 eliminates industry-specific guidance and provides a single revenue recognition model for recognizing revenue from contracts with customers. The core principle of ASC 606 is that a reporting entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the reporting entity expects to be entitled for the exchange of those goods or services.



The Company adopted the new standard in the first quarter of its fiscal 2018, using the modified retrospective method. The Company implemented internal controls and key system functionality to enable the preparation of financial information on adoption. The most significant impacts of the adoption of ASC 606 to the Company relate to the acceleration of revenue recognition for sales of custom products subject to a non-cancellable customer purchase orders.



The new standard will primarily impact the Company’s revenue recognition for software arrangements. In this area, the new standard will accelerate the recognition of revenue. The table below details both the current and expected revenue recognition timing in these areas:





 

 

 

Software arrangements:

Past revenue standard

 

New ASC 606 revenue standard

Perpetual software licenses

Upfront

 

Upfront

Enterprise license agreements

Ratable

 

Upfront

Software support

Ratable

 

Ratable

SaaS

Ratable

 

Ratable



The adoption of ASC 606 has an impact on the Company’s Consolidated Statements of Operations and Consolidated Balance Sheets but has no impact on cash provided by or used in operating, financing, or investing activities on the Consolidated Statements of Cash Flows.



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Financial Statement Impact of Transition to ASC 606



As noted above, we transitioned to ASC 606 using the modified retrospective method on January 1, 2018. The cumulative effect of this transition to applicable contracts with customers that were not completed as of January 1, 2018 was recorded as an adjustment to stockholders’ equity as of that date. As a result of applying the modified retrospective method to transition to ASC 606, the following adjustments were made to the consolidated balance sheet as of January 1, 2018:





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

December 31,

 

 

 

 

Adjusted



 

2017

 

Adjustments

 

January 1,



 

As Reported

 

due to ASC 606

 

2018

ASSETS

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

Cash

 

$

460,059 

 

$

 -

 

$

460,059 

Accounts receivable, net of allowance for doubtful accounts of $2,280 and $2,280, respectively

 

 

885,743 

 

 

544,599 

 

 

1,430,342 

Other current assets

 

 

209,536 

 

 

 -

 

 

209,536 

Total current assets

 

 

1,555,338 

 

 

544,599 

 

 

2,099,937 

Goodwill

 

 

803,118 

 

 

 -

 

 

803,118 

Intangible assets, net

 

 

676,436 

 

 

 -

 

 

676,436 

Accounts receivable, long term

 

 

 -

 

 

424,023 

 

 

424,023 

Other assets

 

 

88,916 

 

 

 -

 

 

88,916 

TOTAL ASSETS

 

$

3,123,808 

 

$

968,622 

 

$

4,092,430 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,096,003 

 

$

 -

 

$

1,096,003 

Accrued interest

 

 

1,168 

 

 

 -

 

 

1,168 

Accrued and deferred personnel compensation

 

 

590,500 

 

 

 -

 

 

590,500 

Deferred revenue and customer deposits

 

 

1,429,266 

 

 

 -

 

 

1,429,266 

Notes payable, net - current maturities

 

 

2,236,224 

 

 

 -

 

 

2,236,224 

Other current liabilities

 

 

226,355 

 

 

191,121 

 

 

417,476 

Total current liabilities

 

 

5,579,516 

 

 

191,121 

 

 

5,770,637 



 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

Notes payable, net - long term

 

 

180,810 

 

 

 -

 

 

180,810 

Other long term liabilities

 

 

 -

 

 

150,477 

 

 

150,477 

Total non-current liabilities

 

 

180,810 

 

 

150,477 

 

 

331,287 

Total liabilities

 

 

5,760,326 

 

 

341,598 

 

 

6,101,924 

Commitments and Contingencies (See Note 9)

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 100,000,000 shares authorized; 37,025,140 and 37,025,140, shares issued and outstanding

 

 

37,025 

 

 

 -

 

 

37,025 

Equity payable

 

 

100,862 

 

 

 -

 

 

100,862 

Additional paid-in capital

 

 

77,910,842 

 

 

 -

 

 

77,910,842 

Accumulated other comprehensive loss

 

 

(65,764)

 

 

 -

 

 

(65,764)

Accumulated deficit

 

 

(80,619,483)

 

 

627,024 

 

 

(79,992,459)

Total stockholders' equity

 

 

(2,636,518)

 

 

627,024 

 

 

(2,009,494)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

3,123,808 

 

$

968,622 

 

$

4,092,430 





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The following tables reflect the impact of adoption of ASC 606 on our condensed consolidated statements of operations for the three months ended March 31, 2018 and our condensed consolidated balance sheet as of March 31, 2018 and the amounts as if the Previous Standards were in effect (“Amounts Under Previous Standards”):



Condensed Consolidated Statement of Operations





 

 

 

 

 

 

 

 

 



 

Three Months Ended March 31, 2018



 

As reported

 

 

Total Adjustments Under ASC 606

 

Amounts Under Previous Standards

Revenues

 

 

 

 

 

 

 

 

 

Revenues

 

$

3,693,328 

 

$

1,648,731 

 

$

2,044,597 

Cost of revenues

 

 

793,389 

 

 

 -

 

 

793,389 

Gross profit

 

 

2,899,939 

 

 

1,648,731 

 

 

1,251,208 



 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

General and administrative

 

 

1,248,343 

 

 

93,516 

 

 

1,154,827 

Sales and marketing

 

 

1,461,580 

 

 

 -

 

 

1,461,580 

Engineering, research, and development

 

 

1,531,598 

 

 

841,647 

 

 

689,951 

Depreciation and amortization

 

 

96,970 

 

 

 -

 

 

96,970 

Total operating expenses

 

 

4,338,491 

 

 

935,163 

 

 

3,403,328 



 

 

 

 

 

 

 

 

 

Gain (loss) from operations

 

 

(1,438,552)

 

 

713,568 

 

 

(2,152,120)



 

 

 

 

 

 

 

 

 

Other income/(expense)

 

 

 

 

 

 

 

 

 

Interest income

 

 

456 

 

 

 -

 

 

456 

Interest expense

 

 

(57,489)

 

 

 -

 

 

(57,489)

Gain on sale of fixed assets

 

 

(8,722)

 

 

 -

 

 

(8,722)

Foreign currency (loss) gain

 

 

330 

 

 

 -

 

 

330 

Total other income/(expense)

 

 

(65,425)

 

 

 -

 

 

(65,425)

Loss before income taxes

 

 

(1,503,977)

 

 

713,568 

 

 

(2,217,545)

Income tax expense

 

 

 

 

 

 

 

 

 

Net loss

 

 

(1,503,977)

 

 

713,568 

 

 

(2,217,545)

Other comprehensive loss, net of income tax

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(12,615)

 

 

 -

 

 

(12,615)

Comprehensive loss

 

$

(1,516,592)

 

$

713,568 

 

$

(2,230,160)



 

 

 

 

 

 

 

 

 

Net loss per share - basic and diluted

 

$

(0.04)

 

$

0.02 

 

$

(0.06)

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

 

 

38,018,733 

 

 

38,018,733 

 

 

38,018,733 





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Condensed Consolidated Balance Sheet





 

 

 

 

 

 

 

 

 



 

March 31, 2018 As Reported

 

Total Adjustments Under ASC 606

 

Amounts Under Previous Standards

ASSETS

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

Cash

 

$

419,373 

 

$

 -

 

$

419,373 

Accounts receivable, net of allowance for doubtful accounts of $1,189 and $1,189, respectively

 

 

1,457,634 

 

 

(824,459)

 

 

633,175 

Other current assets

 

 

202,412 

 

 

 -

 

 

202,412 

Total current assets

 

 

2,079,419 

 

 

(824,459)

 

 

1,254,960 

Goodwill

 

 

803,118 

 

 

 -

 

 

803,118 

Intangible assets, net

 

 

600,296 

 

 

 -

 

 

600,296 

Accounts receivable, long term

 

 

824,272 

 

 

(824,272)

 

 

 -

Other assets

 

 

91,124 

 

 

 -

 

 

91,124 

TOTAL ASSETS

 

$

4,398,229 

 

$

(1,648,731)

 

$

2,749,498 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,148,953 

 

$

 -

 

$

1,148,953 

Accrued interest

 

 

15,083 

 

 

 -

 

 

15,083 

Accrued and deferred personnel compensation

 

 

761,805 

 

 

 -

 

 

761,805 

Deferred revenue and customer deposits

 

 

1,602,711 

 

 

 -

 

 

1,602,711 

Notes payable, net - current maturities

 

 

170,592 

 

 

 -

 

 

170,592 

Other current liabilities

 

 

429,789 

 

 

(411,011)

 

 

18,778 

Total current liabilities

 

 

4,128,933 

 

 

(411,011)

 

 

3,717,922 



 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

Notes payable, net - long term

 

 

1,423,495 

 

 

 -

 

 

1,423,495 

Other long term liabilities

 

 

582,626 

 

 

(524,152)

 

 

58,474 

Total non-current liabilities

 

 

2,006,121 

 

 

(524,152)

 

 

1,481,969 

Total liabilities

 

 

6,135,054 

 

 

(935,163)

 

 

5,199,891 



 

 

 

 

 

 

 

 

 

Commitments and Contingencies (See Note 9)

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 100,000,000 shares authorized; 39,057,573 and 39,057,573, shares issued and outstanding

 

 

39,058 

 

 

 -

 

 

39,058 

Equity payable

 

 

100,862 

 

 

 -

 

 

100,862 

Additional paid-in capital

 

 

80,325,094 

 

 

 -

 

 

80,325,094 

Accumulated other comprehensive loss

 

 

(78,379)

 

 

 -

 

 

(78,379)

Accumulated deficit

 

 

(82,123,460)

 

 

(713,568)

 

 

(82,837,028)

Total stockholders' equity

 

 

(1,736,825)

 

 

(713,568)

 

 

(2,450,393)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

4,398,229 

 

$

(1,648,731)

 

$

2,749,498 

 



4.  Goodwill and Purchased Intangibles



Goodwill



The carrying value of goodwill at March 31, 2018 and December 31, 2017 was $803,118.  



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Intangible assets



The following table presents details of our purchased intangible assets as of March 31, 2018 and December 31, 2017:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Balance at
December 31,
2017

 

Additions

 

Impairments

 

Amortization

 

Fx and Other

 

Balance at
March 31,
2018

Patents and trademarks

 

$

118,178 

 

$

 -

 

$

 -

 

$

(2,872)

 

$

(368)

 

$

114,938 

Customer and merchant relationships

 

 

153,448 

 

 

 -

 

 

 -

 

 

(6,138)

 

 

 -

 

 

147,310 

Trade name

 

 

41,033 

 

 

 -

 

 

 -

 

 

(1,659)

 

 

(34)

 

 

39,340 



 

$

312,659 

 

$

 -

 

$

 -

 

$

(10,669)

 

$

(402)

 

$

301,588 



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



Amortization expense for intangible assets was $10,669 and $10,751 for the three months ended March 31, 2018 and 2017, respectively.



The estimated future amortization expense of our intangible assets as of March 31, 2018 is as follows:







 

 

 



 

 

 

Year ending December 31,

 

Amount

2018

 

$

27,794 

2019

 

 

43,160 

2020

 

 

43,116 

2021

 

 

40,148 

2022

 

 

40,148 

Thereafter

 

 

107,222 

Total

 

$

301,588 

 

5.  Software Development Costs



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



The following table presents details of our software development costs as of March 31, 2018 and December 31, 2017:







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Balance at
December 31,
2017

 

Additions

 

Amortization

 

Balance at
March 31,
2018

Software Development Costs

 

$

363,777 

 

$

13,946 

 

$

(79,015)

 

$

298,708 



 

$

363,777 

 

$

13,946 

 

$

(79,015)

 

$

298,708 



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



Amortization expense for software development costs was $79,016 and $51,048 for the three months ended March 31, 2018 and 2017, respectively.



The estimated future amortization expense of software development costs as of March 31, 2018 is as follows:





 

 

 



 

 

 

Year ending December 31,

 

Amount

2018

 

$

283,833 

2019

 

 

14,875 

2020

 

 

 -

2021

 

 

 -

2022

 

 

 -

Thereafter

 

 

 -

Total

 

$

298,708 

 

 

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6.  Notes Payable and Interest Expense



The following table presents details of our notes payable as of March 31, 2018 and December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

Facility

 

Maturity

 

Interest Rate

 

Balance at
March 31,
2018

 

Balance at
December 31,
2017

BDC Term Loan

 

December 15, 2018

 

12% 

 

$

348,939 

 

$

358,466 

ACOA Note

 

May 1, 2021

 

-

 

 

165,149 

 

 

175,632 

SVB Working Capital Line of Credit Facility

 

March 30, 2018

 

Variable

 

 

 -

 

 

1,882,936 

Related Party Note

 

March 31, 2020

 

15% 

 

 

1,080,000 

 

 

 -

Total Debt

 

 

 

 

 

 

1,594,088 

 

 

2,417,034 

Debt discount

 

 

 

 

 

 

 -

 

 

7,786 

Less current portion

 

 

 

 

 

 

(170,593)

 

 

(2,244,010)

Long-term debt, net of current portion

 

 

 

 

 

$

1,423,495 

 

$

180,810 



 

 

 

 

 

 

 

 

 

 

BDC Term Loan



On January 8, 2016, Livelenz,  a wholly-owned subsidiary of the Company, entered into an amendment of their original loan agreement dated August 26, 2011 with the Business Development Bank of Canada (“BDC”). Under this agreement the loan will mature, and the commitments will terminate on December 15, 2018.  



ACOA Note



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



SVB Working Capital Line of Credit Facility



In March 2016, we entered into a Working Capital Line of Credit Facility (the “Facility”) with Silicon Valley Bank (“SVB”) to provide up to $2 million to finance our general working capital needs. The Facility is funded based on cash on deposit balances and advances against our accounts receivable based on customer invoicing. Interest on Facility borrowings is calculated at rates between the prime rate minus 1.75% and prime rate plus 3.75% based on the borrowing base formula used at the time of borrowing. The Facility contains standard events of default, including payment defaults, breaches of representations, breaches of affirmative or negative covenants, and bankruptcy. As of March 31, 2018, this Facility was paid off and closed.



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



The Company capitalized debt issuance costs of $42,287 as of March 31, 2017 related to the Facility, which have been amortized on a straight-line basis to interest expense over the two-year term of the Facility. As of March 31, 2018, the Company has fully amortized these costs.



Interest Expense



Interest expense was $57,489 and $21,106 during the three months ended March 31, 2018 and 2017, respectively.





7.  Stockholders’ Equity



Common Stock



2017



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



On July 17, 2017, the Company issued 263,731 shares of our common stock to four board members in accordance with their restricted stock unit agreements.



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On August 22, 2017, the Company issued 4,688 shares of our common stock, at a price of $0.41 per share, for the gross proceeds of $1,922 in conjunction with one employee that exercised vested stock options.



On August 30, 2017, the Company issued 37,500 shares of our common stock, at a price of $0.75 per share, for the gross proceeds of $28,125 in conjunction with one employee that exercised vested stock options.



On November 30, 2017, we issued 220,327 shares of our common stock to two former board members in accordance with their restricted stock unit agreements.



On December 21, 2017, we issued 47,917 shares of our common stock, at a price of $0.48 per share, for the gross proceeds of $23,000 in conjunction with one employee that exercised vested stock options.



2018



On February 7, 2018, the Company issued 12,500 shares of our c