Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

v2.4.0.8
Acquisitions
3 Months Ended
Mar. 31, 2014
Notes to Financial Statements  
Acquisitions

SmartReceipt Acquisition

 

On March 12, 2014, the Company entered into an Asset Purchase Agreement (“Asset Purchase Agreement”) with SmartReceipt, Inc., a Delaware corporation (“SmartReceipt”).  The closing of the transactions under the Asset Purchase Agreement took place on March 12, 2014.  Pursuant to the Asset Purchase Agreement, the Company acquired all of the assets of SmartReceipt in exchange for:

 

the Company’s payment at closing of $2.212 million of cash, net of a $150,000 loan made by the Company to SmartReceipt in January 2014;

 

the Company’s issuance of 504,884 shares of its $0.001 par value common stock; and

 

The Company’s earn-out payment of 200% of the “eligible revenue” of the Company over the 12 month period following the close of the transaction (“earn-out period”).  The “eligible revenue” will consist of: 100% of Company revenue derived during the earn out period from the sale of SmartReceipt products and services to certain SmartReceipt clients as of the close (the “designated SmartReceipt clients”); plus 50% of Company revenue derived during the earn out period from the sale of Company products and services to the designated SmartReceipt clients, plus 50% of the Company revenue derived during the earn out period from the sale of SmartReceipt products and services to Company clients who are not designated SmartReceipt clients.  The earn-out payment will be payable in common shares of the Company (valued at the Closing VWAP) no later than the 90th day following the end of the earn-out period.  For purposes of the foregoing, the “Closing VWAP” means the volume weighted average trading price of the Company’s common stock for the 90 trading days preceding the initial close of the transactions under the Asset Purchase Agreement.

 

Pursuant to the Asset Purchase Agreement, SmartReceipt has agreed that 50% of the shares issuable to SmartReceipt or its shareholders at the initial closing will be held back by the Company for a period of 12 months and will be subject to cancellation based on indemnification claims of the Company.

 

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

 

Accounts receivable, net    $ 161,664  
Other assets     6,620  
Customer relationships     2,010,000  
Developed technology     260,000  
Trade name     176,000  
Goodwill     2,890,801  
  Total assets acquired     5,505,085  
Liabilities assumed     (191,561 )
  Net assets acquired   $ 5,313,524  

 

The purchase price consists of the following:

 

Cash   $ 2,368,019  
Earn Out     2,273,000  
Common stock     672,505  
        Total purchase price   $ 5,313,524  

 

The following information presents unaudited pro forma consolidated results of operations for the three months ended March 31, 2014 as if the SmartReceipt acquisition described above had occurred on January 1, 2014. The following unaudited pro forma financial information gives effect to certain adjustments, including the increase in stock based compensation expense that had not been valued prior to acquisition. The pro forma financial information is not necessarily indicative of the operating results that would have occurred if the acquisition been consummated as of the date indicated, nor are they necessarily indicative of future operating results.

  

Mobivity Holdings Corp.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the quarter ended March 31, 2014
                         
    Mobivity     SR     Pro forma adjustments     Pro forma combined  
Revenues                        
Revenues   $ 903,215     $ 214,139     $ -     $ 1,117,354  
Cost of revenues     260,893       54,410       -       315,303  
Gross margin     642,322       159,729       -       802,051  
                                 
Operating expenses                                
General and administrative     1,129,953       231,084       4,230 (a)     1,365,267  
Sales and marketing     941,085       60,077       -       1,001,162  
Engineering, research, and development     297,933       139,649       -       437,582  
Depreciation and amortization     68,083       403       -       68,486  
Total operating expenses     2,437,054       431,213       4,230       2,872,497  
                                 
Loss from operations     (1,794,732 )     (271,484 )     (4,230 )     (2,070,446 )
                                 
Other income/(expense)                                
Interest income     1,731       -       -       1,731  
Interest expense     (826 )     -       -       (826 )
Change in fair value of derivative liabilities     30,079       -       -       30,079  
Gain on adjustment in contingent consideration     -       -       -       -  
Total other income/(expense)     30,984       -       -       30,984  
                                 
Loss before income taxes     (1,763,748 )     (271,484 )     (4,230 )     (2,039,462 )
                                 
Income tax expense     -       -       -       -  
                                 
Net loss   $ (1,763,748 )   $ (271,484 )   $ (4,230 )   $ (2,039,462 )
                                 
Net loss per share - basic and diluted   $ (0.10 )                   $ (0.12 )
                                 
Weighted average number of shares                                
    during the period - basic and diluted     17,490,954                       17,384,367  

 

Pro Forma Adjustments

 

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

 

(a)   Represents stock based compensation in conjunction with the transaction.

  

The following information presents unaudited pro forma consolidated results of operations for the year ended December 31, 2013 as if the SmartReceipt acquisition described above had occurred on January 1, 2013. The following unaudited pro forma financial information gives effect to certain adjustments, including the increase in stock based compensation expense that had not been valued prior to acquisition. The pro forma financial information is not necessarily indicative of the operating results that would have occurred if the acquisition been consummated as of the date indicated, nor are they necessarily indicative of future operating results.

 

Mobivity Holdings Corp.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the year ended December 31, 2013
                           
    Mobivity     SR     Pro forma adjustments       Pro forma combined  
Revenues                          
Revenues   $ 4,093,667     $ 834,250     $ -       $ 4,927,917  
Cost of revenues     1,122,037       243,209       -         1,365,246  
Gross margin     2,971,630       591,041       -         3,562,671  
                                   
Operating expenses                                  
General and administrative     3,416,850       211,271       446,094   (a)     4,074,215  
Sales and marketing     3,469,383       339,615       -         3,808,998  
Engineering, research, and development     824,653       644,330       -         1,468,983  
Depreciation and amortization     270,579       3,970       -         274,549  
Goodwill impairment     1,066,068       -       -         1,066,068  
Intangible asset impairment     644,170       -       -         644,170  
Total operating expenses     9,691,703       1,199,186       446,094         11,336,983  
Loss from operations     (6,720,073 )     (608,145 )     (446,094 )       (7,774,312 )
                                   
Other income/(expense)                                  
Interest income     747       -       -         747  
Interest expense     (6,348,186 )     (117,944 )     -         (6,466,130 )
Change in fair value of derivative liabilities     (3,766,231 )     -       -         (3,766,231 )
Gain on Debt Extinguishment     103,177       -       -         103,177  
Gain on adjustment in contingent consideration     (28,465 )     -       -         (28,465 )
Total other income/(expense)     (10,038,958 )     (117,944 )     -         (10,156,902 )
                                   
Loss before income taxes     (16,759,031 )     (726,089 )     (446,094 )       (17,931,214 )
                                   
Income tax expense     -       -       -         -  
                                   
Net loss   $ (16,759,031 )   $ (726,089 )   $ (446,094 )     $ (17,931,214 )
                                   
Net loss per share - basic and diluted   $ (1.58 )                     $ (1.61 )
                                   
Weighted average number of shares                                  
    during the period - basic and diluted     10,612,007                         11,116,891  

 

Pro Forma Adjustments

 

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

 

(b)   Represents stock based compensation in conjunction with the transaction.

  

Sequence Acquisition

 

In May 2013, we acquired certain assets of Sequence, LLC (“Sequence”) pursuant to an asset purchase agreement. Pursuant to the asset purchase agreement, we acquired all application software, URL’s, websites, trademarks, brands, customers and customer lists from Sequence. We assumed no liabilities of Sequence.

 

The purchase price consisted of: (1) $300,000 in cash; (2) 750,000 shares of our common stock valued based on the closing market price on the acquisition date at $183,750; and (3) twenty-four monthly earn-out payments consisting of 10% of the eligible monthly revenue subsequent to closing with a fair value of $224,000.

 

We completed the acquisition in furtherance of our strategy to acquire small, privately owned enterprises in the mobile marketing sector through an asset purchase structure. This acquisition was consistent with our purchase price model in which equity will represent most of the purchase price plus a small cash component and, in some cases, the assumption of specific liabilities.

 

The acquisition was accounted for as a business combination and we valued the assets acquired at their fair values on the date of acquisition. An independent valuation expert assisted us in determining these fair values. The assets of the acquired entity were recorded at their estimated fair values at the date of the acquisition. 

 

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

 

Merchant relationships   $ 181,000  
Trade name     76,000  
Developed technology     71,000  
Goodwill     379,750  
  Total assets acquired   $ 707,750  

 

The purchase price consisted of the following:

 

Cash   $ 300,000  
Common stock     183,750  
Earn-out payable     224,000  
Total purchase price   $ 707,750  

 

Pro forma results of operations were not included due to the investment test not reaching the level of a significant acquisition.

 

Front Door Insights Acquisition

 

In May 2013, we acquired certain assets and liabilities of Front Door Insights, LLC (“FDI”), pursuant to an asset purchase agreement. The assets and liabilities acquired from FDI consisted of cash on hand, accounts receivable, all rights under all contracts other than excluded contracts, prepaid expenses, all technology and intellectual property rights, accounts payable, and obligations under a commercial lease.

 

The purchase price consisted of: (1) $100,000 in cash; (2) a non-interest bearing promissory note in the principal amount of $1,400,000, which was discounted by $34,904; and (3) 7,000,000 shares of our common stock valued based on the closing market price on the acquisition date at $1,112,310.

 

The asset purchase agreement included a working capital adjustment pursuant to which the number of shares issuable to FDI would be increased, or decreased, in the event the working capital of FDI exceeds, or is less than, $10,000, respectively, as of the closing.  The working capital adjustment due to us is $1,552, and the parties determined to settle this amount in cash.

  

The asset purchase agreement contains customary representations, warranties and covenants by the parties, including each party’s agreement to indemnify the other against any claims or losses arising from their breach of the asset purchase agreement.  FDI and its members have also agreed that for a period of three years following the closing not to engage in the business of providing interactive mobile marketing platforms or services or to solicit the pre-closing clients, vendors or employees of FDI, except in each case on our behalf.

 

We completed the acquisition in furtherance of our strategy to acquire small, privately owned enterprises in the mobile marketing sector through an asset purchase structure. This acquisition was consistent with our purchase price model in which equity will represent most of the purchase price plus a small cash component and, in some cases, the assumption of specific liabilities.

 

The acquisition was accounted for as a business combination and we valued all assets and liabilities acquired at their fair values on the date of acquisition. An independent valuation expert assisted us in determining these fair values. The assets and liabilities of the acquired entity were recorded at their estimated fair values at the date of the acquisition. 

 

During the year ended December 31, 2014, we adjusted the liabilities assumed in the transaction, in accordance with the asset purchase agreement, from $162,886 to $46,219, which resulted in an increase in additional paid-in capital of $78,000 and a reduction of goodwill of $38,667.

 

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

 

Cash   $ 5,500  
Accounts receivable     27,467  
Contracts     813,000  
Customer relationships     22,000  
Developed technology     96,000  
Non-compete agreement     124,000  
Goodwill     1,535,658  
  Total assets acquired     2,623,625  
Liabilities assumed     (46,219 )
  Net assets acquired   $ 2,577,406  

 

The purchase price consists of the following:

 

Cash   $ 100,000  
Promissory note, net     1,365,096  
Common stock     1,112,310  
        Total purchase price   $ 2,577,406