Notes to Consolidated Financial Statements
1.
The Company and Summary of Significant Accounting Policies
The Company
We develop and operate proprietary platforms over which resellers, brands and enterprises can conduct localized mobile marketing campaigns. Our proprietary platforms allow resellers, brands and enterprises to market their products and services to consumers through text messages sent directly to the consumers’ mobile phones and mobile smartphone applications, consisting of software available to both phones and tablets PCs. Our customers include national franchisers, professional sports teams and associations and other national brands such as Sonic, Subway, Jamba Juice, Chick-Fil-A, Baskin Robbins and others.
Our “C4” Mobile Marketing and customer relationship management platform is a Web-hosted software solution enabling our clients to develop, execute, and manage a variety of marketing engagements to a consumer’s mobile phone. Our C4 solution allows our clients to communicate directly with their customers through Short Messaging Service, or SMS, multi-media messaging, smartphone application development and interactive voice response interactions, all of which are facilitated via a set of graphical user interfaces operated from any Web browser.
Our C4 platform also allows our customers to deploy and administer our “Stampt” mobile device loyalty application. Stampt is a smartphone replacement for “Buy 10, Get 1 free” punch cards. Consumers no longer need to worry about forgetting paper-based loyalty punch cards. Stampt makes it easy to receive all of the rewards consumers want from their favorite businesses. Consumers can use Stampt throughout the United States to earn free sandwiches, coffee, pizza, frozen yogurt, donuts, bagels and more. Stampt’s nearby feature shows consumers all of the rewards they can earn at nearby businesses. From the Stampt mobile device application, consumers simply tap any business to learn more about that business and to see all of the loyalty points they have earned at that business. Consumers can keep track of all of the rewards they are close to earning through the “my cards” feature displayed in the application’s interface. Once a consumer has earned all of the Stampts they need for a reward, they simply show the cashier and click “tap to redeem” button from the application interface on their device. Our customers can create and manage any Stampt program from the C4 platform’s set of Web-based interfaces.
We generate revenue by charging the resellers, brands and enterprises a per-message transactional fee, or through fixed or variable software licensing fees.
Our SmartReceipt solution enables our customers with the ability to control the content on receipts printed from their point of sale, or POS system. SmartReceipt is a software application that is installed on the POS which dynamically controls what is printed on receipts such as coupons, announcements, or other calls-to-action such as invitations to participate in a survey. SmartReceipt includes 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 SmartReceipt’s server back-end for storage and analysis. Our SmartReceipt solution is fully integratable with our C4 platform and allows our customers to print on receipts SMS marketing or Stampt mobile application calls-to-actions.
Liquidity
We have $0.6 million of cash as of December 31, 2015. We had a net loss of $6.1 million for the year then ended, and we used $4.0 million of cash in our operating activities during 2015. Based on our projected 2016 results and, if necessary, our ability to reduce certain variable operating expenses, we believe that our existing capital, together with the $2 million of securities from our private placement in March 2016 and our $2 million Working Capital Line of Credit (see Note 15), and anticipated cash flows from operations, will be sufficient to finance our operations through the first quarter of 2017.
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.
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.
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, 2015 and 2014, we recorded an allowance for doubtful accounts of $237,383 and $90,869, 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, 2015, we had two customers whose balance represented 39% of total accounts receivable. As of December 31, 2014, we had one customer whose balance represented 23% 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, 2015 and 2014. As a result of these tests, we recorded impairment charges to our goodwill during the years ended December 31, 2015 and 2014 of $0 and $4,078,693, respectively.
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 ten 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 during the years ended December 31, 2015 and 2014 resulted in impairment charges of $21,188 and $961,436, respectively.
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.
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.
Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value.
The fair value of the derivatives is estimated using a Monte Carlo simulation model. The model utilizes a series of inputs and assumptions to arrive at a fair value at the date of inception and each reporting period. Some of the key assumptions include the likelihood of future financing, stock price volatility, and discount rates.
Revenue Recognition and Concentrations
Our SmartReceipt and C4 Mobile Marketing and customer relationship management are hosted solutions. We generate revenue from licensing our software to clients in our software as a service model, per-message and per-minute transactional fees, and customized professional services. We recognize license/subscription fees over the period of the contract, service fees as the services are performed, and per-message or per-minute transaction revenue when the transaction takes place. We recognize revenue at the time that the services are rendered, the selling price is fixed, and collection is reasonably assured, provided no significant obligations remain. We consider authoritative guidance on multiple deliverables in determining whether each deliverable represents a separate unit of accounting. Some customers are billed on a month to month basis with no contractual term and 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.
We generate revenue from the Stampt App through customer agreements with business owners. Revenue is principally derived from monthly subscription fees which provide a license for unlimited use of the Stampt App by the business owners and their customers. The subscription fee is billed each month to the business owner. Revenue is recognized monthly as the subscription revenues are billed. There are no per-minute or transaction fees associated with the Stampt App.
During the years ended December 31, 2015 and 2014, one customer accounted for 31% and 29% 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 generally recognize compensation expense using a straight-line amortization method over the respective vesting period for awards that are ultimately expected to vest. Accordingly, stock-based compensation expense for 2015 and 2014 has been reduced for estimated forfeitures. When estimating forfeitures, we consider voluntary termination behaviors as well as trends of actual option forfeitures.
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 and other direct costs. Advertising expense was $38,394 and $20,677 for years ended December 31, 2015 and 2014, 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, 2015 and 2014 which were excluded from the calculation because their effect was anti-dilutive.
|
|
|
December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
Outstanding employee options
|
|
|
5,043,228
|
|
|
|
5,382,923
|
|
|
Outstanding restricted stock units
|
|
|
653,937
|
|
|
|
591,436
|
|
|
Outstanding non-employee warrants
|
|
|
33,333
|
|
|
|
150,001
|
|
|
Outstanding warrants
|
|
|
8,347,272
|
|
|
|
7,019,840
|
|
|
|
|
|
14,077,770
|
|
|
|
13,144,200
|
|
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 November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-17, “Balance Sheet Classification of Deferred Taxes”, which requires that deferred tax liabilities and assets be classified as non-current on the balance sheet. ASU 2015-17 is effective in fiscal years beginning after December 15, 2016. Early adoption is permitted on either a prospective or retrospective basis. The Company has elected early adoption as of the interim period beginning October 1, 2015, effective for the annual period ended December 31, 2015, and has selected the prospective application. Prior periods have not been retrospectively adjusted.
In September 2015, the
FASB
issued ASU No. 2015-16, “
Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments”, which requires the acquirer in a business combination to recognize in the reporting period in which adjustment amounts are determined, any adjustments to provisional amounts that are identified during the measurement period, calculated as if the accounting had been completed at the acquisition date. Prior to the issuance of ASU 2015-16, an acquirer was required to restate prior period financial statements as of the acquisition date for adjustments to provisional amounts. ASU 2015-16 is effective for annual and interim periods beginning after December 15, 2015. The adoption of ASU
2015-16 is not expected to have a material impact on our financial position or results of operations.
In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”. This amendment defers the effective date of the previously issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), until the interim and annual reporting periods beginning after December 15, 2017. The FASB’s ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), was issued in three parts: (a) Section A, “Summary and Amendments That Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs-Contracts with Customers (Subtopic 340-40),” (b) Section B, “Conforming Amendments to Other Topics and Subtopics in the Codification and Status Tables” and (c) Section C, “Background Information and Basis for Conclusions.” The core principle of the new guidance is that an 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 entity expects to be entitled in exchange for those goods or services. Earlier application is permitted for interim and annual reporting periods beginning after December 15, 2016. The Company intends to adopt the provisions of ASU 2015-14 for interim and annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact of the adoption of ASU 2015-14 on its consolidated financial statements.
In July 2015, the FASB, issued ASU No. 2015-11,
“
Inventory (Topic 330): Simplifying the Measurement of Inventory
”
, which requires an entity to measure inventory within the scope of the ASU at the lower of cost and net realizable value. The amendments in ASU 2015-11 are effective for fiscal years beginning after December 15, 2016, including interim periods within that reporting period. Earlier adoption is permitted. The adoption of ASU 2015-11 is not expected to have a material impact on our financial position or results of operations.
In April 2015, the FASB issued ASU 2015-05 regarding Subtopic 350-40, “Intangibles - Goodwill and Other - Internal-Use Software.” The amendments in ASU 2015-05 provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The amendments in ASU 2015-05 are effective for annual and interim periods beginning after December 15, 2015. Early adoption is permitted. The amendments in ASU 2015-05 may be applied either prospectively to all arrangements entered into or materially modified after the effective date or retrospectively.
The adoption of ASU 2015-05 is not expected to have a material impact on our financial position or results of operations.
In November 2014, the FASB issued ASU No. 2014-16, “Derivatives and Hedging (Topic 815) - Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity”. ASU 2014-16 was issued to clarify how current U.S GAAP should be interpreted in evaluating the economic characteristics and risk of a host contract in a hybrid financial instrument that is issued in the form of a share. In addition, ASU 2014-16 was issued to clarify that in evaluating the nature of a host contract, an entity should assess the substance of the relevant terms and features (that is, the relative strength of the debt-like or equity-like terms and features given the facts and circumstances) when considering how to weight those terms and features. The effects of initially adopting ASU 2014-16 should be applied on a modified retrospective basis to existing hybrid financial instruments issued in a form of a share as of the beginning of the fiscal year for which the amendments are effective. Retrospective application is permitted to all relevant prior periods. ASU 2014-16 is effective fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption in an interim period is permitted.
The adoption of ASU 2014-16 is not expected to have a material impact on our financial position or results of operations.
In August 2014, The FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concerns (Subtopic 205-40): Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.
The adoption of ASU 2014-15 is not expected to have a material impact on our financial position or results of operations.
In June 2014, the FASB issued ASU No. 2014-12, “Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period”. The new guidance requires that share-based compensation that require a specific performance target to be achieved in order for employees to become eligible to vest in the awards and that could be achieved after an employee completes the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation costs should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. This new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The adoption of ASU 2014-12 is not expected to have a material impact on our financial position or results of operations.
2.
Acquisitions
We completed the following acquisitions in furtherance of our strategy to acquire small, privately owned enterprises in the mobile marketing sector through asset purchase structures. We made the acquisitions to expand our market presence and product offerings.
The purchase consideration for each acquisition was allocated to the tangible assets and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date, with the remaining unallocated consideration recorded as goodwill. An independent valuation expert assisted us in determining these fair values.
We have included the financial results of these acquisitions in our consolidated financial statements from the date of acquisition.
SmartReceipt
In March 2014, we acquired all the assets of SmartReceipt, Inc. in exchange for: (1) our payment at closing of $2.212 million of cash, net of a $150,000 loan made by us to SmartReceipt in January 2014; (2) our issuance of 504,884 shares of its $0.001 par value common stock; and (3) our earn-out payment of 200% of the “eligible revenue” of us over the 12 month period following the close of the transaction (“earn-out period”).The “eligible revenue” will consist of: 100% our 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 our revenue derived during the earn out period from the sale of our products and services to the designated SmartReceipt clients, plus 50% of our revenue derived during the earn out period from the sale of SmartReceipt products and services to our clients who are not designated SmartReceipt clients. The earn-out payment will be payable in our common shares at the rate of $1.85 per share, representing the volume weighted average trading price of our common stock for the 90 trading days preceding the initial close of the transactions under the Asset Purchase Agreement. During 2015, the earn-out payable was settled for 903,928 shares of our Common Stock.
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.
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 year ended December 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 year ended December 31, 2014
|
|
|
Mobivity
|
|
|
SR
|
|
|
Pro forma
adjustments
|
|
Pro forma
combined
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
4,000,202
|
|
|
$
|
214,139
|
|
|
$
|
-
|
|
|
$
|
4,214,341
|
|
|
Cost of revenues
|
|
|
1,066,917
|
|
|
|
54,410
|
|
|
|
-
|
|
|
|
1,121,327
|
|
|
Gross margin
|
|
|
2,933,285
|
|
|
|
159,729
|
|
|
|
-
|
|
|
|
3,093,014
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
4,270,844
|
|
|
|
231,084
|
|
|
|
4,230
|
(a)
|
|
|
4,506,158
|
|
|
Sales and marketing
|
|
|
3,895,033
|
|
|
|
60,077
|
|
|
|
-
|
|
|
|
3,955,110
|
|
|
Engineering, research, and development
|
|
|
1,346,198
|
|
|
|
139,649
|
|
|
|
-
|
|
|
|
1,485,847
|
|
|
Depreciation and amortization
|
|
|
416,436
|
|
|
|
403
|
|
|
|
-
|
|
|
|
416,839
|
|
|
Goodwill impairment
|
|
|
4,078,693
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,078,693
|
|
|
Intangible asset impairment
|
|
|
961,436
|
|
|
|
-
|
|
|
|
-
|
|
|
|
961,436
|
|
|
Total operating expenses
|
|
|
14,968,640
|
|
|
|
431,213
|
|
|
|
4,230
|
|
|
|
15,404,083
|
|
|
Loss from operations
|
|
|
(12,035,355
|
)
|
|
|
(271,484
|
)
|
|
|
(4,230
|
)
|
|
|
(12,311,069
|
)
|
|
Other income/(expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
2,131
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,131
|
|
|
Change in fair value of derivative liabilities
|
|
|
63,517
|
|
|
|
-
|
|
|
|
-
|
|
|
|
63,517
|
|
|
Gain on debt extinguishment
|
|
|
36,943
|
|
|
|
-
|
|
|
|
-
|
|
|
|
36,943
|
|
|
Gain on adjustment of contingent consideration
|
|
|
1,492,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,492,000
|
|
|
Total other income/(expense)
|
|
|
1,594,591
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,594,591
|
|
|
Loss before income taxes
|
|
|
(10,440,764
|
)
|
|
|
(271,484
|
)
|
|
|
(4,230
|
)
|
|
|
(10,716,478
|
)
|
|
Income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Net loss
|
|
$
|
(10,440,764
|
)
|
|
$
|
(271,484
|
)
|
|
$
|
(4,230
|
)
|
|
$
|
(10,716,478
|
)
|
|
Net loss per share - basic and diluted
|
|
$
|
(0.49
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(0.52
|
)
|
|
Weighted average number of shares during the period -basic and diluted
|
|
|
21,203,563
|
|
|
|
|
|
|
|
|
|
|
|
20,796,889
|
|
Pro Forma Adjustments
The following pro forma adjustments are based on 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.
3.
Goodwill and Intangible Assets
Goodwill
The following table presents goodwill and impairment for the years ended December 31, 2015 and 2014:
|
|
|
Goodwill
|
|
|
December 31, 2013
|
|
$
|
3,108,964
|
|
|
Acquired
|
|
|
2,890,801
|
|
|
Impairment
|
|
|
(4,078,693
|
)
|
|
December 31, 2014
|
|
|
1,921,072
|
|
|
Acquired
|
|
|
-
|
|
|
Impairment
|
|
|
-
|
|
|
December 31, 2015
|
|
$
|
1,921,072
|
|
We conducted our annual impairment test of goodwill as of December 31, 2015 and 2014, which resulted in impairment charges of $0
and $4,078,693, respectively.
Intangible assets
The following table presents components of identifiable intangible assets for the years ended December 31, 2015 and 2014:
|
|
December 31, 2015
|
|
December 31, 2014
|
|
|
|
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
|
|
$
|
117,000
|
|
|
$
|
(38,069
|
)
|
|
$
|
78,931
|
|
|
|
15
|
|
|
$
|
142,000
|
|
|
$
|
(33,048
|
)
|
|
$
|
108,952
|
|
|
|
20
|
|
|
Customer contracts
|
|
|
628,502
|
|
|
|
(628,502
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
628,502
|
|
|
|
(628,502
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Customer and merchant
relationships
|
|
|
2,830,139
|
|
|
|
(1,456,626
|
)
|
|
|
1,373,513
|
|
|
|
10
|
|
|
|
2,830,139
|
|
|
|
(1,290,139
|
)
|
|
|
1,540,000
|
|
|
|
10
|
|
|
Trade name
|
|
|
353,192
|
|
|
|
(217,625
|
)
|
|
|
135,567
|
|
|
|
10
|
|
|
|
353,192
|
|
|
|
(201,192
|
)
|
|
|
152,000
|
|
|
|
10
|
|
|
Acquired technology
|
|
|
686,135
|
|
|
|
(498,837
|
)
|
|
|
187,298
|
|
|
|
10
|
|
|
|
686,135
|
|
|
|
(476,135
|
)
|
|
|
210,000
|
|
|
|
10
|
|
|
Non-compete agreement
|
|
|
90,462
|
|
|
|
(90,462
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
90,462
|
|
|
|
(90,462
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
$
|
4,705,430
|
|
|
$
|
(2,930,121
|
)
|
|
$
|
1,775,309
|
|
|
|
|
|
|
$
|
4,730,430
|
|
|
$
|
(2,719,478
|
)
|
|
$
|
2,010,952
|
|
|
|
|
|
During the years ended December 31, 2015 and 2014, we recorded amortization expense related to our intangible assets of $214,455 and $408,928, respectively, which is included in depreciation and amortization in the consolidated statement of operations.
During the years ended December 31, 2015 and 2014, we recorded impairment charges related to our intangible assets of $21,188 and $961,436, respectively.
Expected future intangible asset amortization as of December 31, 2015 is as follows:
|
Year ending December 31,
|
|
Amount
|
|
2016
|
|
$
|
213,519
|
|
2017
|
|
|
213,519
|
|
2018
|
|
|
213,519
|
|
2019
|
|
|
213,520
|
|
2020
|
|
|
213,520
|
|
Thereafter
|
|
|
707,712
|
|
Total
|
|
$
|
1,775,309
|
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, 2015 and 2014:
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
|
|
|
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)
|
|
|
Software Development Costs
|
|
$
|
736,666
|
|
|
$
|
(138,286
|
)
|
|
$
|
598,380
|
|
|
|
2
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
$
|
736,666
|
|
|
$
|
(138,286
|
)
|
|
$
|
598,380
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Software development costs are being amortized on a straight line basis over their estimated useful life of two years.
During the year ended December 31, 2015, we recorded amortization expense for software development costs of $138,286.
The estimated future amortization expense of software development costs as of December 31, 2015 is as follows:
|
Year ending December 31,
|
|
Amount
|
|
|
2016
|
|
$
|
368,328
|
|
|
2017
|
|
|
219,769
|
|
|
2018
|
|
|
10,283
|
|
|
2019
|
|
|
-
|
|
|
2020
|
|
|
-
|
|
|
Thereafter
|
|
|
-
|
|
|
Total
|
|
$
|
598,380
|
|
5.
Derivative Liabilities
We completed a private placement in September 2011 for the sale of units consisting of shares of common stock and warrants to purchase our common stock. Both the common shares and the warrants contain anti-dilutive, or down round, price protection. We recorded derivative liabilities related to the down round price protection on the common shares and the warrants at the issuance date.
The down round price protection on the common shares expired in August 2012 and the down round protection for the warrant terminates when the warrant expires or is exercised.
Our derivative liability at December 31, 2014 related to these warrants.
The fair values of our derivative liabilities are estimated at the issuance date and are revalued at each subsequent reporting date using a Monte Carlo simulation discussed below.
At December 31, 2014, we recorded a current derivative liability of $42,659, which is detailed by instrument type in the table below.
The net change in fair value of the derivative liabilities for the years ended December 31, 2015 and 2014 were gains of $42,659 and $63,517, respectively.
The following table presents the derivative liabilities by instrument type as of December 31, 2015 and 2014:
|
|
|
December 31,
|
|
|
Derivative Value by Instrument Type
|
|
2015
|
|
|
2014
|
|
|
Common Stock and Warrants
|
|
$
|
-
|
|
|
$
|
42,659
|
|
|
|
|
$
|
-
|
|
|
$
|
42,659
|
|
The following table presents details of the Company’s derivative liabilities from December 31, 2013 to December 31, 2015:
|
Balance December 31, 2013
|
|
$
|
106,176
|
|
|
Change in fair value of derivative liabilities
|
|
|
(63,517
|
)
|
|
Balance December 31, 2014
|
|
|
42,659
|
|
|
Change in fair value of derivative liabilities
|
|
|
(42,659
|
)
|
|
Balance December 31, 2015
|
|
$
|
-
|
|
An independent valuation expert calculated the fair value of the compound embedded derivatives using a complex, customized Monte Carlo simulation model suitable to value path dependent American options. The model uses the risk neutral methodology adapted to value corporate securities. This model utilized subjective and theoretical assumptions that can materially affect fair values from period to period.
As of December 31, 2015, all of the warrants subject to derivative treatment have expired.
6.
Notes Payable and Interest Expense
Cherry Family Trust Note
This note was issued on March 1, 2007, for the principal amount of $20,000, interest accrues at the rate of 9% compounded annually, with a maturity date of December 31, 2008. There was no accrued interest as of December 31, 2015 and 2014. A court order was issued December 7, 2007 that related to a summary judgment in favor of the Company, stemming from litigation between the Company and Mr. Cherry. Accordingly, we have extinguished the note payable and related accrued interest in the amounts of $20,000 and $16,943, respectively, during 2014 and recorded a gain on debt extinguishment of $36,943.
Summary of Notes Payable and Accrued Interest
Interest Expense
The following table summarizes interest expense for the years ended December 31, 2015 and 2014:
|
|
December 31,
|
|
|
|
2015
|
|
2014
|
|
|
Other interest expense
|
|
$
|
847
|
|
|
$
|
-
|
|
|
Total interest expense
|
|
$
|
847
|
|
|
$
|
-
|
|
7.
Common Stock and Equity Payable
Common Stock
2014
In March 2014, we issued 5,413,000 shares of common stock at $1.00 per unit to accredited investors for the gross proceeds of $5,413,000. Each unit consisted of one share of our common stock and a common stock purchase warrant to purchase one-quarter share of our common stock, over a five year period, at an exercise price of $1.20 per share. The units included warrants for the purchase of 1,353,238 shares of common stock at $1.20 per share. The warrants were valued at $1,320,569 and expire in 2019. We entered into a Registration Rights Agreement with the investors, pursuant to which we agreed to cause a resale registration statement covering the common shares made part of the units.
Emerging Growth Equities, Ltd. (“EGE”) acted as placement agent for the private placement and received $370,685 in commissions from us. In addition, we issued warrants for the purchase of 370,685 common stock units at $1.00 per unit to a placement agent in connection with the equity placements. Each unit consists of one share of the Company’s common stock and a common stock purchase warrant to purchase one-quarter share of the Company’s common stock, over a five year period, at an exercise price of $1.20 per share.
In March 2014, we issued 504,884 shares at $1.44 per share in connection with the acquisition of SmartReceipt. See Note 2.
In September 2014, we issued 500,000 shares of common stock at $1.01 per share for services and recorded share-based compensation of $505,000 in general and administrative expense.
In October 2014, we issued 2,137 accrued shares of common stock at $3.42 per share for services that had been recorded in 2013 as equity payable.
In October 2014, we issued 10,431 shares of common stock at $3.42 per share for services and recorded share-based compensation of $35,673 in general and administrative expense.
2015
On January 13, 2015, Michael Bynum, president and a member of the board of directors of Mobivity Holdings Corp, resigned as an officer, director and employee of the Company and all subsidiaries. In connection with Mr. Bynum's resignation, he and the Company entered into a customary separation agreement providing for mutual releases and other standard covenants and acknowledgements. In addition, the separation agreement modified Mr. Bynum's rights to severance under his employment agreement dated May 17, 2013 with the Company. Pursuant to his employment agreement, Mr. Bynum was entitled to one year of salary, or $200,000, upon his resignation. However, under the separation agreement, Mr. Bynum agreed to accept 260,870 shares of the common stock of the Company in lieu of cash severance. The shares were valued on the closing market price on the date of the separation agreement of January 9, 2015 of $1.15 which provided a fair market value of the share consideration of $300,001. In addition, pursuant to his employment agreement, Mr. Bynum's options would continue to vest for three months following his resignation and all vested options would remain exercisable for a period of six months following his resignation. However, under the separation agreement, Mr. Bynum agreed that his options would cease vesting upon his resignation, all unvested options would expire upon resignation and all vested options would remain exercisable for a period of 12 months following his resignation.
On January 21, 2015, the board of directors of the Company appointed William Van Epps to serve as executive chairman of the Company. In connection with the appointment, the Company entered into an employment agreement dated January 19, 2015 with Mr. Van Epps. Pursuant to his employment agreement, the Company has agreed to pay Mr. Van Epps a base salary $310,000, subject to annual review by the board. The Company has also agreed to pay Mr. Van Epps a signing bonus of 50,000 shares of the Company’s common stock. The shares were valued on the closing market price on the date of the employment agreement of January 19, 2015 of $1.26 which provided a fair market value of the share consideration of $63,000.
In March 2015, we conducted the private placement of our securities for the gross proceeds of $4,805,000. In the private placement, we sold 4,805,000 units of our securities at a price of $1.00 per unit for the net proceeds of $4,570,500 (after deducting offering costs of $234,500). Each unit consists of one share of our common stock and a common stock purchase warrant to purchase one-quarter share of our common stock, over a five-year period, at an exercise price of $1.20 per share and grant date fair value of $0.93. We entered into a Registration Rights Agreement with the investors, pursuant to which we agreed to cause a resale registration statement covering the common shares made part of the units to be filed by April 30, 2015. The Registration Rights Agreement also provides that we must make certain payments as liquidated damages to the investors if it fails to timely file the registration statement and cause it to become effective. The Registration Rights Agreement was declared effective as of September 10, 2015. As of the date of this filing, liquidated damages in regards to the timely filing of the registration statement have been waived.
EGE acted as placement agent for the private placement and received $234,500 in commissions from us. In addition, for its services as placement agent, we issued to EGE warrants to purchase an aggregate of 234,500 units, as defined above, exercisable for a period of five years from the closing date, at an exercise price of $1.00 per unit.
On July 31, 2015 we issued 903,928 shares of our common stock in satisfaction of the SmartReceipt earn-out payable. The earn-out payment was at the rate of $1.85 per share as further described in Note 12.
On August 14, 2015 we issued 20,000 Restricted Stock Units to a former employee at $1.18 per share for services and recorded share-based compensation of $23,800 in general and administrative expense.
8.
Stock-based Plans and Stock-based Compensation
Stock-based Plans
We have the 2010 Incentive Stock Option Plan and the 2013 Incentive Stock Option Plan under which we have granted stock options to our directors, officers and employees. At December 31, 2015, 5,043,228 shares were authorized under the plans and 1,041,787 shares were available for future grant.
We believe that such awards better align the interests of our directors, officers and employees with those of our shareholders. Option awards are generally granted with an exercise price that equals the fair market value of our stock at the date of grant. These option awards generally vest based on four years of continuous service and have five-year or 10-year contractual terms.
The following table summarizes stock option activity under our stock-based plans as of and for the year ended December 31, 2015:
|
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic Value
|
|
|
Outstanding at December 31, 2013
|
|
|
5,669,589
|
|
|
$
|
2.08
|
|
|
|
8.67
|
|
|
$
|
415,529
|
|
|
Granted
|
|
|
2,333,500
|
|
|
$
|
1.48
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Forfeit/canceled
|
|
|
(2,554,004
|
)
|
|
$
|
2.18
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Expired
|
|
|
(66,162
|
)
|
|
$
|
3.23
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Outstanding at December 31, 2014
|
|
|
5,382,923
|
|
|
$
|
1.76
|
|
|
|
8.10
|
|
|
$
|
35,425
|
|
|
Granted
|
|
|
3,348,000
|
|
|
$
|
1.05
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Forfeit/canceled
|
|
|
(2,511,522
|
)
|
|
$
|
1.60
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Expired
|
|
|
(1,176,173
|
)
|
|
$
|
1.82
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Outstanding at December 31, 2015
|
|
|
5,043,228
|
|
|
$
|
1.37
|
|
|
|
8.12
|
|
|
$
|
209,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected to vest at December 31, 2015
|
|
|
4,083,553
|
|
|
$
|
1.47
|
|
|
|
7.83
|
|
|
$
|
71,743
|
|
|
Exercisable at December 31, 2015
|
|
|
1,604,604
|
|
|
$
|
1.80
|
|
|
|
6.17
|
|
|
$
|
-
|
|
|
Unrecognized expense at December 31, 2015
|
|
$
|
3,420,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value of options was calculated as the difference between the exercise price of the underlying awards and the quoted price of our common stock. At December 31, 2015, options to purchase 646,500 shares of common stock were in-the-money.
The weighted average grant-date fair value of options granted during the years 2015 and 2014 was $0.93 and $1.20, respectively.
2014
On February 27, 2014, the Company granted one employee 180,000 options to purchase shares of the Company common stock at the closing price as of February 27, 2015 of $1.40 per share. The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter, and are exercisable until February 27, 2024. The total estimate value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.26 was $226,800.
On April 2, 2014, the Company granted three employees 202,500 options to purchase shares of the Company common stock at the closing price as of April 2, 2014 of $1.32 per share. The options vest in forty-eight equal monthly installments following the grant date and are exercisable until April 2, 2024.
The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.19 was $240,975.
On April 15, 2014, the Company granted six employees 16,000 options to purchase shares of the Company common stock at the closing price as of April 15, 2014 of $1.44 per share. The options vest in forty-eight equal monthly installments following the grant date and are exercisable until April 15, 2024.
The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.30 was $20,800.
On April 15, 2014, the Company granted two employees 5,000 options to purchase shares of the Company common stock at the closing price as of April 15, 2014 of $1.44 per share. The options vest 25% on the first anniversary of the grant, then equally in thirty-six monthly installments thereafter and are exercisable until April 15, 2024.
The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.30 was $6,500.
On August 11, 2014, the Company granted five employees 212,500 options to purchase shares of the Company common stock at the closing price as of August 11, 2014 of $0.94 per share. The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until August 11, 2024.
The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $0.85 was $180,625.
On September 29, 2014, the Company granted seven employees 182,500 options to purchase shares of the Company common stock at the closing price as of September 29, 2014 of $1.15 per share. The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until September 29, 2024.
The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.04 was $189,800.
On November 13, 2014 the Company amended an Option Agreement dated June 17, 2013 (the “
Option Agreement
”) pursuant to which Tom Tolbert was granted the right to purchase up to 1,391,087 shares of common stock of the Company. Options to purchase 391,085 Shares that were subject to vesting as of the date of the Amendment were cancelled. In furtherance of the cancellation, the Company granted to Mr. Tolbert options to purchase all or any part of 1,000,000 shares of the Company’s Common Stock upon the following terms and conditions: Options to purchase 650,000 Shares shall vest and first become exercisable as of the date of the Amendment and the balance of Options to purchase 350,000 Shares shall vest and first become exercisable in 47 equal monthly installments of Options to purchase 7,292 Shares commencing on December 13, 2014 and on the 13th of the next 47 months and the remaining Options to purchase 7,276 Shares shall vest and first become exercisable on November 13, 2018. All other provisions of the Option Agreement remain in full force and effect.
On November 18, 2014, the Company granted three employees 250,000 options to purchase shares of the Company common stock at the closing price as of November 18, 2014 of $1.48 per share. The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until November 18, 2024.
The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.48 was $370,000.
On December 30, 2014, the Company granted three employees 185,000 options to purchase shares of the Company common stock at the closing price as of December 30, 2014 of $1.23 per share. The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until December 30, 2024.
The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.11 was $205,350.
2015
On January 1, 2015, the Company granted one employee 15,000 options to purchase shares of the Company common stock at the closing price as of January 1, 2015 of $1.19 per share. The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until January 1, 2025. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.07 was $16,050.
On January 22, 2015, the Company granted one employee 900,000 options to purchase shares of the Company common stock at the closing price as of January 22, 2015 of $1.28 per share. The options vest in forty-eight equal monthly installments following the grant date and are exercisable until January 22, 2025. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.15 was $1,035,000.
On January 22, 2015, the Company granted three employees 471,500 options to purchase shares of the Company common stock at the closing price as of January 22, 2015 of $1.28 per share. The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until January 22, 2025. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.15 was $542,225.
On February 11, 2015, the Company granted one employee 3,000 options to purchase shares of the Company common stock at the closing price as of February 11, 2015 of $1.20 per share. The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until February 11, 2025. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.08 was $3,240.
On February 16, 2015, the Company granted one employee 300,000 options to purchase shares of the Company common stock at the closing price as of February 16, 2015 of $1.30 per share. The options vest in forty-eight equal monthly installments following the grant date and are exercisable until February 16, 2025. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.17 was $351,000.
On March 2, 2015, the Company granted one employee 100,000 options to purchase shares of the Company common stock at the closing price as of March 2, 2015 of $1.20 per share. The options vest in forty-eight equal monthly installments following the grant date and are exercisable until March 2, 2025. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.08 was $108,000.
On April 16, 2015, the Company granted five employees 445,000 options to purchase shares of the Company common stock at the closing price as of April 16, 2015 of $1.20 per share. The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until April 16, 2025. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $1.08 was $480,600.
On April 27, 2015, the Company granted one employee 20,000 options to purchase shares of the Company common stock at the closing price as of April 27, 2015 of $1.10 per share. The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until April 27, 2025. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $0.99 was $19,800.
On May 4, 2015, the Company granted two employees 25,000 options to purchase shares of the Company common stock at the closing price as of May 4, 2015 of $1.00 per share. The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until May 4, 2025. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $0.90 was $22,500.
On May 13, 2015, the Company granted one employee 20,000 options to purchase shares of the Company common stock at the closing price as of May 13, 2015 of $0.99 per share. The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until May13, 2025. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $0.89 was $17,800.
On June 1, 2015, the Company granted one employee 2,000 options to purchase shares of the Company common stock at the closing price as of June 1, 2015 of $0.85 per share. The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until June 1, 2025. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $0.77 was $1,540.
On August 20, 2015, the Company granted three employees 400,000 options to purchase shares of the Company common stock at the closing price as of August 20, 2015 of $0.75 per share. The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until August 20, 2025. The total estimated value using the Black-Scholes Model, based on a volatility rate of 132% and a call option value of $0.67 was $268,000.
On October 16, 2015, the Company granted 18 employees 514,000 options to purchase shares of the Company common stock at the closing price as of October 16, 2015 of $0.48 per share. The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until October 16, 2025. The total estimated value using the Black-Scholes Model, based on a volatility rate of 116% and a call option value of $0.36 was $185,040.
On November 19, 2015, the Company granted four employees 132,500 options to purchase shares of the Company common stock at the closing price as of November 19, 2015 of $0.41 per share. The options vest 25% on the first anniversary of the grant, then equally in 36 monthly installments thereafter and are exercisable until November 19, 2025. The total estimated value using the Black-Scholes Model, based on a volatility rate of 116% and a call option value of $0.31 was $41,075.
Stock-based Compensation Expense
The impact on our results of operations of recording stock-based compensation expense for years ended December 31, 2015 and 2014 was as follows:
|
|
Years ended December 31,
|
|
|
|
2015
|
|
2014
|
|
|
General and administrative
|
|
$
|
821,410
|
|
|
$
|
948,567
|
|
|
Sales and marketing
|
|
|
229,698
|
|
|
|
592,785
|
|
|
Engineering, research, and development
|
|
|
112,447
|
|
|
|
44,908
|
|
|
|
|
$
|
1,163,555
|
|
|
$
|
1,586,261
|
|
As of December 31, 2015, there was approximately $3,420,632 of unearned stock-based compensation that will be expensed from 2016 through 2020. If there are any modifications or cancellations of the underlying unvested awards, we may be required to accelerate, increase or cancel all or a portion of the remaining unearned stock-based compensation expense. Future unearned stock-based compensation will increase to the extent we grant additional equity awards.
Stock Option Valuation Assumptions
We calculated the fair value of each stock option award on the date of grant using the Black-Scholes option pricing model. The ranges of assumptions were used for the years ended December 31, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
Risk-free interest rate
|
|
1.48% to 1.85%
|
|
|
1.57% to 2.10%
|
|
|
Expected life (years)
|
|
3.02 to 6.08
|
|
|
4.66 to 6.08
|
|
|
Dividend yield
|
|
|
-
|
|
|
|
-
|
|
|
Expected volatility
|
|
114.5% to 132.0%
|
|
|
132.0% to 132.0%
|
|
The risk-free interest rate assumption is based upon published interest rates appropriate for the expected life of our employee stock options.
The expected life of the stock options represents the weighted-average period that the stock options are expected to remain outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its stock-based awards.
The dividend yield assumption is based on our history of not paying dividends and no future expectations of dividend payouts.
The expected volatility in 2015 and 2014 is based on the historical publicly traded price of our common stock.
Restricted stock units
The following table summarizes restricted stock unit activity under our stock-based plans as of and for the year ended December 31, 2015:
|
|
|
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic Value
|
|
|
Outstanding at December 31, 2013
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Awarded
|
|
|
591,436
|
|
|
$
|
0.75
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Released
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Forfeit
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Outstanding at December 31, 2014
|
|
|
591,436
|
|
|
$
|
0.75
|
|
|
|
0.89
|
|
|
$
|
305,572
|
|
|
Awarded
|
|
|
82,501
|
|
|
$
|
0.29
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Released
|
|
|
(20,000
|
)
|
|
$
|
1.18
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Forfeit
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Outstanding at December 31, 2015
|
|
|
653,937
|
|
|
$
|
0.32
|
|
|
|
0.08
|
|
|
$
|
339,570
|
|
|
Expected to vest at December 31, 2015
|
|
|
29,730
|
|
|
$
|
0.32
|
|
|
|
0.08
|
|
|
|
|
|
|
Unrecognized expense at December 31, 2015
|
|
$
|
37,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
On July 17
,
2014, the Company granted 4 independent directors a total of 231,391 restricted stock units. All units are vested by December 31, 2014. The units were valued based on the closing stock price on the date of grant. The shares of Common Stock associated with the Restricted Stock Unit evidenced by this Agreement will, to the extent the Participant’s rights with respect to the Restricted Stock Unit have become vested in accordance with Paragraph 3, be issued to the Participant upon the earliest to occur of (A) July 17, 2017, (B) a Change in Control of the Company, and (C) the termination of the Participant’s employment with the Company.
On October 2, 2014, the Company granted one independent director a total of 11,743 restricted stock units. All units are vested by December 31, 2014. The units were valued based on the closing stock price on the date of grant. The shares of Common Stock associated with the Restricted Stock Unit evidenced by this Agreement will, to the extent the Participant’s rights with respect to the Restricted Stock Unit have become vested in accordance with Paragraph 3, be issued to the Participant upon the earliest to occur of (A) October 2, 2017, (B) a Change in Control of the Company, and (C) the termination of the Participant’s employment with the Company.
On October 10, 2014 the Company granted five independent directors a total of 34,670 restricted stock units. All units are vested by December 31, 2014. The units were valued based on the closing stock price on the date of grant. The shares of Common Stock associated with the Restricted Stock Unit evidenced by this Agreement will, to the extent the Participant’s rights with respect to the Restricted Stock Unit have become vested in accordance with Paragraph 3, be issued to the Participant upon the earliest to occur of (A) October 10, 2017, (B) a Change in Control of the Company, and (C) the termination of the Participant’s employment with the Company.
On November 6, 2014 the Company granted one independent director a total of 5,768 restricted stock units. All units are vested by December 31, 2014. The units were valued based on the closing stock price on the date of grant. The shares of Common Stock associated with the Restricted Stock Unit evidenced by this Agreement will, to the extent the Participant’s rights with respect to the Restricted Stock Unit have become vested in accordance with Paragraph 3, be issued to the Participant upon the earliest to occur of (A) November 6, 2017, (B) a Change in Control of the Company, and (C) the termination of the Participant’s employment with the Company.
On November 6, 2014 the Company granted one independent director a total of 37,593 restricted stock units. The units were valued based on the closing stock price on the date of grant. All units vested equally in 12 monthly installments beginning January 31, 2015. The shares of Common Stock associated with the Restricted Stock Unit evidenced by this Agreement will, to the extent the Participant’s rights with respect to the Restricted Stock Unit have become vested in accordance with Paragraph 3, be issued to the Participant upon the earliest to occur of (A) November 6, 2017, (B) a Change in Control of the Company, and (C) the termination of the Participant’s employment with the Company.
On November 18, 2014 the Company granted one independent director a total of 13,514 restricted stock units. All units are vested by December 31, 2014. The units were valued based on the closing stock price on the date of grant. The shares of Common Stock associated with the Restricted Stock Unit evidenced by this Agreement will, to the extent the Participant’s rights with respect to the Restricted Stock Unit have become vested in accordance with Paragraph 3, be issued to the Participant upon the earliest to occur of (A) November 6, 2017, (B) a Change in Control of the Company, and (C) the termination of the Participant’s employment with the Company.
On November 18, 2014 the Company granted five independent directors a total of 256,757 restricted stock units. The units were valued based on the closing stock price on the date of grant. All units vested equally in 12 monthly installments beginning January 31, 2015. The shares of Common Stock associated with the Restricted Stock Unit evidenced by this Agreement will, to the extent the Participant’s rights with respect to the Restricted Stock Unit have become vested in accordance with Paragraph 3, be issued to the Participant upon the earliest to occur of (A) November 17, 2017, (B) a Change in Control of the Company, and (C) the termination of the Participant’s employment with the Company.
2015
On January 22, 2015 the Company granted three independent directors a total of 62,501 restricted stock units. The units were valued based on the closing stock price on the date of grant. All units vest equally in 12 monthly installments beginning January 31, 2015. The shares of Common Stock associated with the Restricted Stock Unit evidenced by this Agreement will be issued to the director upon the earliest to occur of (A) January 22, 2018, (B) a change in control of the Company, and (C) the termination of the director’s service with the Company.
On February 10, 2015 the Company granted an employee 20,000 restricted stock units in accordance with a separation agreement. The units were valued based on the closing stock price on the date of grant. All units vest equally in 6 monthly installments beginning on the grant date. The shares of Common Stock associated with the Restricted Stock Unit evidenced by this Agreement were issued on August 14, 2015 in accordance with the agreement.
Restricted Stock Unit Compensation Expense
The impact on our results of operations of recording stock-based compensation expense for years ended December 31, 2015 and 2014 was as follows:
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
2014
|
|
|
General and administrative
|
|
$
|
496,278
|
|
|
$
|
347,074
|
|
|
|
|
$
|
496,278
|
|
|
$
|
347,074
|
|
9.
Warrants to Purchase Common Stock
The following table summarizes non-employee warrant activity under our stock-based plans as of and for the year ended December 31, 2015:
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
Outstanding at December 31, 2013
|
150,556
|
|
$
|
1.97
|
|
-
|
|
Granted
|
-
|
|
$
|
-
|
|
-
|
|
Exercised
|
-
|
|
$
|
-
|
|
-
|
|
Canceled/forfeited/expired
|
(555)
|
|
$
|
10.50
|
|
-
|
|
Outstanding at December 31, 2014
|
150,001
|
|
$
|
1.92
|
|
-
|
|
Granted
|
-
|
|
$
|
-
|
|
-
|
|
Exercised
|
-
|
|
$
|
-
|
|
-
|
|
Canceled/forfeited/expired
|
(116,668)
|
|
$
|
1.92
|
|
-
|
|
Outstanding at December 31, 2015
|
33,333
|
|
$
|
1.92
|
|
-
|
|
Expected to vest at December 31, 2015
|
-
|
|
$
|
-
|
|
-
|
|
Warrants exercisable
|
33,333
|
|
$
|
1.92
|
|
-
|
The following table summarizes investor warrant activity as of and for the year ended December 31, 2015:
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
Outstanding at December 31, 2013
|
5,295,905
|
|
$
|
1.20
|
|
4.39
|
|
Granted
|
1,723,935
|
|
$
|
1.20
|
|
4.20
|
|
Exercised
|
-
|
|
$
|
-
|
|
-
|
|
Canceled/forfeited/expired
|
-
|
|
$
|
-
|
|
-
|
|
Outstanding at December 31, 2014
|
7,019,840
|
|
$
|
1.20
|
|
3.18
|
|
Granted
|
1,435,750
|
|
$
|
1.19
|
|
4.17
|
|
Exercised
|
-
|
|
$
|
-
|
|
-
|
|
Canceled/forfeited/expired
|
(108,318)
|
|
$
|
-
|
|
-
|
|
Outstanding at December 31, 2015
|
8,347,272
|
|
$
|
1.20
|
|
3.00
|
Warrants Issued to Non-Employees
We issued warrants to purchase 150,835 shares of common stock to non-employees in 2010 and 2011. The valuation assumptions used are consistent with the valuation information for options above.
We recorded stock-based compensation expense of $331 and $5,844 in general and administrative expense for the year ended December 31, 2015 and 2014, respectively.
Warrants with Price Protection
In 2011, we issued warrants for the purchase of 114,784 shares of common stock at $2.00 per share in connection with a private placement. In 2012, we issued warrants for the purchase of 25,588 shares of common stock at $2.00 per share in connection with the conversion of a portion of our Bridge Notes. These warrants are exercisable for four years from the date of issuance, and contain anti-dilution, or down round, price protection as long as the warrants remain outstanding. The current exercise price of these warrants is $1.20 per share as a result of the price protection guarantee contained in the warrant agreements.
Warrants Issued in 2014
In March 2014, we issued warrants for the purchase of 1,353,250 shares of common stock at $1.20 per share in connection with a private placement. The warrants are exercisable for the five years from the date of issuance.
In March 2014, we issued warrants for the purchase of 370,685 common stock units at $1.00 per unit to a placement agent in connection with the equity placements. Each unit consists of one share of the Company’s common stock and a common stock purchase warrant to purchase one-quarter share of the Company’s common stock, over a five-year period, at an exercise price of $1.20 per share. At March 31, 2014, the value of the 370,685 warrants was $448,705. As part of the private placement share units issued, 1,353,238 warrants were issued to investors valued at $1,320,569 which expire in 2019.
As of December 31, 2014, we have warrants issued in 2014 to purchase 7,019,840 shares of common stock at $1.20 per share that are outstanding. Of this amount, warrants to purchase 86,949 shares of common stock will expire in 2015, warrants to purchase 55,598 shares of common stock expire in 2016, warrants to purchase 5,153,358 shares of common stock expire in 2018 and warrants to purchase 1,723,935 shares of common stock expire in 2019.
Warrants Issued in 2015
In March 2015, we issued warrants to the purchase of 1,201,250 common stock units at $1.20 per share in connection with the equity financing. The grant date fair value of the warrants was $4,462,482 or $0.93 per share. Additionally, we issued to EGE warrants to purchase an aggregate of 234,500 units, exercisable for a period of five years from the closing date, at an exercise price of $1.00 per unit.
As of December 31, 2015, we have warrants to purchase 8,112,772 and 234,500 shares of common stock at $1.20 and $1.00 per share, respectively, which are outstanding. Of this amount, warrants to purchase 34,229 shares expire in 2016, warrants to purchase 5,153,358 shares expire in 2018, warrants to purchase 1,723,935 shares expire in 2019, and warrants to purchase 1,435,750 shares expire in 2020.
10.
Income Taxes
For the years ended December 31, 2015 and 2014 the provisions for income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
2014
|
|
|
Federal – current
|
|
$
|
-
|
|
|
$
|
-
|
|
|
State – current
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
Under ASC 740, deferred income tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of our net deferred tax assets and liabilities as of December 31, 2015 and 2014 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
Deferred tax assets (liabilities):
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
9,896,000
|
|
|
$
|
7,837,000
|
|
|
Stock based compensation
|
|
|
3,534,000
|
|
|
|
2,716,000
|
|
|
Accrued compensation
|
|
|
54,000
|
|
|
|
47,000
|
|
|
Derivative Liability
|
|
|
-
|
|
|
|
17,000
|
|
|
Depreciation and amortization
|
|
|
6,063,000
|
|
|
|
6,617,000
|
|
|
Other
|
|
|
58,000
|
|
|
|
20,000
|
|
|
Total deferred tax assets
|
|
|
19,605,000
|
|
|
|
17,254,000
|
|
|
Valuation allowance for net deferred tax assets
|
|
|
(19,605,000
|
)
|
|
|
(17,254,000
|
)
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company has provided a valuation allowance against deferred tax assets recorded as of December 31, 2015 and 2014 due to uncertainties regarding the realization of such assets.
The net change in the total valuation allowance for the year ended December 31, 2015 was an increase of approximately $2,351,000. The net change in the total valuation allowance for the year ended December 31, 2014 was an increase of approximately $4,054,000. In assessing the valuation of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. The Company considers projected future taxable income and planning strategies in making this assessment. Based on the level of historical operating results and projections for the taxable income for the future, the Company has determined that it is more likely than not that the deferred tax assets will not be realized. Accordingly, the Company has recorded a valuation allowance to reduce deferred tax assets to zero. There can be no assurance that the Company will ever be able to realize the benefit of some or all of the federal and state loss carryforwards, either due to ongoing operating losses or due to ownership changes, which limit the usefulness of the loss carryforwards.
As of December 31, 2015, the Company has available net operating loss carryforwards of approximately $28,000,000 for federal income tax purposes, which will start to expire in 2026. The net operating loss carryforwards for state purposes are approximately $28,000,000 and will start to expire in 2016.
The difference between the provision for income taxes and income taxes computed using the U.S. federal income tax rate for the years ended December 31, 2015 and 2014 was as follows:
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
Computed expected tax expense
|
|
$
|
(2,085,000
|
)
|
|
$
|
(3,548,000
|
)
|
|
State taxes, net of federal benefit
|
|
|
(343,000
|
)
|
|
|
(594,000
|
)
|
|
Other
|
|
|
77,000
|
|
|
|
88,000
|
|
|
Change in valuation allowance
|
|
|
2,351,000
|
|
|
|
4,054,000
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company has determined that during 2010 it experienced a “change of ownership” as defined by Section 382 of the Internal Revenue Code. As such, utilization of net operating loss carryforwards and credits generated before the 2010 change in ownership will be limited to approximately $207,000 per year until such carryforwards are fully utilized. The pre change net operating loss carryforward was approximately $7,000,000.
The Company files income tax returns in the U.S. federal jurisdiction and California. Because the Company is carrying forward federal and state net operating losses from 2006, the Company is subject to U.S. federal and state income tax examinations by tax authorities for all years since 2006. The Company does not have a liability for any uncertain tax positions. As of December 31, 2015, no accrued interest or penalties are recorded in the financial statements.
11.
Fair Value Measurements of Financial Instruments
The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Gains (Losses)
|
|
|
Goodwill (non-recurring)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,921,072
|
|
|
$
|
-
|
|
|
Intangibles, net (non-recurring)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,373,689
|
|
|
$
|
(21,188
|
)
|
|
Derivative liabilities (recurring)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
42,659
|
|
|
Earn-out payable (recurring)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
89,740
|
|
The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Gains (Losses)
|
|
|
Goodwill (non-recurring)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,921,072
|
|
|
$
|
(4,078,693
|
)
|
|
Intangibles, net (non-recurring)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,010,952
|
|
|
$
|
(961,436
|
)
|
|
Derivative liabilities (recurring)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
42,659
|
|
|
$
|
63,517
|
|
|
Earn-out payable (recurring)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
840,000
|
|
|
$
|
1,492,000
|
|
The Company recorded goodwill, intangible assets and an earn-out payable as a result its business combinations, and these assets were valued with the assistance of a valuation consultant and consisted of Level 3 valuation techniques.
The Company recorded derivative liabilities as a result of: (i) the variable maturity conversion feature in its convertible notes payable; (ii) the additional security issuance feature in its convertible notes payable notes, common stock and warrants; and (iii) warrants issued to non-employees that were treated as derivative liabilities. These liabilities were valued with the assistance of a valuation consultant using a Monte-Carlo simulation model. The assumptions used in the Monte-Carlo simulation used to value the derivative liabilities involve expected volatility in the Company’s common stock, estimated probabilities related to the occurrence of a future financing, and interest rates. As all the assumptions employed to measure these liabilities are based on management’s judgment using internal and external data, this fair value determination is classified in Level 3 of the valuation hierarchy.
The Company’s financial instruments consist of cash, accounts receivable, accounts payable, and accrued liabilities. The estimated fair value of cash, accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to the short-term nature of these instruments. None of these instruments are held for trading purposes.
12.
Commitments and Contingencies
Lease Abandonment
On June 8, 2015, the Company incurred a lease abandonment charge of $54,849 for year ended December 31, 2015, for the former corporate headquarters located at 58 W. Buffalo St. Suite #200 in Chandler, Arizona. Due to the growth of the Company, occupancy has been taken under a new leased space. The Company estimated the liability under operating lease agreements and accrued lease abandonment costs in accordance with Accounting Standards Codification (“ASC”) 420, Exit or Disposal Cost Obligation ("ASC 420"), as the Company has no future economic benefit from the abandoned space and the lease terminated November 30, 2015. All leased space related to this lease was abandoned and ceased to be used by the Company on June 30, 2015.
Litigation
As of the date of this report, there are no pending legal proceedings to which we or our properties are subject, except for routine litigation incurred in the normal course of business.
Operating Lease
The Company has a lease agreement for 10,395 square feet, for its office facilities in Chandler, AZ through December 2020. Monthly rental payments, including common area maintenance charges, are $17,974.
The Company also has a lease through January 2018 for approximately 3,023 square feet of office space in San Diego, California at a monthly expense of $10,127, excluding common area maintenance charges.
The minimum lease payments that are required over the next five years are shown below.
|
|
|
|
|
|
Minimum Lease Payments
|
|
|
|
|
2016
|
|
$
|
345,163
|
|
|
2017
|
|
|
354,290
|
|
|
2018
|
|
|
231,357
|
|
|
2019
|
|
|
232,155
|
|
|
2020
|
|
|
237,353
|
|
|
Thereafter
|
|
|
-
|
|
|
|
|
$
|
1,400,318
|
|
Rent expense was $342,784 and $248,573 for the years ended December 31, 2015 and 2014.
13.
Employee Benefit Plan
The Company has an employee savings plan (the “Plan”) pursuant to Section 401(k) of the Internal Revenue Code (the “Code”), covering all of its employees. Participants in the Plan may contribute a percentage of compensation, but not in excess of the maximum allowed under the Code. The Company may make contributions at the discretion of its Board of Directors. During the years ended December 31, 2015 and 2014, the Company made no contributions to the Plan.
14.
Related Party Transactions
As discussed previously, we conducted the private placement of our securities during the year ended December 31, 2015 for the gross proceeds of $4,805,000. Two officers of the company participated in the private placement investing a total of $75,000, resulting in 75,000 common stock shares and 18,750 of common stock purchase warrants.
15.
Subsequent Events
Acquisition
On January 15, 2016, the Company, acquired all of the outstanding capital stock of LiveLenz Inc., a Nova Scotia corporation (“LiveLenz”), pursuant to an agreement dated January 15, 2016 among the Company and the stockholders of LiveLenz. Pursuant to the agreement, the Company acquired all of the capital stock of LiveLenz in consideration of the Company’s issuance of 1,000,000 shares (“Consideration Shares”) of its $0.001 par value common stock to the LiveLenz stockholders and the Company’s issuance of an additional 15,000 share of its common stock in satisfaction of certain liabilities of LiveLenz. The agreement includes customary representations, warranties, and covenants by the Company and the LiveLenz stockholders, including the LiveLenz stockholders’ agreement to indemnify the Company against certain claims or losses resulting from certain breaches of representations, warranties or covenants by the LiveLenz stockholders in the agreement. Pursuant to the agreement, the LiveLenz stockholders have agreed to adjust the number of Consideration Shares downward based on LiveLenz’ working capital as of the closing and in the event of any claims for indemnification by the Company. The LiveLenz stockholders have agreed that 100% of the Consideration Shares will be escrowed for a period of 18 month and subject to forfeiture based on indemnification claims of the Company or the final determination of LiveLenz’ working capital as of the closing date.
2016 Private Placement
In March 2016, the Company conducted the private placement of its securities for the gross proceeds of $1,953,600. In the private placement, the Company sold 3,256,000 units of our securities at a price of $0.60 per share. The Company entered into a Registration Rights Agreement with the investors, pursuant to which it agreed to cause a resale registration statement to be filed by May 31, 2016.
Working Capital Line of Credit Facility
On March 30, 2016, the Company entered into a Working Capital Line of Credit Facility (the “Facility”) with a bank to provide up to $2 million to finance the Company’s general working capital needs. The Facility is funded based on cash on deposit balances and advances against the Company’s 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. There are no financial covenants and as of the date of this filing there are no borrowings under the Facility.
Condensed Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,053,013
|
|
|
$
|
634,129
|
|
|
Accounts receivable, net of allowance for doubtful accounts of $240,973 and
$237,383, respectively
|
|
|
791,221
|
|
|
|
700,356
|
|
|
Other current assets
|
|
|
188,965
|
|
|
|
131,345
|
|
|
Total current assets
|
|
|
3,033,199
|
|
|
|
1,465,830
|
|
|
Goodwill
|
|
|
3,058,307
|
|
|
|
1,921,072
|
|
|
Intangible assets, net
|
|
|
2,292,709
|
|
|
|
2,373,689
|
|
|
Other assets
|
|
|
193,201
|
|
|
|
173,022
|
|
|
TOTAL ASSETS
|
|
$
|
8,577,416
|
|
|
$
|
5,933,613
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
871,811
|
|
|
$
|
375,363
|
|
|
Accrued and deferred personnel compensation
|
|
|
299,115
|
|
|
|
414,314
|
|
|
Deferred revenue and customer deposits
|
|
|
278,528
|
|
|
|
72,624
|
|
|
Notes payable
|
|
|
96,903
|
|
|
|
-
|
|
|
Other current liabilities
|
|
|
169,595
|
|
|
|
197,145
|
|
|
Total current liabilities
|
|
|
1,715,952
|
|
|
|
1,059,446
|
|
|
|
|
|
|
|
|
|
-
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
-
|
|
|
Notes payable
|
|
|
318,796
|
|
|
|
-
|
|
|
Total non-current liabilities
|
|
|
318,796
|
|
|
|
-
|
|
|
Total liabilities
|
|
|
2,034,748
|
|
|
|
1,059,446
|
|
|
Commitments and Contingencies (See Note 9)
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 50,000,000 shares authorized; 32,642,324 and 28,787,991, shares issued and outstanding
|
|
|
32,642
|
|
|
|
28,788
|
|
|
Equity payable
|
|
|
350,862
|
|
|
|
100,862
|
|
|
Additional paid-in capital
|
|
|
72,670,382
|
|
|
|
69,903,527
|
|
|
Accumulated other comprehensive loss
|
|
|
(63,219
|
)
|
|
|
-
|
|
|
Accumulated deficit
|
|
|
(66,447,999
|
)
|
|
|
(65,159,010
|
)
|
|
Total stockholders' equity
|
|
|
6,542,668
|
|
|
|
4,874,167
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
8,577,416
|
|
|
$
|
5,933,613
|
|
See accompanying notes to condensed consolidated financial statements (unaudited).
Condensed Consolidated Statements of Income and Comprehensive Income
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Revenues
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,845,240
|
|
|
$
|
940,172
|
|
|
Cost of revenues
|
|
|
436,624
|
|
|
|
263,914
|
|
|
Gross margin
|
|
|
1,408,616
|
|
|
|
676,258
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
1,048,471
|
|
|
|
1,161,387
|
|
|
Sales and marketing
|
|
|
1,178,089
|
|
|
|
1,092,900
|
|
|
Engineering, research, and development
|
|
|
331,982
|
|
|
|
114,144
|
|
|
Depreciation and amortization
|
|
|
146,388
|
|
|
|
55,746
|
|
|
Total operating expenses
|
|
|
2,704,930
|
|
|
|
2,424,177
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,296,314
|
)
|
|
|
(1,747,919
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other income/(expense)
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
368
|
|
|
|
56
|
|
|
Interest expense
|
|
|
(7,593
|
)
|
|
|
-
|
|
|
Change in fair value of derivative liabilities
|
|
|
-
|
|
|
|
18,325
|
|
|
Foreign currency gain/(loss)
|
|
|
14,550
|
|
|
|
-
|
|
|
Total other income/(expense)
|
|
|
7,325
|
|
|
|
18,381
|
|
|
Loss before income taxes
|
|
|
(1,288,989
|
)
|
|
|
(1,729,538
|
)
|
|
Income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
Net loss
|
|
|
(1,288,989
|
)
|
|
|
(1,729,538
|
)
|
|
Other comprehensive loss, net of income tax
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(63,219
|
)
|
|
|
-
|
|
|
Comprehensive loss
|
|
$
|
(1,352,208
|
)
|
|
$
|
(1,729,538
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.08
|
)
|
|
Weighted average number of shares
during the period - basic and diluted
|
|
|
29,778,439
|
|
|
|
23,022,420
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements (unaudited).
Consolidated Statement of Stockholders’ Equity
|
|
|
Common Stock
|
|
|
Equity
Payable
|
|
|
Additional
Paid-in Capital
|
|
|
Accumulated Other
Comprehensive Loss
|
|
|
Accumulated
Deficit
|
|
|
Total Stockholders'
Equity
|
|
|
|
|
Shares
|
|
|
Dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2014
|
|
|
22,748,193
|
|
|
$
|
22,748
|
|
|
$
|
100,862
|
|
|
$
|
62,565,974
|
|
|
$
|
-
|
|
|
$
|
(59,025,964
|
)
|
|
$
|
3,663,620
|
|
|
Issuance of common stock for financing,
net of transaction costs of $234,500
|
|
|
4,805,000
|
|
|
|
4,805
|
|
|
|
-
|
|
|
|
4,565,695
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,570,500
|
|
|
Issuance of common stock for services
|
|
|
310,870
|
|
|
|
311
|
|
|
|
-
|
|
|
|
362,690
|
|
|
|
-
|
|
|
|
-
|
|
|
|
363,001
|
|
|
Issuance of common stock for earnout
|
|
|
903,928
|
|
|
|
904
|
|
|
|
-
|
|
|
|
749,356
|
|
|
|
-
|
|
|
|
-
|
|
|
|
750,260
|
|
|
Stock based compensation
|
|
|
20,000
|
|
|
|
20
|
|
|
|
-
|
|
|
|
1,659,812
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,659,832
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,133,046
|
)
|
|
|
(6,133,046
|
)
|
|
Balance, December 31, 2015
|
|
|
28,787,991
|
|
|
$
|
28,788
|
|
|
$
|
100,862
|
|
|
$
|
69,903,527
|
|
|
$
|
-
|
|
|
$
|
(65,159,010
|
)
|
|
$
|
4,874,167
|
|
|
Issuance of common stock for acquisition
|
|
|
1,015,000
|
|
|
|
1,015
|
|
|
|
-
|
|
|
|
709,485
|
|
|
|
-
|
|
|
|
-
|
|
|
|
710,500
|
|
|
Issuance of common stock for financing
|
|
|
2,839,333
|
|
|
|
2,839
|
|
|
|
250,000
|
|
|
|
1,700,761
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,953,600
|
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
356,609
|
|
|
|
-
|
|
|
|
-
|
|
|
|
356,609
|
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(63,219
|
)
|
|
|
-
|
|
|
|
(63,219
|
)
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,288,989
|
)
|
|
|
(1,288,989
|
)
|
|
Balance, March 31, 2016
|
|
|
32,642,324
|
|
|
$
|
32,642
|
|
|
$
|
350,862
|
|
|
$
|
72,670,382
|
|
|
$
|
(63,219
|
)
|
|
$
|
(66,447,999
|
)
|
|
$
|
6,542,668
|
|
See accompanying notes to condensed consolidated financial statements (unaudited).
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,288,989
|
)
|
|
$
|
(1,729,538
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Bad debt expense
|
|
|
3,743
|
|
|
|
7,222
|
|
|
Amortization of deferred financing costs
|
|
|
103
|
|
|
|
-
|
|
|
Common stock issued for services
|
|
|
-
|
|
|
|
363,001
|
|
|
Stock-based compensation
|
|
|
356,609
|
|
|
|
344,267
|
|
|
Depreciation and amortization expense
|
|
|
146,388
|
|
|
|
55,746
|
|
|
Change in fair value of derivative liabilities
|
|
|
-
|
|
|
|
(18,325
|
)
|
|
Increase (decrease) in cash resulting from changes in:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(89,753
|
)
|
|
|
28,917
|
|
|
Other current assets
|
|
|
(48,897
|
)
|
|
|
(22,964
|
)
|
|
Other assets
|
|
|
17,700
|
|
|
|
(5,700
|
)
|
|
Accounts payable
|
|
|
419,669
|
|
|
|
93,952
|
|
|
Accrued and deferred personnel compensation
|
|
|
(116,191
|
)
|
|
|
(22,501
|
)
|
|
Deferred revenue and customer deposits
|
|
|
205,904
|
|
|
|
(74,018
|
)
|
|
Other liabilities
|
|
|
(34,039
|
)
|
|
|
(5,955
|
)
|
|
Net cash used in operating activities
|
|
|
(427,753
|
)
|
|
|
(985,896
|
)
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Purchases of equipment
|
|
|
(4,237
|
)
|
|
|
(8,076
|
)
|
|
Acquisitions
|
|
|
10,730
|
|
|
|
-
|
|
|
Cash paid for patent
|
|
|
(10,000
|
)
|
|
|
-
|
|
|
Capitalized software development costs
|
|
|
(51,862
|
)
|
|
|
(214,341
|
)
|
|
Net cash used in investing activities
|
|
|
(55,369
|
)
|
|
|
(222,417
|
)
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Deferred financing costs
|
|
|
(32,287
|
)
|
|
|
-
|
|
|
Proceeds from issuance of common stock, net of issuance costs
|
|
|
1,953,600
|
|
|
|
4,295,500
|
|
|
Net cash provided by financing activities
|
|
|
1,921,313
|
|
|
|
4,295,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency translation on cash flow
|
|
|
(19,307
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
1,418,884
|
|
|
|
3,087,187
|
|
|
Cash at beginning of period
|
|
|
634,129
|
|
|
|
848,230
|
|
|
Cash at end of period
|
|
$
|
2,053,013
|
|
|
$
|
3,935,417
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
|
Cash paid during period for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
7,593
|
|
|
$
|
-
|
|
See accompanying notes to condensed consolidated financial statements (unaudited).
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Nature of Operations and Basis of Presentation
Mobivity Holdings Corp. (the “Company” or “we”) is in the business of developing and operating proprietary platforms over which brands and enterprises can conduct national and localized, data-driven mobile marketing campaigns. Our proprietary platforms, consisting of software available to phones, tablets PCs, and Point of Sale (POS) systems, allow resellers, brands and enterprises to market their products and services to consumers through text messages sent directly to the consumers’ via mobile phones, mobile smartphone applications, and dynamically printed receipt content. We generate revenue by charging the resellers, brands and enterprises a per-message transactional fee, through fixed or variable software licensing fees, or via advertising fees.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and disclosures required by GAAP for annual financial statements. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included elsewhere in this prospectus.
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, 2016, and for the three months ended March 31, 2016 and 2015. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the operating results for the full year ending December 31, 2016.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates used are those related to stock-based compensation, asset impairments, the valuation and useful lives of depreciable tangible and certain intangible assets, the fair value of common stock used in acquisitions of businesses, the fair value of assets and liabilities acquired in acquisitions of businesses, and the valuation allowance of deferred tax assets. Management believes that these estimates are reasonable; however, actual results may differ from these estimates.
Goodwill and Intangible Assets
Goodwill is tested for impairment at a minimum on an annual basis. Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does not pass the qualitative assessment, then the reporting unit's carrying value is compared to its fair value. The fair values of the reporting units are estimated using market and discounted cash flow approaches. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. The discounted cash flow approach uses expected future operating results. Failure to achieve these expected results may cause a future impairment of goodwill at the reporting unit.
Intangible assets consist of patents and trademarks, purchased customer contracts, purchased customer and merchant relationships, purchased trade names, purchased technology, non-compete agreements, and software development costs. Intangible assets are amortized over the period of estimated benefit using the straight-line method and estimated useful lives ranging from ten to twenty years. No significant residual value is estimated for intangible assets.
Software Development Costs
Software development costs include direct costs incurred for internally developed products and payments made to independent software developers and/or contract engineers. The Company accounts for software development costs in accordance with the FASB guidance for the costs of computer software to be sold, leased, or otherwise marketed (“ASC Subtopic 985-20”). Software development costs are capitalized once the technological feasibility of a product is established and such costs are determined to be recoverable. Technological feasibility of a product encompasses technical design documentation and integration documentation, or the completed and tested product design and working model. Software development costs are capitalized once technological feasibility of a product is established and such costs are determined to be recoverable against future revenues. Technological feasibility is evaluated on a project-by-project basis. Amounts related to software development that are not capitalized are charged immediately to the appropriate expense account. Amounts that are considered ‘research and development’ that are not capitalized are immediately charged to engineering, research, and development expense.
Capitalized costs for those products that are cancelled or abandoned are charged to product development expense in the period of cancellation. Commencing upon product release, capitalized software development costs are amortized to “Amortization Expense - Development” based on the straight-line method over a twenty-four month period.
The Company evaluates the future recoverability of capitalized software development costs on an annual basis. For products that have been released in prior years, the primary evaluation criterion is ongoing relations with the customer.
Impairment of Long-Lived Assets
We evaluate long-lived assets (including intangible assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. An asset is considered impaired if its carrying amount exceeds the undiscounted future net cash flow the asset is expected to generate.
Foreign Currency Translation
The Company translates the financial statements of its foreign subsidiary from the local (functional) currency into US Dollars using the year or reporting period end or average exchange rates in accordance with the requirements of Accounting Standards Codification subtopic 830-10,
Foreign Currency Matters
(“ASC 830-10”)
.
Assets and liabilities of these subsidiaries were translated at exchange rates as of the balance sheet date. Revenues and expenses are translated at average rates in effect for the periods presented. The cumulative translation adjustment is included in the accumulated other comprehensive gain (loss) within shareholders’ equity. Foreign currency transaction gains and losses arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the unaudited Condensed Consolidated Statements of Income and Comprehensive Income.
Revenue Recognition and Concentrations
Our SmartReceipt and C4 Mobile Marketing and customer relationship management are hosted solutions. We generate revenue from licensing our software to clients in our software as a service model, per-message and per-minute transactional fees, and customized professional services. We recognize license/subscription fees over the period of the contract, service fees as the services are performed, and per-message or per-minute transaction revenue when the transaction takes place. We recognize revenue at the time that the services are rendered, the selling price is fixed, and collection is reasonably assured, provided no significant obligations remain. We consider authoritative guidance on multiple deliverables in determining whether each deliverable represents a separate unit of accounting. Some customers are billed on a month to month basis with no contractual term and is collected by credit card. Revenue is recognized at the time that the services are rendered and the selling price is fixed with a set range of plans. Cash received in advance of the performance of services is recorded as deferred revenue.
We generate revenue from the Stampt App through customer agreements with business owners. Revenue is principally derived from monthly subscription fees which provide a license for unlimited use of the Stampt App by the business owners and their customers. The subscription fee is billed each month to the business owner. Revenue is recognized monthly as the subscription revenues are billed. There are no per-minute or transaction fees associated with the Stampt App.
During the three months ended March 31, 2016 and 2015, one customer accounted for 46% and 36%, respectively, of our revenues.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. We are required to record all components of comprehensive income (loss) in the consolidated financial statements in the period in which they are recognized. Net income (loss) and other comprehensive income (loss), including foreign currency translation adjustments and unrealized gains and losses on investments, are reported, net of their related tax effect, to arrive at comprehensive income (loss). For the three months ended March 31, 2016, the comprehensive loss was $1,352,208. For the three months ended March 31, 2015, the comprehensive loss was equal to the net loss.
Net Loss Per Common Share
Basic net loss per share excludes any dilutive effects of options, shares subject to repurchase and warrants. Diluted net loss per share includes the impact of potentially dilutive securities. During the three months ended March 31, 2016 and 2015, we had securities outstanding which could potentially dilute basic earnings per share in the future, but were excluded from the computation of diluted net loss per share, as their effect would have been anti-dilutive.
Reclassifications
Certain amounts from prior periods have been reclassified to conform to the current period presentation.
Recent Accounting Pronouncements
Accounting standards promulgated by the FASB are subject to change. Changes in such standards may have an impact on the Company’s future financial statements. The following are a summary of recent accounting developments.
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)”. Under this guidance, an entity is required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. This guidance offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. This guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard will have on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross verses Net)”. This amendment provides additional clarification and implementation guidance on the previously issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The amendments in ASU 2016-08 clarify how an entity should identify the specified good or service for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. The adoption of ASU 2016-08 is to coincide with an entity's adoption of ASU 2014-09, which we intend to adopt for interim and annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact that these standards 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 is currently evaluating the impact of the adoption of this standard will have on our consolidated financial statements.
In April 2015, the FASB issued ASU 2015-05 regarding Subtopic 350-40, “Intangibles - Goodwill and Other - Internal-Use Software.” The amendments in ASU 2015-05 provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The amendments in ASU 2015-05 are effective for annual and interim periods beginning after December 15, 2015. Early adoption is permitted. The amendments in ASU 2015-05 may be applied either prospectively to all arrangements entered into or materially modified after the effective date or retrospectively. The Company is currently evaluating the impact of the adoption of this standard will have on our consolidated financial statements.
3. Acquisitions
LiveLenz Acquisition
On January 15, 2016, we acquired all of the outstanding capital stock of LiveLenz Inc., a Nova Scotia corporation (“LiveLenz”), pursuant to an agreement dated January 15, 2016 among the Company and the stockholders of LiveLenz. Pursuant to the agreement, we acquired all of the capital stock of LiveLenz in consideration of our issuance of 1,000,000 shares (“Consideration Shares”) of our common stock to the LiveLenz stockholders, our issuance of an additional 15,000 share of our common stock in satisfaction of certain liabilities of LiveLenz, and the assumption of their existing liabilities. The agreement included customary representations, warranties, and covenants by us and the LiveLenz stockholders, including the LiveLenz stockholders’ agreement to indemnify us against certain claims or losses resulting from certain breaches of representations, warranties or covenants by the LiveLenz stockholders in the agreement. Pursuant to the agreement, the LiveLenz stockholders have agreed to adjust the number of Consideration Shares downward based on LiveLenz’ working capital as of the closing and in the event of any claims for indemnification by us. The LiveLenz stockholders have agreed that 100% of the Consideration Shares will be escrowed for a period of 18 months and subject to forfeiture based on indemnification claims by us or the final determination of LiveLenz’ working capital as of the closing date.
The allocation of the purchase price to assets and liabilities based upon fair value determinations was as follows:
|
Cash
|
|
$
|
10,730
|
|
|
Accounts receivable, net
|
|
|
4,193
|
|
|
Inventory
|
|
|
5,318
|
|
|
Other assets
|
|
|
7,024
|
|
|
Goodwill
|
|
|
1,137,235
|
|
|
Total assets acquired
|
|
|
1,164,500
|
|
|
Liabilities assumed
|
|
|
(454,000
|
)
|
|
Net assets acquired
|
|
$
|
710,500
|
|
The purchase price consists of the following:
|
Common stock
|
|
$
|
710,500
|
|
|
Total purchase price
|
|
$
|
710,500
|
|
The following information presents unaudited pro forma consolidated results of operations for the three months ended March 31, 2015 as if the Livelenz acquisition described above had occurred on January 1, 2015. The pro forma financial information is not necessarily indicative of the operating results that would have occurred if the acquisition been consummated as of the date indicated, nor are they necessarily indicative of future operating results.
|
Mobivity Holdings Corp.
|
|
|
Unaudited Pro Forma Condensed Consolidated Statement of Operations
|
|
|
Three Months Ended March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobivity
|
|
|
Livelenz
|
|
|
Pro forma
adjustments
|
|
|
Pro forma
combined
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
940,172
|
|
|
$
|
90,581
|
|
|
$
|
-
|
|
|
$
|
1,030,753
|
|
|
Cost of revenues
|
|
|
263,914
|
|
|
|
23,136
|
|
|
|
-
|
|
|
|
287,050
|
|
|
Gross margin
|
|
|
676,258
|
|
|
|
67,445
|
|
|
|
-
|
|
|
|
743,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
1,161,387
|
|
|
|
17,943
|
|
|
|
-
|
|
|
|
1,179,330
|
|
|
Sales and marketing
|
|
|
1,092,900
|
|
|
|
95,756
|
|
|
|
-
|
|
|
|
1,188,656
|
|
|
Engineering, research, and development
|
|
|
114,144
|
|
|
|
-
|
|
|
|
-
|
|
|
|
114,144
|
|
|
Depreciation and amortization
|
|
|
55,746
|
|
|
|
609
|
|
|
|
-
|
|
|
|
56,355
|
|
|
Total operating expenses
|
|
|
2,424,177
|
|
|
|
114,308
|
|
|
|
-
|
|
|
|
2,538,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,747,919
|
)
|
|
|
(46,863
|
)
|
|
|
-
|
|
|
|
(1,794,782
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income/(expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
56
|
|
|
|
-
|
|
|
|
-
|
|
|
|
56
|
|
|
Interest expense
|
|
|
-
|
|
|
|
(8,868
|
)
|
|
|
-
|
|
|
|
(8,868
|
)
|
|
Change in fair value of derivative liabilities
|
|
|
18,325
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,325
|
|
|
Foreign Currency Gain/(Loss)
|
|
|
-
|
|
|
|
22,020
|
|
|
|
-
|
|
|
|
22,020
|
|
|
Total other income/(expense)
|
|
|
18,381
|
|
|
|
13,152
|
|
|
|
-
|
|
|
|
31,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(1,729,538
|
)
|
|
|
(33,711
|
)
|
|
|
-
|
|
|
|
(1,763,249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,729,538
|
)
|
|
$
|
(33,711
|
)
|
|
$
|
-
|
|
|
$
|
(1,763,249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and diluted
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
during the period - basic and diluted
|
|
|
23,022,420
|
|
|
|
|
|
|
|
|
|
|
|
23,022,420
|
|
4. Goodwill and Purchased Intangibles
Goodwill
The carrying value of goodwill at March 31, 2016 and December 31, 2015 was $3,058,307 and $1,921,072, respectively.
Intangible assets
The following table presents details of our purchased intangible assets as of March 31, 2016 and December 31, 2015:
|
|
|
Balance at
December 31,
2015
|
|
|
Additions
|
|
|
Impairments
|
|
|
Amortization
|
|
|
Balance at
March 31,
2016
|
|
|
Patents and trademarks
|
|
$
|
78,931
|
|
|
$
|
10,000
|
|
|
$
|
-
|
|
|
$
|
(1,974
|
)
|
|
$
|
86,957
|
|
|
Customer and merchant relationships
|
|
|
1,373,513
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(41,621
|
)
|
|
$
|
1,331,892
|
|
|
Trade name
|
|
|
135,567
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,108
|
)
|
|
$
|
131,459
|
|
|
Acquired technology
|
|
|
187,298
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,676
|
)
|
|
$
|
181,622
|
|
|
|
|
$
|
1,775,309
|
|
|
$
|
10,000
|
|
|
$
|
-
|
|
|
$
|
(53,379
|
)
|
|
$
|
1,731,930
|
|
The intangible assets are being amortized on a straight line basis over their estimated useful lives of ten to twenty years.
Amortization expense for intangible assets was $53,379 and $53,692 for the three months ended March 31, 2016 and 2015, respectively.
The estimated future amortization expense of our intangible assets as of March 31, 2016 is as follows:
|
Year ending December 31,
|
|
Amount
|
|
2016
|
|
$
|
160,139
|
|
2017
|
|
|
213,519
|
|
2018
|
|
|
213,519
|
|
2019
|
|
|
213,519
|
|
2020
|
|
|
213,519
|
|
Thereafter
|
|
|
717,715
|
|
Total
|
|
$
|
1,731,930
|
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, 2016 and December 31, 2015:
|
|
|
Balance at
December 31,
2015
|
|
|
Additions
|
|
|
Amortization
|
|
|
Balance at
March 31,
2016
|
|
|
Software Development Costs
|
|
$
|
598,380
|
|
|
$
|
51,862
|
|
|
$
|
(89,463
|
)
|
|
$
|
560,779
|
|
|
|
|
$
|
598,380
|
|
|
$
|
51,862
|
|
|
$
|
(89,463
|
)
|
|
$
|
560,779
|
|
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 $89,463 and $0 for the three months ended March 31, 2016 and 2015.
The estimated future amortization expense of software development costs as of March 31, 2016 is as follows:
|
Year ending December 31,
|
|
Amount
|
|
|
2016
|
|
$
|
286,439
|
|
|
2017
|
|
|
232,227
|
|
|
2018
|
|
|
42,113
|
|
|
2019
|
|
|
-
|
|
|
2020
|
|
|
-
|
|
|
Thereafter
|
|
|
-
|
|
|
Total
|
|
$
|
560,779
|
|
6. Notes Payable and Interest Expense
The following table presents details of our notes payable as of March 31, 2016 and December 31, 2015:
|
Facility
|
Maturity
|
|
Interest Rate
|
|
|
Balance at
March 31,
2016
|
|
|
Balance at
December 31,
2015
|
|
|
BDC Term Loan
|
December 15, 2017
|
|
|
12
|
%
|
|
$
|
345,465
|
|
|
$
|
-
|
|
|
ACOA Note
|
May 1, 2021
|
|
|
-
|
|
|
|
70,234
|
|
|
|
-
|
|
|
SVB Working Capital Line of Credit Facility
|
March 30, 2018
|
|
Variable
|
|
|
|
-
|
|
|
|
-
|
|
|
Total Debt
|
|
|
|
|
|
|
|
415,699
|
|
|
|
-
|
|
|
Less current portion
|
|
|
|
|
|
|
|
(96,903
|
)
|
|
|
-
|
|
|
Long-term debt, net of current portion
|
|
|
|
|
|
|
$
|
318,796
|
|
|
$
|
-
|
|
BDC Term Loan
On January 8, 2016, Livelenz (a wholly-owned subsidiary of the Company,) entered into an amendment of their original loan agreement dated August 26, 2011 with the Business Development Bank of Canada (“BDC”). Under this agreement the loan will mature, and the commitments will terminate on December 15, 2017.
ACOA Note
On April 29, 2016, Livelenz (a wholly-owned subsidiary of the Company), entered into an amendment of the original agreement dated December 2, 2014 with the Atlantic Canada Opportunities Agency (“ACOA”). Under this agreement the note will mature, repayments will begin 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. There are no financial covenants and as of the date of this prospectus there are no borrowings under the Facility.
Under the terms of the Facilty, the Company is obligated to pay a commitment fee on the available unused amount of the Facility commitments equal to 0.5% per annum.
The Company capitalized debt issuance costs of $32,287 as of March 31, 2016 related to the Facility, which are being amortized on a straight-line basis to interest expense over the two-year term of the Facility.
Interest Expense
Interest expense was $7,593 during the three months ended March 31, 2016.
7. Stockholders’ Equity
Common Stock
2015
On January 13, 2015, Michael Bynum, president and a member of the board of directors of Mobivity Holdings Corp, resigned as an officer, director and employee of the Company and all subsidiaries. In connection with Mr. Bynum's resignation, he and the Company entered into a customary separation agreement providing for mutual releases and other standard covenants and acknowledgements. In addition, the separation agreement modified Mr. Bynum's rights to severance under his employment agreement dated May 17, 2013 with the Company. Pursuant to his employment agreement, Mr. Bynum was entitled to one year of salary, or $200,000, upon his resignation. However, under the separation agreement, Mr. Bynum agreed to accept 260,870 shares of the common stock of the Company in lieu of cash severance. The shares were valued on the closing market price on the date of the separation agreement of January 9, 2015 of $1.15 which provided a fair market value of the share consideration of $300,001. In addition, pursuant to his employment agreement, Mr. Bynum's options would continue to vest for three months following his resignation and all vested options would remain exercisable for a period of six months following his resignation. However, under the separation agreement, Mr. Bynum agreed that his options would cease vesting upon his resignation, all unvested options would expire upon resignation and all vested options would remain exercisable for a period of 12 months following his resignation.
On January 21, 2015, the board of directors of Mobivity Holdings Corp. appointed William Van Epps to serve as executive chairman of the Company. In connection with the appointment, the Company entered into an employment agreement dated January 19, 2015 with Mr. Van Epps. Pursuant to his employment agreement, the Company has agreed to pay Mr. Van Epps a base salary $310,000, subject to annual review by the board. The Company has also agreed to pay Mr. Van Epps a signing bonus of 50,000 shares of the Company’s common stock. The shares were valued on the closing market price on the date of the employment agreement of January 19, 2015 of $1.26 which provided a fair market value of the share consideration of $63,000.
In March 2015, we conducted the private placement of our securities for the gross proceeds of $4,805,000. In the private placement, we sold 4,805,000 units of our securities at a price of $1.00 per unit. As of May 1, 2015, net proceeds of $4,570,500 have been received by the Company (this amount is less offering costs of $234,500). Each unit consists of one share of our common stock and a common stock purchase warrant to purchase one-quarter share of our common stock, over a five year period, at an exercise price of $1.20 per share and grant date fair value of $0.93. We entered into a Registration Rights Agreement with the investors, pursuant to which we agreed to cause a resale registration statement covering the common shares made part of the units to be filed by April 30, 2015. The Registration Rights Agreement also provides that we must make certain payments as liquidated damages to the investors if it fails to timely file the registration statement and cause it to become effective. The Registration Rights Agreement was declared effective as of September 10, 2015. As of the date of this filing, liquidated damages in regards to the timely filing of the registration statement have been waived.
EGE acted as placement agent for the private placement and received $234,500 in commissions from us. In addition, for its services as placement agent, we issued to EGE warrants to purchase an aggregate of 234,500 units, as defined above, exercisable for a period of five years from the closing date, at an exercise price of $1.00 per unit.
On July 31, 2015 we issued 903,928 shares of our common stock in satisfaction of the SmartReceipt earn-out payable. The earn-out payment was at the rate of $1.85 per share as further described in Note 10.
On August 14, 2015 we issued 20,000 Restricted Stock Units to a former employee at $1.18 per share for services and recorded share-based compensation of $23,800 in general and administrative expense
2016
On January 15, 2016, we acquired all of the outstanding capital stock of LiveLenz in consideration of our issuance of 1,000,000 shares (“Consideration Shares”) of our common stock to the LiveLenz stockholders and our issuance of an additional 15,000 share of our common stock in satisfaction of certain liabilities of LiveLenz. The LiveLenz stockholders have agreed that 100% of the Consideration Shares will be escrowed for a period of 18 months and subject to forfeiture based on indemnification claims by us or the final determination of LiveLenz’ working capital as of the closing date.
In March 2016, we conducted the private placement of 3,256,000 shares of our common stock, at a price of $0.60 per share, for the gross proceeds of $1,953,600. The offering was conducted by our management and no commission or other selling fees were paid by us. Pursuant to the terms of the offering, we entered into registration rights agreement with the investors pursuant to which we agreed to file with the SEC a resale registration statement covering the common shares by May 31, 2016.