We have not authorized any person to give you any supplemental information or to make any representations for us. You should not rely upon any information about our company that is not contained in this prospectus. Information contained in this prospectus may become stale. You should not assume that the information contained in this prospectus or any prospectus supplement is accurate as of any date other than their respective dates, regardless of the time of delivery of this prospectus, any prospectus supplement or of any sale of the shares. Our business, financial condition, results of operations and prospects may have changed since those dates. The selling stockholders are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted.
In this prospectus, “Mobivity,” the “company,” “we,” “us,” and “our” refer to Mobivity Holdings Corp., a Nevada corporation, and its wholly-ownedwholly- owned subsidiary, Mobivity, Inc., a Nevada corporation.
You should read this summary in conjunction with the more detailed information and financial statements appearing elsewhere in this prospectus.
On November 12, 2013, we effected a 1 for 6 reverse stock split of our outstanding common shares. All share amounts and share prices, including the exercise price and the number of common shares issuable under our outstanding options and warrants, have been adjusted to give effect to the reverse stock split.
Our Company
Mobivity Holdings Corp. (“Mobivity,” “we(the “Company” or “us” or “the company”“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, or other solutions driven from consumers’ mobile phones.and dynamically printed receipt content. We generate revenue by charging the resellers, brands and enterprises a per-message transactional fee, or through fixed or variable software licensing fees, or via advertising fees. Our customers include national franchisers, professional sports teams and associations and other national brands such as the Los Angeles Clippers, Dallas Cowboys, Chick-Fil-A,Sonic Drive-In, Subway, Jamba Juice, Chick-Fil-A, and others.
Our executive offices are located at 58 West Buffalo Street, Suite 200, Chandler, Arizona 85225. Our phone number is (866) 622-4261. Our website address is www.mobivity.com. Information contained in, or accessible through, our website does not constitute part of this prospectus.
The Offering
This offering relates to the offer and sale of our common stock by the selling stockholders identified in this prospectus. The selling stockholders will offer and sell the shares of our common stock at prices related to the then-current market price or in negotiated transactions. Although we have agreed to pay the expenses related to the registration of the shares being offered, we will not receive any proceeds from the sale of the shares by the selling stockholders.
Summary Financial Information
The following summary financial data for the fiscal years ended December 31, 20132014 and 20122013 is derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary financial data as of and for the three months ended March 31, 2014 has been derived from our unaudited financial statements and the related notes thereto included elsewhere in this prospectus. This information is only a summary and does not provide all of the information contained in our financial statements and related notes. You should read “Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 2116 of this prospectus and our financial statements and related notes included elsewhere in this prospectus.
Statement of Operations Data:
Three Months Ended March 31, 2014 | Fiscal Year Ended December 31, 2012 | Fiscal Year Ended December 31, 2013 | ||||||||||
| (Unaudited) | ||||||||||||
| Statement of Operations Data: | ||||||||||||
Net sales | $ | 903,215 | $ | 4,079,745 | $ | 4,093,667 | ||||||
Net loss | $ | 1,763,748 | $ | 7,338,927 | $ | 16,759,031 | ||||||
Fiscal Year Ended December 31, 2013 | Fiscal Year Ended December 31, 2014 | |||||||
| Net sales | $ | 4,093,667 | $ | 4,000,202 | ||||
| Net loss | $ | 16,759,031 | $ | 10,440,764 | ||||
March 31, 2014 | ||||
| Balance Sheet Data: | (Unaudited) | |||
Total assets | $ | 13,960,411 | ||
Total liabilities | 3,777,958 | |||
Stockholders’ equity | 10,182,453 | |||
Balance Sheet Data:
December 31, 2014 | ||||
| Total assets | $ | 5,368,510 | ||
| Total liabilities | 1,704,890 | |||
| Stockholders’ equity | 3,663,620 | |||
You should carefully consider the following risk factors before investing in our common stock. Our business and results of operations could be seriously harmed by any of the following risks. The trading price of our common stock could decline due to any of these risks, and you may lose part or all of your investment.
Risks Relating to Our Business
We may need additional financing to execute our business plan and fund operations, which additional financing may not be available on reasonable terms or at all.As of MarchDecember 31, 2014, we had approximately $3,222,533negative working capital of $(367,880). Current liabilities as of December 31, 2014 included an estimated earn-out in the amount of $840,000 and derivative liabilities in the amount of $42,659, all of which are payable in shares of our common stock. Giving no effect to the estimated earn-out and derivative liabilities, we had pro forma working capital.capital as of December 31, 2014 in the amount of $514,779. We also received proceeds from our March 2015 financing of $4,570,500, net of fees and amounts paid to the placement agent. While we believe that our working capital on hand will be sufficient to fund our 12 month plan of operations, there can be no assurance that we will not require significant additional capital.capital within 12 months. Also, we expect that we will require additional capital beyond the next 12 months unless we are able to achieve and maintain a profitable operation. In the event we require additional capital we will endeavor to raise additional funds through various financing sources, including the sale of our equity and debt securities and the procurement of commercial debt financing, with a bias toward debt financing over equity raisings.financing. However, there can be no guarantees that such funds will be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms, we may be unable to expand or continue our business as desired and operating results may be adversely affected. Any debt financing will increase expenses and must be repaid regardless of operating results and may involve restrictions limiting our operating flexibility. If we issue equity securities to raise additional funds, the percentage ownership of our existing stockholders will be reduced and our stockholders may experience additional dilution in net book value per share.
Our ability to obtain needed financing may be impaired by such factors as the capital markets, both generally and specifically in our industry, and the fact that we are not yet profitable, which could impact the availability or cost of future financings. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, we may be required to reduce or even cease operations.
Our sales efforts to large enterprises require significant time and effort and could hinder our ability to expand our customer base and increase revenue. Attracting new customers to our large enterprise division requires substantial time and expense, especially in an industry that is so heavily dependent on personal relationships with executives. We cannot assure that we will be successful in establishing new relationships, or maintaining or advancing our current relationships. For example, it may be difficult to identify, engage and market to customers who do not currently perform mobile marketing or advertising or are unfamiliar with our current services or platform. Further, many of our customers typically require input from one or more internal levels of approval. As a result, during our sales effort, we must identify multiple people involved in the purchasing decision and devote a sufficient amount of time to presenting our products and services to those individuals. The complexity of our services often requires us to spend substantial time and effort assisting potential customers in evaluating our products and services including providing demonstrations and benchmarking against other available technologies. We expect that our sales process will become less burdensome as our products and services become more widely known and used. However, if this change does not occur, we will not be able to expand our sales effort as quickly as anticipated and our sales will be adversely affected.
We may not be able to enhance our mobile marketing and advertising platform to keep pace with technological and market developments, or to remain competitive against potential new entrants in our markets. The market for mobile marketing and advertising services is emerging and is characterized by rapid technological change, evolving industry standards, frequent new product introductions and short product life cycles. Our current platform and services may not in the future be acceptable to marketers and advertisers. To keep pace with technological developments, satisfy increasing customer requirements and achieve acceptance of our marketing and advertising campaigns, we will need to enhance our current mobile marketing solutions and continue to develop and introduce on a timely basis new, innovative mobile marketing services offering compatibility, enhanced features and functionality on a timely basis at competitive prices. Our inability, for technological or other reasons, to enhance, develop, introduce and deliver compelling mobile marketing services in a timely manner, or at all, in response to changing market conditions, technologies or customer expectations could have a material adverse effect on our operating results or could result in our mobile marketing services platform becoming obsolete. Our ability to compete successfully will depend in large measure on our ability to maintain a technically skilled development and engineering staff and to adapt to technological changes and advances in the industry, including providing for the continued compatibility of our mobile marketing services platform with evolving industry standards and protocols.
In addition, as we believe the mobile marketing market is likely to grow substantially, other companies which are larger and have significantly more capital to invest than us may emerge as competitors. For example, in May 2010, Google, Inc. acquired Admob, Inc. Similarly, in January 2010, Apple, Inc. acquired Quattro Wireless, Inc. New entrants could seek to gain market share by introducing new technology or reducing pricing. This may make it more difficult for us to sell our products and services, and could result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses or the loss of market share or expected market share, any of which may significantly harm our business, operating results and financial condition.
Our services are provided on mobile communications networks that are owned and operated by third parties who we do not control and the failure of any of these networks would adversely affect our ability to deliver our services to our customers. Our mobile marketing and advertising platform is dependent on the reliability of mobile operators who maintain sophisticated and complex mobile networks. Such mobile networks have historically, and particularly in recent years, been subject to both rapid growth and technological change. If the network of a mobile operator with which we are integrated should fail, including because of new technology incompatibility, the degradation of network performance under the strain of too many mobile consumers using it, or a general failure from natural disaster or political or regulatory shut-down, we will not be able provide our services to our customers through such mobile network. This in turn, would impair our reputation and business, potentially resulting in a material, adverse effect on our financial results.
If our mobile marketing and advertising services platform does not scale as anticipated, our business will be harmed. We must be able to continue to scale to support potential ongoing substantial increases in the number of users in our actual commercial environment, and maintain a stable service infrastructure and reliable service delivery for our mobile marketing and advertising campaigns. In addition, we must continue to expand our service infrastructure to handle growth in customers and usage. If our mobile marketing services platform does not efficiently and effectively scale to support and manage a substantial increase in the number of users while maintaining a high level of performance, the quality of our services could decline and our business will be seriously harmed. In addition, if we are unable to secure data center space with appropriate power, cooling and bandwidth capacity, we may not be able to efficiently and effectively scale our business to manage the addition of new customers and overall mobile marketing campaigns.
The success of our business depends, in part, on wireless carriers continuing to accept our customers’ messages for delivery to their subscriber base. We depend on wireless carriers to deliver our customers’ messages to their subscriber base. Wireless carriers often impose standards of conduct or practice that significantly exceed current legal requirements and potentially classify our messages as “spam,” even where we do not agree with that conclusion. In addition, the wireless carriers use technical and other measures to attempt to block non-compliant senders from transmitting messages to their customers; for example, wireless carriers block short codes or Internet Protocol addresses associated with those senders. There can be no guarantee that we, or short codes registered to us, will not be blocked or blacklisted or that we will be able to successfully remove ourselves from those lists. Although our services typically require customers to opt-in to a campaign, minimizing the risk that our customers’ messages will be characterized as spam, blocking of this type could interfere with our ability to market products and services of our customers and communicate with end users and could undermine the effectiveness of our customers’ marketing campaigns. To date we have not experienced any material blocking of our messages by wireless carriers, but any such blocking could have an adverse effect on our business and results of operations.
We depend on third party providers for a reliable Internet infrastructure and the failure of these third parties, or the Internet in general, for any reason would significantly impair our ability to conduct our business. We outsource all of our data center facility management to third parties who host the actual servers and provide power and security in multiple data centers in each geographic location. These third party facilities require uninterrupted access to the Internet. If the operation of our servers is interrupted for any reason, including natural disaster, financial insolvency of a third party provider, or malicious electronic intrusion into the data center, our business would be significantly damaged. As has occurred with many Internet-basedInternet- based businesses, on occasion in the past, we have been subject to “denial-of-service” attacks in which unknown individuals bombarded our computer servers with requests for data, thereby degrading the servers’ performance. While we have historically been successful in relatively quickly identifying and neutralizing these attacks, we cannot be certain that we will be able to do so in the future. If either a third party facility failed, or our ability to access the Internet was interfered with because of the failure of Internet equipment in general or we become subject to malicious attacks of computer intruders, our business and operating results will be materially adversely affected.
Failure to adequately manage our growth may seriously harm our business. We operate in an emerging technology market and have experienced, and may continue to experience, significant growth in our business. If we do not effectively manage our growth, the quality of our products and services may suffer, which could negatively affect our brand and operating results. Our growth has placed, and is expected to continue to place, a significant strain on our managerial, administrative, operational and financial resources and our infrastructure. Our future success will depend, in part, upon the ability of our senior management to manage growth effectively. This will require us to, among other things:
| ● | implement additional management information systems; |
● | further develop our operating, administrative, legal, financial and accounting systems and controls; |
● | hire additional personnel; |
● | develop additional levels of management within our company; |
● | locate additional office space in various countries; and |
● | maintain close coordination among our engineering, operations, legal, finance, sales and marketing and customer service and support organizations. |
Moreover, as our sales increase, we may be required to concurrently deploy our services infrastructure at multiple additional locations or provide increased levels of customization. As a result, we may lack the resources to deploy our mobile marketing services on a timely and cost-effective basis. Failure to accomplish any of these requirements would seriously harm our ability to deliver our mobile marketing services platform in a timely fashion, fulfill existing customer commitments or attract and retain new customers.
The gathering, transmission, storage and sharing or use of personal information could give rise to liabilities or additional costs of operation as a result of governmental regulation, legal requirements, civil actions or differing views of personal privacy rights. We transmit and store a large volume of personal information in the course of providing our services. Federal, state and international laws and regulations govern the collection, use, retention, sharing and security of data that we receive from our customers and their users. Any failure, or perceived failure, by us to comply with U.S. federal, state, or international privacy or consumer protection-related laws, regulations or industry self-regulatory principles could result in proceedings or actions against us by governmental entities or others, which could potentially have an adverse effect on our business, operating results and financial condition. Additionally, we may also be contractually liable to indemnify and hold harmless our customers from the costs or consequences of inadvertent or unauthorized disclosure of their customers’ personal data which we store or handle as part of providing our services.
The interpretation and application of privacy, data protection and data retention laws and regulations are currently unsettled in the U.S. and internationally, particularly with regard to location-based services, use of customer data to target advertisements and communication with consumers via mobile devices. Such laws may be interpreted and applied inconsistently from country to country and inconsistently with our current data protection policies and practices. Complying with these varying international requirements could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business, operating results or financial condition.
As privacy and data protection have become more sensitive issues, we may also become exposed to potential liabilities as a result of differing views on the privacy of personal information. These and other privacy concerns, including security breaches, could adversely impact our business, operating results and financial condition.
In the U.S., we have voluntarily agreed to comply with wireless carrier technological and other requirements for access to their customers’ mobile devices, and also trade association guidelines and codes of conduct addressing the provision of location-based services, delivery of promotional content to mobile devices and tracking of users or devices for the purpose of delivering targeted advertising. We could be adversely affected by changes to these requirements, guidelines and codes, including in ways that are inconsistent with our practices or in conflict with the rules or guidelines in other jurisdictions.
Our management team has limited experience in public company matters, which could impair our ability to comply with legal and regulatory requirements. Our management team has only limited public company management experience or responsibilities, which could impair our ability to comply with legal and regulatory requirements and applicable federal securities laws including filing required reports and other information required on a timely basis. There can be no assurance that our management will be able to implement and affect programs and policies in an effective and timely manner that adequately respond to increased legal, regulatory compliance and reporting requirements imposed by such laws and regulations. Our failure to comply with such laws and regulations could lead to the imposition of fines and penalties and further result in the deterioration of our business.
Risks Related to our Common Stock
There has been a limited trading market for our common stock. There has been a limited trading market for our common stock on the Over-the-CounterOver-the- Counter Bulletin Board. The lack of an active market may impair the ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital by selling shares of capital stock and may impair our ability to acquire other companies or technologies by using common stock as consideration.
The market price of our common stock may be, and is likely to continue to be, highly volatile and subject to wide fluctuations. The market price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our control, including:
● | dilution caused by our issuance of additional shares of common stock and other forms of equity securities, which we expect to make in connection with future acquisitions or capital financings to fund our operations and growth, to attract and retain valuable personnel and in connection with future strategic partnerships with other companies; |
● | announcements of new acquisitions or other business initiatives by our competitors; |
● | our ability to take advantage of new acquisitions or other business initiatives; |
● | quarterly variations in our revenues and operating expenses; |
● | changes in the valuation of similarly situated companies, both in our industry and in other industries; |
● | changes in analysts’ estimates affecting us, our competitors and/or our industry; |
● | changes in the accounting methods used in or otherwise affecting our industry; |
● | additions and departures of key personnel; |
● | announcements by relevant governments pertaining to additional quota restrictions; and |
● | fluctuations in interest rates and the availability of capital in the capital markets. |
Some of these factors are beyond our control, and the impact of these risks, singly or in the aggregate, may result in material adverse changes to the market price of our common stock and/or our results of operations and financial condition.
We do not expect to pay dividends in the foreseeable future. We do not intend to declare dividends for the foreseeable future, as we anticipate that we will reinvest any future earnings in the development and growth of our business. Therefore, investors will not receive any funds unless they sell their common stock, and stockholders may be unable to sell their shares on favorable terms or at all. Investors cannot be assured of a positive return on investment or that they will not lose the entire amount of their investment in the common stock.
The offering of up to 23,114,58029,877,324 shares of our common stock by selling stockholders could depress our common stock price. Certain of our stockholders are offering pursuant to this prospectus up to 23,114,58029,877,324 shares of our common stock in a secondary offering, which amount includes 6,593,4248,551,168 shares of common stock issuable upon exercise of outstanding warrants. Sales of a substantial number of shares of our common stock in the public market could adversely affect the market for our common shares and make it more difficult for us to sell equity securities at times and prices that we determine to be appropriate. None of our shareholders are subject to any lock-up or other agreement that contractually restricts their ability to publicly resell their common shares.
Our common stock may be considered to be a “penny stock” and, as such, any the market for our common stock may be further limited by certain SEC rules applicable to penny stocks. To the extent the price of our common stock remains below $5.00 per share or we have a net tangible assets of $2,000,000 or less, our common shares will be subject to certain “penny stock” rules promulgated by the SEC. Those rules impose certain sales practice requirements on brokers who sell penny stock to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000). For transactions covered by the penny stock rules, the broker must make a special suitability determination for the purchaser and receive the purchaser’s written consent to the transaction prior to the sale. Furthermore, the penny stock rules generally require, among other things, that brokers engaged in secondary trading of penny stocks provide customers with written disclosure documents, monthly statements of the market value of penny stocks, disclosure of the bid and asked prices and disclosure of the compensation to the brokerage firm and disclosure of the sales person working for the brokerage firm. These rules and regulations adversely affect the ability of brokers to sell our common shares and limit the liquidity of our securities.
We are a “smaller reporting company” and, as such are allowed to provide less disclosure than larger public companies. We are currently a “smaller reporting company,” meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of less than $75 million and annual revenues of less than $50 million during the most recently completed fiscal year. As a “smaller reporting company”, we are able to provide simplified executive compensation disclosures in our SEC filings, are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting, and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports. Decreased disclosures in our SEC filings due to our status as a “smaller reporting company” may make it harder for investors to analyze our results of operations and financial prospects.
This prospectus and the documents to which we refer you contain forward-looking statements. In addition, from time to time, we or our representatives may make forward-looking statements orally or in writing. We base these forward-looking statements on our expectations and projections about future events, which we derive from the information currently available to us. Such forward-looking statements relate to future events or our future performance. You can identify forward-looking statements by those that are not historical in nature, particularly those that use terminology such as “may,” “will,” “should,” “expects,” “anticipates,” “contemplates,” “estimates,” “believes,” “plans,” “projected,” “predicts,” “potential” or “continue” or the negative of these or similar terms. In evaluating these forward-looking statements, you should consider various factors, including those described in this prospectus under the heading “Risk Factors” beginning on page 3.2. These and other factors may cause our actual results to differ materially from any forward-looking statement. Forward-looking statements are only predictions. The forward-looking events discussed in this prospectus, the documents to which we refer you and other statements made from time to time by us or our representatives, may not occur, and actual events and results may differ materially and are subject to risks, uncertainties and assumptions about us.
We were incorporated in the State of Nevada on September 25, 2008 under the names Ares Ventures Corporation for purposes of engaging in the acquisition, exploration and development of natural resource properties. From our organization and until November 2010, we were an exploration stage company with no revenues and a limited operating history.
Acquisitions
On November 2, 2010, we completed the acquisition of Mobivity, Inc., a Nevada corporation engaged in the business of mobile marketing, which at the time was known as CommerceTel, Inc., in exchange for 1,666,667 shares of our common stock. In anticipation of the transaction, on October 5, 2010, we changed our name from Ares Ventures Corporation to CommerceTel Corporation. Upon our acquisition of Mobivity, Inc., we ceased all operations related to the acquisition, exploration and development of natural resource properties and since that time have engaged exclusively in our current business, the development and operation of proprietary platforms over which brands and enterprises can conduct mobile marketing campaigns.
In April 2011, we acquired substantially all of the assets of the Txtstation interactive mobile marketing platform and services business from Adsparq Limited. The purchase price for the acquisition was 354,167 shares of our common stock and $300,000 in cash, which was paid over an 11 month period.
In April 2011, we entered into an acquisition agreement with Mobivity, LLC and Mobile Visions, Inc. pursuant to which we acquired the assets of their Mobivity interactive mobile marketing platform and services business. The purchase price for the acquisition was 166,667 shares of our common stock, $64,969 in cash paid at closing and a secured subordinated promissory note in the principal amount of $606,054. The promissory note accrued interest on the unpaid principal amount at the rate of 6.25% per annum and principal and interest were paid in six quarterly installments of $105,526 starting May 1, 2011. The note was paid in full on May 31, 2012.
In connection with the Mobivity acquisition, in June 2012 we changed our corporate name to Mobivity Holdings Corp.
In August 2011, we acquired substantially all of the assets of the BoomText interactive mobile marketing services business from Digimark, LLC. The purchase price for the acquired assets consisted of:
● | 86,590 shares of our common stock issued at closing; |
● | $120,514 in cash paid at closing; |
● | our secured subordinated promissory note in the principal amount of $175,000. This note earned interest at 6.25% per annum and was paid in full on May 31, 2012; |
● | our unsecured subordinated promissory note in the principal amount of $194,658 due and payable on October 1, 2012. The note does not bear interest and was paid in full in 2013; and |
● | an earn-out payment (payable 20 months after closing of the transaction) of a number of shares of our common stock equal to (a) 1.5, multiplied by our net revenue from acquired customers and customer prospects for the twelve-month period beginning six months after the closing date, divided by (b) the average of the volume-weighted average trading prices of our common stock for the 25 trading days immediately preceding the earn-out payment (subject to a collar of $1.49 and $2.01 per share). The final value of the earn-out payment was $2,210,667 and was satisfied through our issuance of 247,279 shares of our common stock. |
In May 2013, we acquired the assets of Sequence, LLC related to a mobile customer loyalty application. The acquired assets include all application software, URL’s, websites, trademarks, brands, customers and customer lists. The purchase price consisted of: $300,000 in cash which was paid prior to closing; 125,000 shares of our common stock which were issued at closing valued, based on the closing price of our common stock on May 13, 2013, at $183,750; and our agreements to pay 24 monthly earn-out payments consisting of 10% of the eligible monthly revenue subsequent to closing.
Also in May 2013, we acquired certain assets of Front Door Insights, LLC. The assets acquired from Front Door Insights consisted of cash on hand, accounts receivable, all rights under all contracts other than excluded contracts, prepaid expenses, all technology and intellectual property rights, accounts payable, and obligations under a commercial lease. The purchase price consisted of: $100,000 in cash; (2) our promissory note in the principal amount of $1,400,000; and (3) 1,666,667 shares of our common stock valued, based on the closing price of our common stock on May 20, 2013, at $1,034,310.
In March 2014, we acquired all of the assets of SmartReceipt, Inc., a Delaware corporation in exchange for:
● | Our payment at closing of $2.212 million of cash, net of a $150,000 loan made by us to SmartReceipt in January 2014; |
● | Our issuance of 504,884 shares of our common stock; and |
● | Our earn-out payment of 200% of the “eligible revenue” over the 12 month period following the close of the transaction (“earn-out period”). The “eligible revenue” will consist of: 100% of 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 (valued at the closing VWAP) no later than the 90th day following the end of the earn-out period. For purposes of the foregoing, the “closing VWAP” means the volume weighted average trading price of our common stock for the 90 trading days preceding the close of our acquisition of SmartReceipt. |
Pursuant to our agreement with SmartReceipt, SmartReceipt has agreed that 50% of the shares issuable to it or its shareholders at the initial closing will be held back by us for a period of 12 months and will be subject to cancellation based on indemnification claims on our part. These shares were released to SmartReceipt in April 2015.
Financing Transactions
Between March 2011 to November 2011, we conducted the private placement sale of 114,778 shares of our common stock at a price of $9.00 per share for the gross proceeds of $1,033,003. Each investor also received warrants to purchase an equivalent number of shares at an exercise price of $12.00. In October 2012, the exercise price of the warrants was reduced from $12.00 to $3.00 as a result of certain anti-dilution provisions contained in the warrant agreement. As a result of the June 2013 private placement described below, the exercise price of the warrants was further reduced to $1.20 per share in June 2013.
Between November 2010 and June 2012, we conducted the private placement sale of our 10% Senior Secured Convertible Bridge Notes. The bridge notes accrued interest on the unpaid principal amount at the rate of 10% per annum. The entire principal amount of the bridge notes, plus all accrued and unpaid interest, was due on the earlier of (i) the date we completed a financing transaction for the offer and sale of shares of our common stock in an aggregate amount of no less than 125% of the principal amounts evidenced by the bridge notes (a “qualifying financing”), or (ii) a fixed maturity date, which initially was set at November 3, 2011 and later amended to October 15, 2013. On the maturity date of the bridge notes, in addition to the repayment of the principal amount and all accrued and unpaid interest, we agreed to issue to each holder of the bride notes, at each such holder’s option, either (i) a three year warrant to purchase that number of shares of our common stock equal to the principal amount of (plus all accrued and unpaid interest on) the bridge notes held by the holder divided by the per share purchase price of the common stock offered and sold in the qualifying financing (the “offering price”) which warrants shall be exercisable at the offering price, or (ii) that number of shares of common stock equal to the product arrived at by multiplying (x) the principal amount of (plus all accrued and unpaid interest on) the bridge notes held by the holder, divided by the offering price and (y) 1.98. Our obligations under the bridge notes were secured by all of our assets.
As of May 31, 2013, the outstanding principal amount and accrued interest under the bridge notes was $4,984,721 and $441,973, respectively. As described below, all of the principal and substantially all of the accrued interest under the bridge notes were converted into shares of our common stock and warrants to purchase our common stock in June 2013.
On June 17, 2013, we entered into a securities purchase agreement and a registration rights agreement with certain accredited investors in connection with our private placement sale of 6,250,000 shares of our common stock at a price of $1.20 per share, for aggregate gross proceeds of $7.5 million. Pursuant to the terms of the registration rights agreement, we agreed to file with the SEC a resale registration statement covering the shares. Emerging Growth Equities, Ltd. acted as placement agent for the private placement and received $493,300 in commissions from us. In addition, for its services as placement agent, we issued to EGE warrants to purchase an aggregate of 605,910 shares of our common stock, exercisable for a period of five years from the closing date, at an exercise price of $1.20 per share.
In connection with the private placement, we also entered into a convertible secured promissory note conversion agreement on June 17, 2013, with the holders of our bridge notes. Pursuant to the note conversion agreement, we agreed to issue to the holders of our bridge notes 4,462,089 shares of our common stock, at the conversion price of $1.20 per share, for the cancellation of outstanding principal of $4,984,721 and accrued interest of $369,786 under the notes. Certain holders elected to receive, and we made, cash payments on the accrued interest on their notes in lieu of shares of common stock. Each note holder also received a warrant to purchase that number of shares of our common stock calculated by dividing the outstanding principal amount plus accrued and unpaid interest of such note by the conversion price. We issued warrants to purchase a total of 4,541,592 shares of our common stock to the note holders. The warrants are exercisable for a period of five years at an exercise price of $1.20 per share. In connection the sale of the bridge notes, we agreed to file with the SEC a resale registration statement covering the securities issued upon conversion of the Bridge Notes.
In March 2014, we conducted the private placement to certain accredited investors of 5,413,000 units of our securities at a price of $1.00 per unit for the gross proceeds of up to $5,413,000. Each unit consisted of one share of our common stock and a common stock purchase warrant to purchase one-quarterone- quarter share of our common stock, over a five year period, at an exercise price of $1.20 per share. In connection with the placement, 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 May 15, 2014. The registration rights agreement also provides that we must make certain payments as liquidated damages to the investors if we fail to timely file the registration statement and cause it to become effective. Emerging Growth Equities, Ltd. acted as placement agent for the private placement and received $370,685 in commissions from us. In addition, for its services as placement agent, we issued to EGE warrants to purchase an aggregate of 370,685 units, as defined above, exercisable for a period of five years from the closing date, at an exercise price of $1.00 per unit. The warrants had a fair value on date of issuance of $461,598.
In March 2015, we conducted the private placement to certain accredited investors of 4,805,000 units of our securities at a price of $1.00 per unit for the gross proceeds of $4,805,000. 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. In connection with the placement, 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 we fail to timely file the registration statement and cause it to become effective. Emerging Growth Equities, Ltd. acted as placement agent for the private placement and received $234,500 in commissions from the us. In addition, for its services as placement agent, we issued to Emerging Growth Equities warrants to purchase an aggregate of 234,500 units, exercisable over a period of five years from the closing date, at an exercise price of $1.00 per unit.
This prospectus relates to the offering and sale, from time to time, of up to 23,114,58029,877,324 shares of our common stock, held by the stockholders named in the table below, which amount includes 6,593,4248,551,168 common shares issuable upon the exercise of warrants held by the selling stockholders. The selling stockholders may exercise their warrants at any time in their sole discretion. All of the selling stockholders named below acquired their shares of our common stock and warrants directly from us in private transactions.
On June 17, 2013, we entered into a securities purchase agreement and a registration rights agreement with certain accredited investors in connection with our private placement sale of 6,250,000 shares of our common stock at a price of $1.20 per share, for aggregate gross proceeds of $7.5 million. Pursuant to the terms of the registration rights agreement, we agreed to file with the SEC a resale registration statement covering the shares. Emerging Growth Equities, Ltd. acted as placement agent for the private placement and received $439,300 in commissions from us. In addition, for its services as placement agent, we issued to EGE warrants to purchase an aggregate of 605,910 shares of the Company’sour common stock, exercisable for a period of five years from the closing date, at an exercise price of $1.20 per share.
In connection with the private placement, we also entered into a convertible secured promissory note conversion agreement on June 17, 2013, with certain holders of our outstanding 10% senior secured convertible bridge notes due October 15, 2013. Pursuant to the note conversion agreement, we agreed to issue to the holders of the notes 4,462,089 shares of our common stock, at the conversion price of $1.20 per share, for the cancellation of outstanding principal of $4,984,721 and accrued interest of $369,786 under the notes. Certain holders elected to receive, and we agreed to make, cash payments on the accrued interest on their notes in lieu of shares of common stock. Each note holder also received a warrant to purchase that number of shares of our common stock calculated by dividing the outstanding principal amount plus accrued and unpaid interest of such note by the conversion price. The warrants are exercisable for a period of five years at an exercise price of $1.20 per share. In connection the sale of the bridge notes, we agreed to file with the SEC a resale registration statement covering the securities issued upon conversion of the notes.
In March 2014, we conducted the private placement to certain accredited investors of 5,413,000 units of our securities at a price of $1.00 per unit for the gross proceeds of up to $5,413,000. Each unit consisted of one share of our common stock and a common stock purchase warrant to purchase one-quarterone- quarter share of our common stock, over a five year period, at an exercise price of $1.20 per share. In connection with the placement, 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 May 15, 2014. The registration rights agreement also provides that we must make certain payments as liquidated damages to the investors if we fail to timely file the registration statement and cause it to become effective. Emerging Growth Equities, Ltd. acted as placement agent for the private placement and received $370,685 in commissions from us. In addition, for its services as placement agent, we issued to EGE warrants to purchase an aggregate of 370,685 units, as defined above, exercisable for a period of five years from the closing date, at an exercise price of $1.00 per unit. The warrants had a fair value on date of issuance of $461,598.
In March 2015, we conducted the private placement to certain accredited investors of 4,805,000 units of our securities at a price of $1.00 per unit for the gross proceeds of $4,805,000. 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. In connection with the placement, 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 we fail to timely file the registration statement and cause it to become effective. Emerging Growth Equities, Ltd. acted as placement agent for the private placement and received $234,500 in commissions from the us. In addition, for its services as placement agent, we issued to Emerging Growth Equities warrants to purchase an aggregate of 234,500 units, exercisable over a period of five years from the closing date, at an exercise price of $1.00 per unit.
Except as indicated below, none of the selling stockholders has held a position as an officer or director of the company, nor has any selling stockholder had any material relationship of any kind with us or any of our affiliates. Except as otherwise indicated in the footnotes to the table, the selling stockholders possess sole voting and investment power with respect to the shares shown, and no selling stockholder is a broker-dealer or an affiliate of a broker-dealer. All information with respect to share ownership has been furnished by the selling stockholders. The shares being offered are being registered to permit public secondary trading of the shares and each selling stockholder may offer all or part of the shares owned for resale from time to time.
The following table sets forth certain information known to us as of the date of this prospectus and as adjusted to reflect the sale of the shares offered hereby, with respect to the beneficial ownership of our common stock by the selling stockholders who participated in the private placement mentioned above. The share amounts under the columns “Shares Beneficially Owned Before the Offering” and “Maximum Number of Shares Offered” consist of the shares of our common stock sold by us in the private placement described above, including shares issuable to the selling shareholder upon the exercise of outstanding warrants. The share amounts under the columns “Shares Beneficially Owned after the Offering” assume all of the offered shares are sold pursuant to this prospectus.
Name of Beneficial Owner | Shares Beneficially Owned Before the Offering | Maximum Number of Shares Offered | Shares Beneficially Owned After the Offering (1) | |||||||||||||||||
| Number | % | Number | % | |||||||||||||||||
| Sandor Capital Master Fund (2)(3) | 1,211,937 | 4.3 | % | 1,211,937 | -0- | * | ||||||||||||||
| Ballyshannon Partners LP (4) | 800,000 | 2.9 | % | 800,000 | -0- | * | ||||||||||||||
| Ballyshannon Family Partnership (5) | 522,800 | 1.8 | % | 522,800 | -0- | * | ||||||||||||||
| Porter Partners, LP (6) | 2,332,723 | 8.3 | % | 2,332,723 | -0- | * | ||||||||||||||
| EDJ Limited (7) | 376,767 | 1.3 | % | 376,767 | -0- | * | ||||||||||||||
| Porter Family Living Trust dtd 9/5/2006 (8) | 291,667 | 1.0 | % | 291,667 | -0- | * | ||||||||||||||
| Ben Joseph Partners (9) | 475,828 | 1.7 | % | 475,828 | -0- | * | ||||||||||||||
| Alexander M. Bush | 12,500 | * | 12,500 | -0- | * | |||||||||||||||
| John E. Thompson | 52,083 | * | 52,083 | -0- | * | |||||||||||||||
| Diker MicroCap Fund LP (10) | 604,167 | 2.1 | % | 604,167 | -0- | * | ||||||||||||||
| Trellus Partners LP (11) | 1,145,833 | 4.1 | % | 729,167 | 416,667 | 1.5 | % | |||||||||||||
| Julie T. Berlacher | 352,494 | 1.2 | % | 352,494 | -0- | * | ||||||||||||||
| Paul D. Berlacher TTEE Paul D. Berlacher Irrev. Trust (12) | 20,833 | * | 20,833 | -0- | * | |||||||||||||||
| Audrey E. Berlacher TTEE Audrey E. Berlacher Rev Trust (13) | 20,833 | * | 20,833 | -0- | * | |||||||||||||||
| David A. Houghton | 177,065 | * | 177,065 | -0- | * | |||||||||||||||
Bruce E. Terker TTEE Robert A. Berlacher 2004 Family Trust (14) | 41,667 | * | ��41,667 | -0- | * | |||||||||||||||
| Chardonnay Partners, LP (15) | 178,847 | * | 178,847 | -0- | * | |||||||||||||||
| Harry Mittelman Revocable Living Trust (16) | 277,323 | * | 277,323 | -0- | * | |||||||||||||||
| Bruce and Katherine Evans TBE | 561,431 | 2.0 | % | 561,431 | -0- | * | ||||||||||||||
| Jacqueline A. Evans | 12,500 | * | 12,500 | -0- | * | |||||||||||||||
| JSL Kids Partners (3)(17) | 83,333 | * | 83,333 | -0- | * | |||||||||||||||
| James C. Barragan, Jr. and Nancy F. Barragan | 57,967 | * | 41,667 | 16,300 | * | |||||||||||||||
| Robert A. Elliott | 20,833 | * | 20,833 | -0- | * | |||||||||||||||
| Robert B. Prag | 96,087 | * | 96,087 | -0- | * | |||||||||||||||
The Del Mar Consulting Group, Inc. Retirement Plan Trust (18) | 41,667 | * | 41,667 | -0- | * | |||||||||||||||
| George I. Bridges, Jr. | 291,667 | 1.0 | % | 291,667 | -0- | * | ||||||||||||||
| Carl Todd Bridges and Lori D. Bridges | 208,333 | * | 208,333 | -0- | * | |||||||||||||||
| Clayton Green, Jr. | 83,333 | * | 83,333 | -0- | * | |||||||||||||||
| Taylor Green | 83,333 | * | 83,333 | -0- | * | |||||||||||||||
| Shelby Zimmerman | 83,333 | * | 83,333 | -0- | * | |||||||||||||||
| Robert A. Smith | 208,333 | * | 208,333 | -0- | * | |||||||||||||||
| Mark A. and Lucinda M. Henry | 158,744 | * | 158,744 | -0- | * | |||||||||||||||
| Donald K. Thomas | 16,667 | * | 16,667 | -0- | * | |||||||||||||||
| Mobivity Partners (19) | 416,667 | 1.5 | % | 416,667 | -0- | * | ||||||||||||||
| John R. Harris (20) | 100,695 | * | 52,083 | 48,612 | * | |||||||||||||||
| ACT Capital Partners, LP (21) | 638,219 | 2.3 | % | 638,219 | -0- | * | ||||||||||||||
| Amir L. Ecker | 458,847 | 1.6 | % | 458,847 | -0- | * | ||||||||||||||
| Delaware Charter G T Cust FBO Amir L. Ecker IRA (22) | 582,123 | 2.1 | % | 582,123 | -0- | * | ||||||||||||||
| Cornelis F. Wit | 1,934,992 | 6.9 | % | 1,934,992 | -0- | * | ||||||||||||||
| The Ecker Family Partnership (23) | 173,225 | * | 204,475 | -0- | * | |||||||||||||||
| Gary Knutsen | 123,734 | * | 123,734 | -0- | * | |||||||||||||||
| Gregory J. Berlacher (3) | 53,650 | * | 53,650 | -0- | * | |||||||||||||||
Emerging Growth Equities, Ltd. PSP dtd 9/1/99 FBO Gregory J. Berlacher, 401k (24)(3) | 112,883 | * | 112,883 | -0- | * | |||||||||||||||
Emerging Growth Equities, Ltd. PSP dtd 9/1/99 FBO Jay D. Seid, 401k (25)(3) | 195,745 | * | 195,745 | -0- | * | |||||||||||||||
| John S. Lemak IRA Rollover Raymond James & Assoc Custodian (3)(26) | 221,433 | * | 213,142 | 49,743 | * | |||||||||||||||
Kingdom Trust Co. Roth IRA Cust FBO Robert A. Berlacher (27) | 150,064 | * | 150,064 | -0- | * | |||||||||||||||
| Lancaster Investment Partners, LP (28) | 236,870 | * | 236,870 | -0- | * | |||||||||||||||
| Northwood Capital Partners, LP (29) | 535,308 | 1.9 | % | 535,308 | -0- | * | ||||||||||||||
| Randall Smith | 46,720 | * | 46,720 | -0- | * | |||||||||||||||
| Peter and Susan Stanley JTWROS | 231,919 | * | 231,919 | -0- | * | |||||||||||||||
| The Michael and Valerie Bynum Living Trust (30) | 158,305 | * | 158,305 | -0- | * | |||||||||||||||
| Timothy W. Schatz | 433,072 | 1.5 | % | 33,836 | -0- | * | ||||||||||||||
| Joel and Amy Wisian | 126,233 | * | 126,233 | -0- | * | |||||||||||||||
| Allen M. and Emily R. Bynum | 58,881 | * | 58,881 | -0- | * | |||||||||||||||
| Johnny and Debra Allen | 16,872 | * | 16,872 | -0- | * | |||||||||||||||
Shares Beneficially Owned Before the Offering | Maximum Number of Shares | Shares Beneficially Owned After the Offering (1) | ||||||||||||||||||
| Name of Beneficial Owner | Number | % | Offered | Number | % | |||||||||||||||
Sandor Capital Master Fund (2)(3) | 1,211,937 | 4.3 | % | 1,211,937 | -0- | * | ||||||||||||||
Ballyshannon Partners LP (4) | 525,000 | 1.9 | % | 525,000 | -0- | * | ||||||||||||||
Ballyshannon Family Partnership (5) | 454,050 | 1.6 | % | 454,050 | -0- | * | ||||||||||||||
Porter Partners, LP (6) | 2,332,723 | 8.3 | % | 2,332,723 | -0- | * | ||||||||||||||
EDJ Limited (7) | 376,767 | 1.3 | % | 376,767 | -0- | * | ||||||||||||||
Porter Family Living Trust dtd 9/5/2006 (8) | 291,667 | 1.0 | % | 291,667 | -0- | * | ||||||||||||||
Ben Joseph Partners (9) | 475,828 | 1.7 | % | 475,828 | -0- | * | ||||||||||||||
Alexander M. Bush | 12,500 | * | 12,500 | -0- | * | |||||||||||||||
John E. Thompson | 52,083 | * | 52,083 | -0- | * | |||||||||||||||
Diker MicroCap Fund LP (10) | 604,167 | 2.1 | % | 604,167 | -0- | * | ||||||||||||||
Trellus Partners LP (11) | 1,145,833 | 4.1 | % | 729,167 | 416,667 | 1.5 | % | |||||||||||||
Julie T. Berlacher | 258,744 | * | 258,744 | -0- | * | |||||||||||||||
Paul D. Berlacher TTEE Paul D. Berlacher Irrev. Trust (12) | 20,833 | * | 20,833 | -0- | * | |||||||||||||||
Audrey E. Berlacher TTEE Audrey E. Berlacher Rev Trust (13) | 20,833 | * | 20,833 | -0- | * | |||||||||||||||
David A. Houghton | 177,065 | * | 177,065 | -0- | * | |||||||||||||||
Bruce E. Terker TTEE Robert A. Berlacher 2004 Family Trust (14) | 41,667 | * | 41,667 | -0- | * | |||||||||||||||
Chardonnay Partners, LP (15) | 178,847 | * | 178,847 | -0- | * | |||||||||||||||
Harry Mittelman Revocable Living Trust (16) | 277,323 | * | 277,323 | -0- | * | |||||||||||||||
Bruce and Katherine Evans TBE | 311,431 | 1.1 | % | 311,431 | -0- | * | ||||||||||||||
Jacqueline A. Evans | 12,500 | * | 12,500 | -0- | * | |||||||||||||||
JSL Kids Partners (3)(17) | 83,333 | * | 83,333 | -0- | * | |||||||||||||||
James C. Barragan, Jr. and Nancy F. Barragan | 57,967 | * | 41,667 | 16,300 | * | |||||||||||||||
Robert A. Elliott | 20,833 | * | 20,833 | -0- | * | |||||||||||||||
Robert B. Prag | 96,087 | * | 96,087 | -0- | * | |||||||||||||||
The Del Mar Consulting Group, Inc. Retirement Plan Trust (18) | 41,667 | * | 41,667 | -0- | * | |||||||||||||||
George I. Bridges, Jr. | 291,667 | 1.0 | % | 291,667 | -0- | * | ||||||||||||||
Carl Todd Bridges and Lori D. Bridges | 208,333 | * | 208,333 | -0- | * | |||||||||||||||
Clayton Green, Jr. | 83,333 | * | 83,333 | -0- | * | |||||||||||||||
Taylor Green | 83,333 | * | 83,333 | -0- | * | |||||||||||||||
Shelby Zimmerman | 83,333 | * | 83,333 | -0- | * | |||||||||||||||
Robert A. Smith | 208,333 | * | 208,333 | -0- | * | |||||||||||||||
Mark A. and Lucinda M. Henry | 158,744 | * | 158,744 | -0- | * | |||||||||||||||
Donald K. Thomas | 16,667 | * | 16,667 | -0- | * | |||||||||||||||
Mobivity Partners (19) | 416,667 | 1.5 | % | 416,667 | -0- | * | ||||||||||||||
John R. Harris (20) | 100,695 | * | 52,083 | 48,612 | * | |||||||||||||||
ACT Capital Partners, LP (21) | 638,219 | 2.3 | % | 638,219 | -0- | * | ||||||||||||||
Amir L. Ecker | 458,847 | 1.6 | % | 458,847 | -0- | * | ||||||||||||||
Delaware Charter G T Cust FBO Amir L. Ecker IRA (22) | 582,123 | 2.1 | % | 582,123 | -0- | * | ||||||||||||||
Cornelis F. Wit | 1,934,992 | 6.9 | % | 1,934,992 | -0- | * | ||||||||||||||
The Ecker Family Partnership (23) | 173,225 | * | 204,475 | -0- | * | |||||||||||||||
Gary Knutsen | 123,734 | * | 123,734 | -0- | * | |||||||||||||||
Gregory J. Berlacher (3) | 53,650 | * | 53,650 | -0- | * | |||||||||||||||
Emerging Growth Equities, Ltd. PSP dtd 9/1/99 FBO Gregory J. Berlacher, 401k (24)(3) | 112,883 | * | 112,883 | -0- | * | |||||||||||||||
Emerging Growth Equities, Ltd. PSP dtd 9/1/99 FBO Jay D. Seid, 401k (25)(3) | 195,745 | * | 195,745 | -0- | * | |||||||||||||||
John S. Lemak IRA Rollover Raymond James & Assoc Custodian (3)(26) | 221,433 | * | 213,142 | 49,743 | * | |||||||||||||||
Kingdom Trust Co. Roth IRA Cust FBO Robert A. Berlacher (27) | 115,064 | * | 115,064 | -0- | * | |||||||||||||||
Lancaster Investment Partners, LP (28) | 236,870 | * | 236,870 | -0- | * | |||||||||||||||
Northwood Capital Partners, LP (29) | 535,308 | 1.9 | % | 535,308 | -0- | * | ||||||||||||||
Randall Smith | 46,720 | * | 46,720 | -0- | * | |||||||||||||||
Peter and Susan Stanley JTWROS | 231,919 | * | 231,919 | -0- | * | |||||||||||||||
The Michael and Valerie Bynum Living Trust (20)(30) | 158,305 | * | 158,305 | -0- | * | |||||||||||||||
Timothy W. Schatz (20) | 433,072 | 1.5 | % | 33,836 | -0- | * | ||||||||||||||
Joel and Amy Wisian | 126,233 | * | 126,233 | -0- | * | |||||||||||||||
Allen M. and Emily R. Bynum | 58,881 | * | 58,881 | -0- | * | |||||||||||||||
Johnny and Debra Allen | 16,872 | * | 16,872 | -0- | * | |||||||||||||||
Jessie and Kimberly A. Allen | 16,872 | * | 16,872 | -0- | * | |||||||||||||||
Donald K. and Paige Matthey Bynum | 16,854 | * | 16,854 | -0- | * | |||||||||||||||
Pier Bynum | 8,427 | * | 8,427 | -0- | * | |||||||||||||||
Patrick Bynum | 8,427 | * | 8,427 | -0- | * | |||||||||||||||
Dennis Becker (20) | 1,309,179 | 4.6 | % | 60,664 | 1,248,515 | 4.4 | % | |||||||||||||
Marion Cook | 83,927 | * | 83,927 | -0- | * | |||||||||||||||
James Flanigan | 41,895 | * | 41,895 | -0- | * | |||||||||||||||
Steve Tebo | 83,790 | * | 83,790 | -0- | * | |||||||||||||||
Berlwoods Partners, LP (31) | 20,833 | * | 20,833 | -0- | * | |||||||||||||||
Cortleigh Capital Partners, LP (32) | 33,333 | * | 33,333 | -0- | * | |||||||||||||||
Phyllis D. Kalista | 20,833 | * | 20,833 | -0- | * | |||||||||||||||
Jay D. Seid (3) | 28,125 | * | 28,125 | -0- | * | |||||||||||||||
Franz J. Berlacher | 4,167 | * | 4,167 | -0- | * | |||||||||||||||
Robert D. Auritt | 8,333 | * | 8,333 | -0- | * | |||||||||||||||
Kingdom Trust Company IRA c/f Richard Johnson (33) | 16,667 | * | 16,667 | -0- | * | |||||||||||||||
Andrew S. Rosen | 106,917 | * | 83,333 | 23,584 | * | |||||||||||||||
ACT Capital Management, LLLP (34) | 33,333 | * | 33,333 | -0- | * | |||||||||||||||
Delaware Charter G&T Cust FBO Amir L. Ecker ROTH IRA (35) | 20,833 | * | 20,833 | -0- | * | |||||||||||||||
Delaware Charter G&T Cust FBO Carol G. Frankenfield IRA (36) | 20,833 | * | 20,833 | -0- | * | |||||||||||||||
Kingdom Trust Co. SEP IRA c/f Robert A. Berlacher (37) | 51,667 | * | 51,667 | -0- | * | |||||||||||||||
MJA Investments LLC (38) | 12,500 | * | 12,500 | -0- | * | |||||||||||||||
JBA Investments LLC (39) | 12,500 | * | 12,500 | -0- | * | |||||||||||||||
Elizabeth Arno | 16,667 | * | 16,667 | -0- | * | |||||||||||||||
Kingdom Trust Co. IRA FBO Daniel C. Gardner (40) | 20,833 | * | 20,833 | -0- | * | |||||||||||||||
Brodsky Family Trust (41)(20) | 125,000 | * | 125,000 | -0- | * | |||||||||||||||
Ivy L. Fredericks | 20,833 | * | 20,833 | -0- | * | |||||||||||||||
Robert Winter | 20,833 | * | 20,833 | -0- | * | |||||||||||||||
Brian J. Grossi 2007 Revocable Trust (42) | 12,500 | * | 12,500 | -0- | * | |||||||||||||||
Pak Cheong Choi & Susan Huang Choi JTWROS | 8,333 | * | 8,333 | -0- | * | |||||||||||||||
John C. Lipman | 40,417 | * | 40,417 | -0- | * | |||||||||||||||
Lipman Capital Group Inc. Retirement Plan (43) | 52,083 | * | 52,083 | -0- | * | |||||||||||||||
Marcelle Weems Bynum | 12,654 | * | 12,654 | -0- | * | |||||||||||||||
Lavonne Bynum | 12,654 | * | 12,654 | -0- | * | |||||||||||||||
Cecil Glen Bynum and Cathey Lynn Bynum, Tenants in Common | 43,578 | * | 33,744 | 9,834 | * | |||||||||||||||
David Gomez | 145,283 | * | 145,283 | -0- | * | |||||||||||||||
David Hirons | 85,075 | * | 85,075 | -0- | * | |||||||||||||||
Dillon Page and Vickie Page, Joint Tenants | 96,758 | * | 96,758 | -0- | * | |||||||||||||||
Russell Sarachek | 33,333 | * | 33,333 | -0- | * | |||||||||||||||
Mayumi Ishii Post | 20,833 | * | 20,833 | -0- | * | |||||||||||||||
Kingdom Trust Company IRA Rollover FBO Franz J. Berlacher (44) | 20,833 | * | 20,833 | -0- | * | |||||||||||||||
Kingdom Trust Co. Roth IRA c/f Julie T. Berlacher (45) | 22,083 | * | 22,083 | -0- | * | |||||||||||||||
Fraser Clarke | 20,833 | * | 20,833 | -0- | * | |||||||||||||||
BMO Nesbitt Burns ITF 365-24977-22 (46) | 62,500 | * | 62,500 | -0- | * | |||||||||||||||
David Moss | 12,630 | * | 12,630 | -0- | * | |||||||||||||||
VFT Special Ventures, Ltd (47) | 605,910 | 2.6 | % | 605,910 | -0- | * | ||||||||||||||
Trellus Small Cap Opportunity Fund LP (48) | 312,500 | 1.1 | % | 312,500 | -0- | * | ||||||||||||||
David Jacques (20) | 69,791 | * | 31,250 | -0- | * | |||||||||||||||
Kobe Partners, LP (49) | 281,250 | * | 281,250 | -0- | * | |||||||||||||||
Logos Partners L.P. (50) | 125,000 | * | 125,000 | -0- | * | |||||||||||||||
Perritt Ultra MicroCap Fund (51) | 825,000 | 2.9 | % | 825,000 | -0- | * | ||||||||||||||
| Thomas B. Akin | 625,000 | 2.2 | % | 625,000 | -0- | * | ||||||||||||||
Kingdom Trust cust. FBO David A. Houghton IRA (52) | 15,625 | * | 15,625 | -0- | * | |||||||||||||||
Jon D. and Linda W. Gruber Trust (53) | 906,250 | 3.2 | % | 906,250 | -0- | * | ||||||||||||||
| Steven T. Newby | 625,000 | 2.2 | % | 625,000 | -0- | * | ||||||||||||||
London Family Trust (54) | 125,000 | * | 125,000 | -0- | * | |||||||||||||||
NFS/FMTC IRA fbo Amir L. Ecker (55) | 93,750 | * | 93,750 | -0- | * | |||||||||||||||
Lacuna Hedge Fund, LLLP (56) | 125,000 | * | 125,000 | -0- | * | |||||||||||||||
| John E. Thompson, III | 62,500 | * | 62,500 | -0- | * | |||||||||||||||
Lincoln Park Capital Fund, LLC (57) | 125,000 | * | 125,000 | -0- | * | |||||||||||||||
| Jonathan Cassell | 12,500 | * | 12,500 | -0- | * | |||||||||||||||
Phillip Guarascio (20) | 56,250 | * | 31,250 | 25,000 | * | |||||||||||||||
-13-
| Jessie and Kimberly A. Allen | 16,872 | * | 16,872 | -0- | * | |||||||||||||||
| Donald K. and Paige Matthey Bynum | 16,854 | * | 16,854 | -0- | * | |||||||||||||||
| Pier Bynum | 8,427 | * | 8,427 | -0- | * | |||||||||||||||
| Patrick Bynum | 8,427 | * | 8,427 | -0- | * | |||||||||||||||
| Dennis Becker (20) | 735,615 | 2.6 | % | 91,914 | 643,701 | 2.3%% | % | |||||||||||||
| Marion Cook | 83,927 | * | 83,927 | -0- | * | |||||||||||||||
| James Flanigan | 41,895 | * | 41,895 | -0- | * | |||||||||||||||
| Steve Tebo | 83,790 | * | 83,790 | -0- | * | |||||||||||||||
| Berlwoods Partners, LP (31) | 20,833 | * | 20,833 | -0- | * | |||||||||||||||
| Cortleigh Capital Partners, LP (32) | 33,333 | * | 33,333 | -0- | * | |||||||||||||||
| Phyllis D. Kalista | 20,833 | * | 20,833 | -0- | * | |||||||||||||||
| Jay D. Seid (3) | 28,125 | * | 28,125 | -0- | * | |||||||||||||||
| Franz J. Berlacher | 4,167 | * | 4,167 | -0- | * | |||||||||||||||
| Robert D. Auritt | 8,333 | * | 8,333 | -0- | * | |||||||||||||||
| Kingdom Trust Company IRA c/f Richard Johnson (33) | 16,667 | * | 16,667 | -0- | * | |||||||||||||||
| Andrew S. Rosen | 106,917 | * | 83,333 | 23,584 | * | |||||||||||||||
| ACT Capital Management, LLLP (34) | 33,333 | * | 33,333 | -0- | * | |||||||||||||||
Delaware Charter G&T Cust FBO Amir L. Ecker ROTH IRA (35) | 20,833 | * | 20,833 | -0- | * | |||||||||||||||
Delaware Charter G&T Cust FBO Carol G. Frankenfield IRA (36) | 20,833 | * | 20,833 | -0- | * | |||||||||||||||
| Kingdom Trust Co. SEP IRA c/f Robert A. Berlacher (37) | 16,667 | * | 16,667 | -0- | * | |||||||||||||||
| MJA Investments LLC (38) | 12,500 | * | 12,500 | -0- | * | |||||||||||||||
| JBA Investments LLC (39) | 12,500 | * | 12,500 | -0- | * | |||||||||||||||
| Elizabeth Arno | 16,667 | * | 16,667 | -0- | * | |||||||||||||||
| Kingdom Trust Co. IRA FBO Daniel C. Gardner (40) | 20,833 | * | 20,833 | -0- | * | |||||||||||||||
| Brodsky Family Trust (41) | 125,000 | * | 125,000 | -0- | * | |||||||||||||||
| Ivy L. Fredericks | 20,833 | * | 20,833 | -0- | * | |||||||||||||||
| Robert Winter | 20,833 | * | 20,833 | -0- | * | |||||||||||||||
| Brian J. Grossi 2007 Revocable Trust (42) | 12,500 | * | 12,500 | -0- | * | |||||||||||||||
| Pak Cheong Choi & Susan Huang Choi JTWROS | 8,333 | * | 8,333 | -0- | * | |||||||||||||||
| John C. Lipman | 40,417 | * | 40,417 | -0- | * | |||||||||||||||
| Lipman Capital Group Inc. Retirement Plan (43) | 52,083 | * | 52,083 | -0- | * | |||||||||||||||
| Marcelle Weems Bynum | 12,654 | * | 12,654 | -0- | * | |||||||||||||||
| Lavonne Bynum | 12,654 | * | 12,654 | -0- | * | |||||||||||||||
| Cecil Glen Bynum and Cathey Lynn Bynum, Tenants in Common | 43,578 | * | 33,744 | 9,834 | * | |||||||||||||||
| David Gomez | 145,283 | * | 145,283 | -0- | * | |||||||||||||||
| David Hirons | 85,075 | * | 85,075 | -0- | * | |||||||||||||||
| Dillon Page and Vickie Page, Joint Tenants | 96,758 | * | 96,758 | -0- | * | |||||||||||||||
| Russell Sarachek | 33,333 | * | 33,333 | -0- | * | |||||||||||||||
| Mayumi Ishii Post | 20,833 | * | 20,833 | -0- | * | |||||||||||||||
Kingdom Trust Company IRA Rollover FBO Franz J. Berlacher (44) | 20,833 | * | 20,833 | -0- | * | |||||||||||||||
| Kingdom Trust Co. Roth IRA c/f Julie T. Berlacher (45) | 22,083 | * | 22,083 | -0- | * | |||||||||||||||
| Fraser Clarke | 20,833 | * | 20,833 | -0- | * | |||||||||||||||
| BMO Nesbitt Burns ITF 365-24977-22 (46) | 62,500 | * | 62,500 | -0- | * | |||||||||||||||
| David Moss | 75,130 | * | 75,130 | -0- | * | |||||||||||||||
| VFT Special Ventures, Ltd (47) | 1,362,404 | 4.9 | % | 1,362,404 | -0- | * | ||||||||||||||
| Trellus Small Cap Opportunity Fund LP (48) | 312,500 | 1.1 | % | 312,500 | -0- | * | ||||||||||||||
| David Jaques (20) | 69,791 | * | 31,250 | -0- | * | |||||||||||||||
| Kobe Partners, LP (49) | 468,750 | * | 468,750 | -0- | * | |||||||||||||||
| Logos Partners L.P. (50) | 125,000 | * | 125,000 | -0- | * | |||||||||||||||
| Perritt Ultra MicroCap Fund (51) | 825,000 | 2.9 | % | 825,000 | -0- | * | ||||||||||||||
| Thomas B. Akin (20) | 1,250,000 | 4.4 | % | 1,250,000 | -0- | * | ||||||||||||||
| Kingdom Trust cust. FBO David A. Houghton IRA (52) | 15,625 | * | 15,625 | -0- | * | |||||||||||||||
| Jon D. and Linda W. Gruber Trust (53) | 1,250,000 | 4.4 | % | 1,250,000 | -0- | * | ||||||||||||||
| Steven T. Newby | 625,000 | 2.2 | % | 625,000 | -0- | * | ||||||||||||||
| London Family Trust (54) | 125,000 | * | 125,000 | -0- | * | |||||||||||||||
| NFS/FMTC IRA fbo Amir L. Ecker (55) | 93,750 | * | 93,750 | -0- | * | |||||||||||||||
| Lacuna Hedge Fund, LLLP (56) | 125,000 | * | 125,000 | -0- | * | |||||||||||||||
| John E. Thompson, III | 62,500 | * | 62,500 | -0- | * | |||||||||||||||
| Lincoln Park Capital Fund, LLC (57) | 125,000 | * | 125,000 | -0- | * | |||||||||||||||
| Jonathan Cassell | 12,500 | * | 12,500 | -0- | * | |||||||||||||||
| IP ROI US Small Cap Aktier (58) | 468,750 | 1.6 | % | 468,750 | -0- | * | ||||||||||||||
| Talkot Fund, L.P. (20) | 1,875,000 | 6.7 | % | 1,875,000 | -0- | * | ||||||||||||||
| Peter Backus | 250,000 | * | 250,000 | -0- | * | |||||||||||||||
| Larry C. Hopfensirger Trust (59) | 162,500 | * | 162,500 | -0- | * | |||||||||||||||
| Peter S. Lynch Charitable Lead Annuity Unitrust 3/3/97 (60) | 78,125 | * | 78,125 | -0- | * | |||||||||||||||
| Peter S. Lynch Charitable Lead Annuity U/A 3/27/96 (60) | 78,125 | * | 78,125 | -0- | * | |||||||||||||||
| Peter S. Lynch 1999 Unitrust (61) | 156,250 | * | 156,250 | -0- | * | |||||||||||||||
Peter S. and Carolyn A. Lynch Joint Trust with Right of Survival (61) | 156,250 | * | 156,250 | -0- | * | |||||||||||||||
| The Lynch Foundation (61) | 156,250 | * | 156,250 | -0- | * | |||||||||||||||
| Elmer R. Salovich Revocable Living Trust (62) | 62,500 | * | 62,500 | -0- | * | |||||||||||||||
| John Texter | 218,750 | * | 218,750 | -0- | * | |||||||||||||||
| Wall Street Capital Partners, L.P. (63) | 125,000 | * | 125,000 | -0- | * | |||||||||||||||
| Donna S. Mitchell (20) | 125,000 | * | 125,000 | -0- | * | |||||||||||||||
| Alexander Shah (20) | 93,750 | * | 93,750 | -0- | * | |||||||||||||||
| William Van Epps (20) | 62,500 | * | 62,500 | -0- | * | |||||||||||||||
| Phillip Guarascio (20)____________________________________________ | 56,250 | * | 31,250 | 25,000 | * |
* Less than 1%.
| (1) | Assumes that all securities offered are sold. |
| (2) | The selling stockholder indicated to us that John S. Lemak, Manager of Sandor Capital Master Fund, has voting and investment power over the shares it is offering for resale. |
| (3) | The selling stockholder identified itself to us as an affiliate of a broker-dealer. It has indicated to us that it purchased the shares in the ordinary course of business, and at the time of the purchase of the shares to be resold, had no agreements or understandings, directly or indirectly, with any person to distribute the shares. |
| (4) | The selling stockholder indicated to us that Bruce E. Terker, President of Ballyshannon Partners, L.P., has voting and investment power over the shares it is offering for resale. |
| (5) | The selling stockholder indicated to us that Bruce E. Terker, President of Ballyshannon Family Partnership, L.P., has voting and investment power over the shares it is offering for resale. |
| (6) | The selling stockholder indicated to us that Jeffrey H. Porter, General Partner of Porter Partners, L.P., has voting and investment power over the shares it is offering for resale. |
| (7) | The selling stockholder indicated to us that Jeffrey H. Porter, Investment Advisor of EDJ Limited, has voting and investment power over the shares it is offering for resale. |
| (8) | The selling stockholder indicated to us that Jeffrey H. Porter, Trustee of Porter Family Living Trust dtd. 9/5/2006, has voting and investment power over the shares it is offering for resale. |
| (9) | The selling stockholder indicated to us that Jeffrey H. Porter, General Partner of Ben Joseph Partners, has voting and investment power over the shares it is offering for resale. |
| (10) | The selling stockholder indicated to us that Ken Brower, Chief Financial Officer of Diker Micro Cap Fund LP, has voting and investment power over the shares it is offering for resale. |
| (11) | The selling stockholder indicated to us that James Scaplen, Chief Financial Officer of Trellus Partners LP, has voting and investment power over the shares it is offering for resale. |
| (12) | The selling stockholder indicated to us that Paul D. Berlacher, Trustee of the Paul D. Berlacher Irrev. Trust, has voting and investment power over the shares it is offering for resale. |
| (13) | The selling stockholder indicated to us that Audrey E. Berlacher, Trustee of the Audrey E. Berlacher Rev Trust, has voting and investment power over the shares it is offering for resale. |
| (14) | The selling stockholder indicated to us that Bruce E. Terker, Trustee of the Robert A. Berlacher 2004 Family Trust, has voting and investment power over the shares it is offering for resale. |
| (15) | The selling stockholder indicated to us that Robert A. Berlacher, General Partner of Chardonnay Partners, LP, has voting and investment power over the shares it is offering for resale. |
| (16) | The selling stockholder indicated to us that Harry Mittelman, Trustee of the Harry Mittelman Revocable Living Trust, has voting and investment power over the shares it is offering for resale. |
| (17) | The selling stockholder indicated to us that John S. Lemak, Manager of JSL Kids Partners, has voting and investment power over the shares it is offering for resale. |
| (18) | The selling stockholder indicated to us that Robert B. Prag, Trustee of The Del Mar Consulting Group, Inc. Retirement Plan Trust, has voting and investment power over the shares it is offering for resale. |
| (19) | The selling stockholder indicated to us that Julie Krupala, Secretary of Mobivity Partners, has voting and investment power over the shares it is offering for resale. |
| (20) | The selling stockholder is, or is an affiliate of, an executive officer or director of our company. |
| (21) | The selling stockholder indicated to us that Carol Frankenfield, General Partner of ACT Capital Partners, LP, has voting and investment power over the shares it is offering for resale. |
| (22) | The selling stockholder indicated to us that Amir L. Ecker, IRA Owner of Delaware Charter G T Cust. FBO Amir L. Ecker IRA, has voting and investment power over the shares it is offering for resale. |
| (23) | The selling stockholder indicated to us that Amir L. Ecker, General Partner of The Ecker Family Partnership, has voting and investment power over the shares it is offering for resale. |
| (24) | The selling stockholder indicated to us that Gregory J. Berlacher, Owner of Emerging Growth Equities Ltd PSP dtd 9/1/99 FBO Gergory J. Berlacher 401k, has voting and investment power over the shares it is offering for resale. |
| (25) | The selling stockholder indicated to us that Jay D. Seid, Owner of Emerging Growth Equities Ltd PSP dtd 9/1/99 FBO Jay D. Seid 401k, has voting and investment power over the shares it is offering for resale. |
| (26) | The selling stockholder indicated to us that John S. Lemak, IRA Owner of the John S. Lemak IRA Rollover, Raymond James & Assoc. custodian, has voting and investment power over the shares it is offering for resale. |
| (27) | The selling stockholder indicated to us that Robert A. Berlacher, IRA Owner of Kingdom Trust Co. Roth IRA Cust FBO Robert A. Berlacher, has voting and investment power over the shares it is offering for resale. |
| (28) | The selling stockholder indicated to us that Robert A. Berlacher, Manager of Lancaster Investment Partners, LP, has voting and investment power over the shares it is offering for resale. |
| (29) | The selling stockholder indicated to us that Robert A. Berlacher, Manager of Northwood Capital Partners, LP, has voting and investment power over the shares it is offering for resale. |
| (30) | The selling stockholder indicated to us that Michael K. and Valerie L. Bynum, Trustees of The Michael and Valerie Bynum Living Trust, have voting and investment power over the shares it is offering for resale. |
| (31) | The selling stockholder indicated to us that Robert A. Berlacher, Managing Member of Berlwoods Partners, LP, has voting and investment power over the shares it is offering for resale. |
| (32) | The selling stockholder indicated to us that Christine Groves, Partner of Cortleigh Capital Partners, LP, has voting and investment power over the shares it is offering for resale. |
| (33) | The selling stockholder indicated to us that Richard Johnson, IRA Owner of Kingdom Trust Company IRA c/f Richard Johnson, has voting and investment power over the shares it is offering for resale. |
| (34) | The selling stockholder indicated to us that Carol G. Frankenfield, General Partner of ACT Capital Management LLP, has voting and investment power over the shares it is offering for resale. |
| (35) | The selling stockholder indicated to us that Amir L. Ecker, IRA Owner of Delaware Charter G T Cust FBO Amir L. Ecker ROTH IRA, has voting and investment power over the shares it is offering for resale. |
| (36) | The selling stockholder indicated to us that Carol G. Frankenfield, IRA Owner of Delaware Charter G T Cust FBO Carol G. Frankenfield IRA, has voting and investment power over the shares it is offering for resale. |
| (37) | The selling stockholder indicated to us that Robert A. Berlacher, IRA Owner of Kingdom Trust Co. SEP IRA c/f Robert A. Berlacher, has voting and investment power over the shares it is offering for resale. |
| (38) | The selling stockholder indicated to us that Andrew Arno, Advisor of MJA Investments LLC, has voting and investment power over the shares it is offering for resale. |
| (39) | The selling stockholder indicated to us that Andrew Arno, Advisor of JBA Investments LLC, has voting and investment power over the shares it is offering for resale. |
| (40) | The selling stockholder indicated to us that Daniel C. Gardner, IRA Owner of Kingdom Trust Co. IRA FBO Daniel C. Gardner, has voting and investment power over the shares it is offering for resale. |
| (41) | The selling stockholder indicated to us that Peter Brodsky, Trustee of the Brodsky Family Trust, has voting and investment power over the shares it is offering for resale. |
| (42) | The selling stockholder indicated to us that Brian J. Grossi, Trustee of the Brian J. Grossi 2007 Revocable Trust, has voting and investment power over the shares it is offering for resale. |
| (43) | The selling stockholder indicated to us that John C. Lipman, Owner of Lipman Capital Group Inc. Retirement Plan, has voting and investment power over the shares it is offering for resale. |
| (44) | The selling stockholder indicated to us that Franz J. Berlacher, IRA Owner of Kingdom Trust Company IRA Rollover FBO Franz J. Berlacher, has voting and investment power over the shares it is offering for resale. |
| (45) | The selling stockholder indicated to us that Julie T. Berlacher, IRA Owner of Kingdom Trust Co. ROTH IRA c/f Julie T. Berlacher, has voting and investment power over the shares it is offering for resale. |
| (46) | The selling stockholder indicated to us that Dean McDonald, Limited Partner of BMO Nesbitt Burns ITF 365-24977-22, has voting and investment power over the shares it is offering for resale. |
| (47) | Represents shares underlying warrants issued to Emergency Growth Equities, Ltd. as placement agent compensation. The selling stockholder indicated to us that Gregory J. Berlacher has voting and investment power over the shares it is offering for resale. |
| (48) | The selling stockholder indicated to us that James Scaplen, Chief Financial Officer of Trellus Small Cap Opportunity Fund LP, has voting and investment power over the shares it is offering for resale. |
| (49) | The selling stockholder indicated to us that Eric Carter, Portfolio Manager of Kobe Partners, LP, has voting and investment power over the shares it is offering for resale. |
| (50) | The selling stockholder indicated to us that Clark Lehman, General Partner of Logos Partners, LP, has voting and investment power over the shares it is offering for resale. |
| (51) | The selling stockholder indicated to us that Lynn Bermeister, Vice President of Perritt Ultra MicroCap Fund has voting and investment power over the shares it is offering for resale. |
| (52) | The selling stockholder indicated to us that David Houghton has voting and investment power over the shares it is offering for resale. |
| (53) | The selling stockholder indicated to us that Jon Gruber, Trustee of the Gruber Trust, has voting and investment power over the shares it is offering for resale. |
| (54) | The selling stockholder indicated to us that Robert London, trustee of the London Family Trust, has voting and investment power over the shares it is offering for resale. |
| (55) | The selling stockholder indicated to us that Amir Ecker has voting and investment power over the shares it is offering for resale. |
| (56) | The selling stockholder indicated to us that Wink James, Managing Partner of Lacuna Hedge Fund, LLLP, has voting and investment power over the shares it is offering for resale. |
| (57) | The selling stockholder indicated to us that Joshua Sheinfeld, CEO of Lincoln Park Capital Fund, LLC, has voting and investment power over the shares it is offering for resale. |
| (58) | The selling stockholder indicated to us that Mitchell J. Soboleski, Invsetment Manager of IPO ROI US Small Cap Aktier has voting and investment power over the shares it is offering for resale. |
| (59) | The selling stockholder indicated to us that Larry Hopfenspirger, Grantor and Trustee of Larry C. Hopfenspirger Revocable Trust has voting and investment power over the shares it is offering for resale. |
| (60) | The selling stockholder indicated to us that Carolyn A. Lynch, Trustee of Peter S. Lynch Charitable Lead Unitrust 3/3/97 and Peter S. Lynch Charitable Lead Annuity U/A 3/27/96 has voting and investment power over the shares it is offering for resale. |
| (61) | The selling stockholder indicated to us that Peter S. Lynch, Trustee of Peter S. Lynch 1999 Unitrust, Peter S. and Carolyn A. Lynch Joint Trust with Right of Survival and The Lynch Foundation has voting and investment power over the shares it is offering for resale. |
| (62) | The selling stockholder indicated to us that E. R. Salovich, Trustee of Elmer R. Salovich Revocable Living Trust has voting and investment power over the shares it is offering for resale. |
| (63) | The selling stockholder indicated to us that Jeff Kone, Managing Member of Wall Street Capital Partners, L.P. has voting and investment power over the shares it is offering for resale. |
The selling stockholders may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. The shares owned by the selling stockholders may be sold at the then-current market price or in negotiated transactions. The selling stockholders may use any one or more of the following methods when selling shares:
● | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
| ● | block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
● | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
● | an exchange distribution in accordance with the rules of the applicable exchange; |
● | privately negotiated transactions; |
● | short sales; |
● | broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; |
● | a combination of any such methods of sale; and |
● | any other method permitted pursuant to applicable law. |
The selling stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.
The selling stockholders may also engage in puts and calls and other transactions in our securities or derivatives of our securities and may sell or deliver shares in connection with these trades.
Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved. Any profits on the resale of shares of common stock by a broker-dealer acting as principal might be deemed to be underwriting discounts or commissions under the Securities Act. Discounts, concessions, commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by a selling stockholder. The selling stockholders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act.
The selling stockholders may from time to time pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time under this prospectus after we have filed a supplement to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933 amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.
The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus and may sell the shares of common stock from time to time under this prospectus after we have filed a supplement to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933 amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.
The selling stockholders and any broker-dealers or agents that are involved in selling the shares of common stock may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares of common stock purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the registration of the shares of common stock. We have agreed to indemnify the selling stockholders against certain claims, damages and liabilities, including liabilities under the Securities Act.
The selling stockholders have advised us that they have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their shares of common stock, nor is there an underwriter or coordinating broker acting in connection with a proposed sale of shares of common stock by any selling stockholder. If we are notified by any selling stockholder that any material arrangement has been entered into with a broker-dealer for the sale of shares of common stock, if required, we will file a supplement to this prospectus. If the selling stockholders use this prospectus for any sale of the shares of common stock, they will be subject to the prospectus delivery requirements of the Securities Act.
The anti-manipulation rules of Regulation M under the Securities Exchange Act of 1934 may apply to sales of our common stock and activities of the selling stockholders.
Our common stock is quoted on the OTC Bulletin Board under the stock symbol “MFON.” Our common stock trades only sporadically and has experienced in the past, and is expected to experience in the future, significant price and volume volatility.
The following table shows the reported high and low closing sale prices for our common stock based on information provided by the OTC Bulletin Board for the periods indicated.
| Year Ended December 31, 2014 | High | Low | ||||||
| Fourth Quarter | $ | 1.66 | $ | 1.07 | ||||
| Third Quarter | $ | 1.38 | $ | 0.86 | ||||
| Second Quarter | $ | 1.50 | $ | 1.05 | ||||
| First Quarter | $ | 1.89 | $ | 1.39 | ||||
Year Ended December 31, 2013 | High | Low | ||||||
| Fourth Quarter | $ | 3.00 | $ | 1.70 | ||||
| Third Quarter | $ | 4.20 | $ | 2.40 | ||||
| Second Quarter | $ | 2.52 | $ | 1.02 | ||||
| First Quarter | $ | 2.04 | $ | 1.26 | ||||
Year Ended December 31, 2013 | High | Low | |||||||
Fourth Quarter | $ | 3.00 | $ | 1.70 | |||||
Third Quarter | $ | 4.20 | $ | 2.40 | |||||
Second Quarter | $ | 2.52 | $ | 1.02 | |||||
First Quarter | $ | 2.04 | $ | 1.26 | |||||
Year Ended December 31, 2012 | High | Low | ||||||
Fourth Quarter | $ | 2.58 | $ | 1.32 | ||||
Third Quarter | $ | 3.72 | $ | 1.56 | ||||
Second Quarter | $ | 6.24 | $ | 3.54 | ||||
First Quarter | $ | 9.00 | $ | 6.00 | ||||
Holders of Record
As of the date of this prospectus, there were 189298 record holders of our common stock.
Dividends
We have not paid any cash dividends since our inception and do not contemplate paying dividends in the foreseeable future. It is anticipated that earnings, if any, will be retained for the operation of our business.
Equity Compensation Plan Information
Plan Category | Number of securities to be issued upon exercise of outstanding options | Weighted-average exercise price of outstanding options | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) | |||||||||
| (a) | (b) | (c) | ||||||||||
Equity compensation plans not approved by security holders (1) | 6,085,015 | $ | 1.92 | 94,259 | ||||||||
Equity compensation plans approved by security holders | - | - | - | |||||||||
Total | 6,085,015 | $ | 1.92 | 94,259 | ||||||||
(1) Comprised of our 2010 Incentive Stock Plan as of December 31, 2013.and our 2013 Incentive Stock Plan
(a) Number of Securities to be Issued Upon Exercise of Outstanding | (b) Weighted-Average Exercise Price of Outstanding | (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities | ||||||||||
Plan Category | Options | Options | Reflected In Column (a)) | |||||||||
Equity compensation plans approved by security holders | - | $ | - | - | ||||||||
Equity compensation plans not approved by security holders | 6,085,015 | $ | 2.08 | 261,716 | ||||||||
Total | 6,085,015 | $ | 2.08 | 261,716 | ||||||||
AND RESULTS OF OPERATIONS
Overview
We are in the business of developing and operating 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, content on printed receipts, mobile device applications, which consists of software available to both phones and tablet PCs. We generate revenue by charging the brands and enterprises a per-message transactional fee, or through fixed or variable software licensing fees. Our customers include national franchisers, professional sports teams and associations and other national brands such as the Los Angeles Clippers, Dallas Cowboys, Chick-Fil-A,Sonic Drive-In, Subway, Jamba Juice, Chick-Fil-A, 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, 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. The acquired assets includeStampt 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 Stampt’s 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.
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 URL’s, websites, trademarks,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. Receipt 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 C4 solution integrates with SmartReceipt by support SMS marketing or Stampt mobile application calls-to-action which can be printed on receipt content by SmartReceipt.
We also offer our clients reporting and analytics capabilities through the C4 solution which allows our clients to assess the effectiveness of their mobile marketing campaigns and design more effective campaigns. Our proprietary platform connects to all wireless carriers so that any consumer, on any wireless service (for example, Verizon), can join our customer’s mobile marketing campaign. Once the consumer has subscribed to our customer’s mobile marketing campaign, our C4 Web-based software solution serves as a tool by which our customers can initiate messages and other communications back to their subscribed consumers, as well as configure and administer their mobile marketing campaigns.
We believe that mobile devices are emerging as an important interactive channel for brands customersto reach consumers since it is the only media platform that has access to the consumer virtually anytime and customer lists.anywhere. According to eMarketer’s article, published August 1, 2013 (http://www.emarketer.com/Article/Digital-Set-Surpass-TV-Time-Spent-with-US-Media/1010096), U.S. adults now spend more time on their mobile device than any other digital channel such as PCs. eMarketer also reports that U.S. adults already spend more time on their mobile phone than viewing print or listening to radio combined. We assumed no liabilitiesbelieve that brands and advertising agencies are recognizing the unique benefits of Sequence. The purchasethe mobile channel and they are increasingly integrating mobile media within their overall advertising and marketing campaigns. Our objective is to become the industry leader in connecting brands and enterprises to consumers’ mobile phones.
Recent Events
2015 Securities Purchase Agreement
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 consisted of: (1) $300,000 in cash which was paid prior to closing; (2) 125,000 sharesof $1.00 per unit. Each unit consists of one share of our common stock which were issued at closing valued, based on the closing priceand a common stock purchase warrant to purchase one-quarter share of our common stock, on May 13, 2013,over a five year period, at $183,750; and (3) twenty-four monthly earn-out payments consistingan exercise price of 10%$1.20 per share. 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 eligible monthly revenue subsequentunits to closing.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.
2014 Securities Purchase Agreement
In March 2014, we conducted the private placement to certain accredited investors of 5,413,000 units of our securities at a price of $1.00 per unit for the gross proceeds of up to $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. 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 May 15, 2014. The Registration Rights Agreement also provides that we must make certain payments as liquidated damages to the investors if we fail to timely file the registration statement and cause it to become effective. EGE acted as placement agent for the private placement and received $370,685 in commissions from us. In addition, for its services as placement agent, we issued to EGE warrants to purchase an aggregate of 370,685 units, as defined above, exercisable for a period of five years from the closing date, at an exercise price of $1.00 per unit.
Reverse Stock Split
On November 12, 2013, we effected a 1 for 6 reverse stock split of the outstanding shares of our common stock and reduced our authorized common stock to 50,000,000 shares. All historical share and share price information have been adjusted retrospectively to give effect to the reverse stock split.
2013 Acquisitions
In May 2013, we acquired the assets of Sequence, LLC (“Sequence”) related to a mobile customer loyalty application (“Stampt)”. The acquired assets include all application software, URL’s, websites, trademarks, brands, customers and customer lists. We assumed no liabilities of Sequence.
The purchase price consisted of: (1) $300,000 in cash; (2) 125,000 shares of our common stock which were valued at $183,750 based on the closing market price on the acquisition date; and (3) twenty-four monthly earn-out payments consisting of 10% of the eligible monthly revenue subsequent to closing.
Also in May 2013, we acquired certain assets and liabilities of Front Door Insights, LLC (“FDI”) pursuant to an asset purchase agreement. The assets and liabilities acquired from FDI consisted of cash on hand, accounts receivable, all rights under all contracts other than excluded contracts, prepaid expenses, all technology and intellectual property rights, accounts payable, and obligations under a commercial lease.
The purchase price consisted of: (1) $100,000 in cash; (2) a promissory note in the principal amount of $1,400,000; and (3) 1,166,667 shares of our common stock which were valued at $1,112,310 based on the closing market price on the acquisition date.
2013 Private Placement and Conversion of Bridge Notes
Between June and August 2013, we conducted the private placement of 6,130,000 shares of our common stock at $1.20 per share and received net proceeds of $6,897,177. We also converted all of our outstanding Bridge Notes and substantially all of our interest payable on the Bridge Notes into 4,462,089 shares of our common stock at a rate of $1.20 per share. We no longer have any Bridge Notes outstanding. EGE acted as a placement agent for the private placement and received $439,300 in commissions from us. In addition, for its services as placement agent, we issued to EGE warrants to purchase an aggregate of 605,910 shares of our common stock, exercisable for a period of five years from the closing date, at an exercise price of $1.20 per share.
Results of Operations for the Three Months
Year Ended MarchDecember 31, 2014 andCompared to Year Ended December 31, 2013
Revenues
Revenues for the three months ended March 31, 2014 were $903,215,$4,000,202, a decrease of $124,778,$93,465, or 12.1%2.0%, compared to the same period in 2013. The net decrease is primarily attributable to a decreaseattrition of $174,722, or 49.8% in revenues from large enterprise accounts and non-recurring orclients, as well as revenue from one-time events that did not recur in 2014, in the amount of $747,059, and lossdeclining small business based revenues of $10,759, or 1.6%, of subscriber based licensing. The loss of subscribers was primarily due to new regulation put in place under the Telephone Consumer Protection Act (“TCPA) in October, 2013.$385,334. These decreases were offset by $58,924an increase of $232,985 in Reseller based revenues, and an increase of $805,943 resulting from our recentthe Company’s acquisition of SmartReceipt.SmartReceipt, and other minor factors.
Cost of Revenues
Cost of revenues for the three months ended March 31, 2014 was $260,893,$1,066,917, a decrease of $23,729,$55,120, or 8.3%5.0%, compared to the same period in 2013. This decrease is primarily attributable to a $93,179 reduction in SMS costs resulting from negotiated cost reductions and lower SMSoverall messaging volume, and savings in merchant fees sales commissions, and credit card merchant fees. SMS fees decreased 27.9% to $74,638affiliate commissions. These savings were partially offset by higher server costs as compared to same period2013 resulting from additional needs to support the various acquisitions that took place in 2013 due to further reduction in negotiated volume discount, and reduced overall SMS volume. Sales commissions decreased 12.1% to $44,962 due to reduced large enterprise and non-recurring revenues, a smaller outside sales team, and other minor factors.2014.
General and Administrative
General and administrative expenses consist primarily of salaries and personnel related expenses, stock-based compensation expense, consulting costs and other expenses.Generalexpenses.
General and administrative expenses increased $597,325,$853,994, or 112.1%25%, during the three months ended March 31, 2014 compared to the same period in 2013. The increase in general and administrative expense was primarily due to increased personnel expenses, sharehigher stock based compensation and one-time non-capitalizable expenses related to acquisitionexpense of SmartReciept. Personnel related expenses increased $113,205, and share based compensation increased $195,968,$823,000; higher facilities costs of $97,000 due to increased management and support headcount as compared to the same period in 2013. One time costs associated with auditing, consulting, and some legal fees for the SmartReceipt acquisition and additional office space in San Diego, CA; additional personnel expenses of $82,000, which included additional HR fees due to the procurement of TriNet PEO HR services; and higher dues and subscriptions of $67,000, partially from the SmartReceipt acquisition and from companywide software licensing fees increased due to staffing increases. These increases were $174,770.partially offset by reductions in legal expense of $236,000.
Sales and Marketing Expense
Sales and marketing expenses consist primarily of salaries and personnel related expenses, stock-based compensation expense, sales travel, consulting costs and other expenses. expenses
Sales and marketing expenses increased $578,189,$425,650, or 159.33%12%, during the three months ended March 31, 2014 compared to the same period in 2013. The increase in sales and marketing expense was primarily due to higher personnelemployee related expense of $687,000 due to the acquisition of SmartReceipt, and higher travel and tradeshow expenses shareof $198,000 partially offset by a decrease in stock based compensation expenses, and travel expenses resulting from increase in sales personnel as compared to the same period in 2013. Personnel related expenses increased $360,082, share based compensation increased $32,381, and sales related travel & entertainment expenses increased $98,977.expense of $384,000.
Engineering, Research, and Development Expense
Engineering, research, and development expenses consist primarily of salaries and personnel related expenses, stock-based compensation expense, consulting costs and other expenses.
Engineering, research, and development expenses increased $521,545, or 63%, during 2014 compared to 2013. The increase in engineering, research, and development expenses was primarily due to higher employee related expenses.
Depreciation and Amortization Expense
Depreciation and amortization expense consists of depreciation on our equipment and amortization of our intangible assets.
Depreciation and amortization expense increased $34,269,$145,857, or 101.3%54%, during the three months ended March 31, 2014 compared to the same period2013 as a result of an increase in 2013.amortization expense from our acquired intangible assets of SmartReceipt in 2014.
Goodwill Impairment and Intangible Asset Impairment
During 2014 and 2013, we recorded in Maygoodwill impairment charges of $4,078,693 and $1,066,068, respectively, relating to our recent acquisitions. Also during 2014 and 2013, we recorded intangible asset impairment charges of $961,436 and March 2014.$644,170, respectively. The impairment charges were based on our valuation of these acquired assets at December 31, 2014 and 2013.
Interest Expense
Interest expense consists of stated or implied interest expense on our notes payable, amortization of note discounts, and amortization of deferred financing costs.
Interest expense decreased $1,446,533,$6,348,186 or 100%, during the three months ended March 31, 2014 compared to 2013. The decrease in interest expense was attributable to our conversion of debt (convertible notes) in 2013, which eliminated the same period in 2013. We converted substantially allmajority of our debt into equity in June 2013.debt.
Change in Fair Market Value of Derivative Liabilities
The change in fair value of derivative liabilities for the three months ended March 31, 2014 and 2013 was a loss of $30,079 and a gain of $1,001,550, respectively. The value of the derivative liabilities at any given date is based primarily on the value$63,517 and volatility of our common stock, among other less significant factors. In periods when our stock price or volatility rises, we expect to record a loss in the change in fair value of the derivative liabilities. The conversion of convertible notes payable into common shares in June 2013, reducing the number of warrants subject to derivative liability treatment, significantly reduced our ongoing exposure to derivative liability valuation.
Gain on Adjustment in Contingent Consideration
The gain (loss) on adjustment in contingent consideration for 2014 and 2013 was a gain of $1,492,000 and 2012 was a loss of ($28,465) and a$28,464, respectively. The gain of $625,357.in 2014 relates to decrease in estimated earn out payable for SmartReceipt acquisition. The loss in 2013 relates to an increase in the estimated earn outearn-out for Boomtextthe BoomText acquisition on the payment closing date, partially offset by a decrease in the estimated earn out payable from the Sequence acquisitions. The gain in 2012 relates to the reduction in the estimated earn-out payable on the BoomText acquisition at each year end.acquisition.
Liquidity, and Capital Resources and Going Concern
As of MarchDecember 31, 2014, we had current assets of $4,554,625,$1,337,010, including $3,984,032$848,230 in cash, and current liabilities of $1,332,092,$1,704,890, resulting in a working capital deficit of $3,222,533. As$(367,880). Current liabilities as of December 31, 2014 included an estimated earn-out in the amount of $840,000 and derivative liabilities in the amount of $42,659, all of which are payable in shares of our common stock. Giving no effect to the estimated earn-out and derivative liabilities, we had pro forma working capital as of December 31, 2014 in the amount of $514,779. Since December 31, 2014, our working capital has increased as a result of our gross receipts from our private placement of $4,805,000 of our securities in March 2015, partially offset by continuing losses from operations. We believe that as of the date of this report, we believe we have working capital on hand adequate to fundsupport our current level of operations through,working capital for at least the next 12 months. However, there can be no assurance that we will not require additional capital within the next 12 months. If we require additional capital, we will seek to obtain additional working capital through the sale of our securities and, if available, bank lines of credit. However, there can be no assurance we will be able to obtain access to capital as and when needed and, if so, the terms of any available financing may not be subject to commercially reasonable terms.
Cash Flows
| Years ended December 31, | ||||||||
| 2014 | 2013 | |||||||
| Net cash provided by (used in): | ||||||||
Operating activities | $ | (4,298,302 | ) | $ | (2,948,888 | ) | ||
Investing activities | (2,403,283 | ) | (466,285 | ) | ||||
Financing activities | 4,977,130 | 5,987,495 | ||||||
Net change in cash | $ | (1,724,455 | ) | $ | 2,572,322 | |||
Operating Activities
We used cash in operating activities totaling $4,298,302 in 2014 and $2,948,888 in 2013, respectively. The increase in cash used in operating activities in 2014 compared to 2013 was due primarily to increased payroll related expenses, increased travel related expenses, and increased consulting expenses that we added during the year to support our sales effort and continued development effort of the technology we acquired during 2013 and 2014.
Investing Activities
Investing activities during 2014 includes $2,368,019 in cash consideration used in our acquisitions during the year, and the remainder relates to additions to our fixed assets and capitalized patent costs.
Financing Activities
Financing activities for 2014 include net proceeds from the sale of common stock of $4,977,130. Financing activities for 2013 include net proceeds from the sale of common stock of $6,897,177 and proceeds from the issuance of notes payable of $700,000, partially offset by payments on notes payable of $1,609,682.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Our management periodically evaluates the estimates and judgments made, including those related to share based compensation and valuation of the derivative liability. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
The following critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company’s consolidated financial statements.
Revenue recognition
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 year ended December 31, 2014, one customer accounted for 29% of our revenues. During the year ended December 31, 2013, one customer accounted for 31% of our revenues.
Share-based compensation expense
Share-based compensation cost is measured at the date of grant, based on the calculated fair value of the stock-based award, and is recognized as expense over the employee’s requisite service period (generally the vesting period of the award). We estimate the fair value of employee stock options granted using the Black-Scholes Option Pricing Model. Key assumptions used to estimate the fair value of stock options include the exercise price of the award, the fair value of the our common stock on the date of grant, the expected option term, the risk free interest rate at the date of grant, the expected volatility and the expected annual dividend yield on our Company’s common stock. We use comparable public company data among other information to estimate the expected price volatility and the expected forfeiture rate.
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 convertible debt and equity instruments we issue to determine whether there are embedded derivative instruments, including the embedded conversion option, that are required to be bifurcated and accounted for separately as a derivative financial instrument. In circumstances where the convertible 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. Also, in connection with the sale of convertible debt and equity instruments, we may issue freestanding warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity.
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 convertible debt or equity instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds allocated to the convertible host instruments are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the convertible instruments themselves, usually resulting in those instruments being recorded at a discount from their face value. The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to income, using the effective interest method.
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.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
General
We are 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’ mobile phones, and mobile smartphone applications.applications and dynamically printed receipt content. We generate revenue by charging the resellers, brands and enterprises a per-message transactional fee, or through fixed or variable software licensing fees or via advertising fees. Our customers include national franchisers, professional sports teams and associations and other national brands such as the Los Angeles Clippers, Sonic Drive-In, Subway, Chick-Fil-A, Jamba Juice, and others.
Mobile phone users represent a large and captive audience. While televisions, radios, and even PCs are often shared by multiple consumers, mobile phones are personal devices representing a unique and individual address to the end user. We believe that the future of digital media will be significantly influenced by mobile phones where a direct, personal conversation can be had with the world’s largest target audience. According to a report published by International Data Corporation, or IDC, by 2015,comScore in January 2014, more U.S. Internet users will accessaccessed the Internet through mobile devices than through PCs or other wireline devices. The IDC study further reports thatPCs. Additionally, consumers now spend more time using the number of people accessingmobile Internet on smartphones than using the Internet invia PCs according to the U.S. through PCs will shrink from 240 million consumers in 2012 to 225 million in 2016. At the same time, the number of mobile users will increase from 174 million to 265 million.2014 Digital Consumer Report published by Nielsen.
Our “C4” Mobile Marketing and Customer Relationship Management (CRM)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, (SMS), Multi-Media Messaging (MMS),or SMS, multi-media messaging, smartphone application development and Interactive Voice Response (IVR)interactive voice response interactions, all of which are facilitated via a set of Graphical User Interfaces (GUIs)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.
Our SmartReceipt“SmartReceipt” solution enables our customers with the ability to control the content on receipts printed from their Pointpoint of Sale (POS)sale, or POS system. SmartReceipt is a software application that is installed on the POS, or directly onto receipt printer platforms, such as Epson’s OmniLink product, 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 solution integrates with SmartReceipt by supportplatform and allows our customers to print SMS marketing or Stampt mobile application calls-to-actions which can be printedcalls-to-action on receipt content by SmartReceipt.receipts.
We also offer our clients reporting and analytics capabilities through the C4 solution which allows our clients to assess the effectiveness ofand optimize their mobile marketing campaigns and design more effectiveSmartReceipt campaigns. . Our proprietary platform connects to all wireless carriers so that any consumer, on any wireless service (for example, Verizon), can join our customer’s SMS mobile marketing campaign. Once the consumer has subscribed to our customer’s SMS mobile marketing campaign, our C4 Web-based software solution serves as a tool by which our customers can initiate messages and other communications back to their subscribed consumers, as well as configure and administer their mobile marketing campaigns.
We believe that mobile devices are emerging as an important interactive channel for brands to reach consumers since it is the only media platform that has access to the consumer virtually anytime and anywhere. According to an August 2013 eMarketer report, U.S. adults now spend more time on their mobile device than any other digital channel such as PCs. eMarketer also reports that U.S. adults already spend more time on their mobile phone than viewing print or listening to radio combined. We believe that brands and advertising agencies are recognizing the unique benefits of the mobile channel and they are increasingly integrating mobile media within their overall advertising and marketing campaigns. We also believe the future of mobile applications and services includes banking, commerce, advertising, video, games and just about every other aspect of both on and offline life. Our objective is to become the industry leader in connecting brands and enterprises to consumers’ mobile phones.
Our objective is to build an industry-leading Software-as-a-Service (SaaS) product that connects consumers to merchants and brands. The key elements to our strategy are:
Exploit the competitive advantages and operating leverage of our technology |
Acquire complementary businesses and |
Build our intellectual property portfolio. We currently have |
While these are the key elements of our current strategy, there can be no guarantees that our strategy will not change or that our strategy will be successful.
Industry Background
We believe industry trends point to a shift in the local marketing industry in both how merchants and brands market their products and services to local customers. We believe that consumers are transitioning to new digital channels and moving away from legacy marketing channels. It is this transition that we believe has created an opportunity for new and innovative local marketing services and technologies to evolve. We believe that consumers are increasingly devoting their attention and lifestyle to mobile devices and that marketers will need new products, technologies, and services tailored for consumer’s mobile devices.
According to BIA/Kelsey’s U.S. Local Media Forecast (2012-2017), local marketing spend is projected to grow from $132.5 billion in 2012 to $148.8 billion by 2017. Local marketing is comprised of “traditional” channels, such as radio, print, or television, and “digital” channels such as personal computers, mobile phones, or tablets. BIA/Kelsey projects that local marketing spend on traditional channels will decrease 2.2% in 2013, while local marketing spend on digital channels will grow 11.7%. BIA/Kelsey also forecasts that local mobile marketing spend will increase 750% by 2017 to $9.1B.
According to tracking firm eMarketer’seMarketer's data, while U.S. adults spend on average 4 hours and 31 minutes per day viewing TV, in 2013 they will spend 5 hours and 9 minutes every day on average using digital media such as mobile apps, streaming video, games, or browsing the Web. Furthermore, eMarketer reports that the leading digital platform is the mobile device which, at 2 hours and 21 minutes per day, exceeds the combined time spent on print (32 minutes) and radio (1 hour, 26 minutes).
Mobile marketing campaigns use multiple channels to reach the consumer, including mobile web sites, mobile applications, mobile messaging and mobile video, all of which can be integrated into interactive campaigns. Each channel can link to additional mobile content or channels, as well as to complementing traditional media. Mobile marketing provides a powerful, instant and interactive response path in that consumers may send a keyword to a short code via SMS, or register on a mobile web site. This makes the mobile phone a precisely targeted communication channel, where users are highly engaged with content. As a result, the mobile channel is believed to be a highly effective campaign tool and its response levels are high compared to other media. We believe that mobile is valuable as a stand-alone medium for marketing, but it is also well suited for a vital role in fully integrated cross-media campaign plans, including TV, print, radio, outdoor, cinema, online and direct mail. We believe that the future of digital media will be significantly influenced by mobile phones where a direct, personal conversation can be had with the world’s largest network.
The Mobivity Solution
Our mobile marketing platform is designed to allow brands to operate mobile marketing campaigns, as well as resellers to market their own mobile marketing platform under their own brand identity. As of the date of this prospectus,report, we have approximately 11,0008,000 customers utilizing our mobile marketing platform and we deliver on their behalf an average of 128 million SMS text messages per month. We have approximately 6,0009,000 additional customers using our Smart Receipt solution.solution and we process on their behalf an average of 20.4 million receipt transactions per month. Our customers are spread over all industries that market to individual consumers and range in size from national franchisers to the single site family-owned business. Our clients access our “C4” solution through a standard Web browser that allows them to directly conduct the setup, messaging, and ongoing Customer Relationship Management (CRM)customer relationship management with the consumers they market to. Our customers are given a dedicated support representative along with account credentials to access their own C4 account from any Web browser.
· | Campaign Setup: Initially, our clients will use their own C4 account on our proprietary platform to design their mobile marketing campaign for purposes of attracting customers to subscribe for the customer’s mobile messaging service. In compliance with federal and state laws relating to mobile marketing, marketers typically attract customers to their mobile messaging service through media communications distributed through non-mobile devices, media, other than mobile devices, including store signage, billboards, other forms of print media, and digital media not directed through a mobile device. Our C4 solution also allows for the creation and design of digital display graphics that can be displayed on television screens, digital scoreboards, or other digital screens where an animated or more graphically rich solicitation may be desired. Digital displays are particularly useful on large digital scoreboard displays at sporting events. Through these various forms of communication, customers of our clients will be invited to subscribe to SMS text messaging communications (for example, “Join our mobile VIP club! Text “Pizza” to 12345”) or to set-up loyalty offers through our Stampt smartphone loyalty application (for example, “Download Stampt, use your iPhone or Android phone to join our loyalty program – “buy five sandwiches and get one free!”). Consumers responding to these communications will be directed to our clients’ own C4 account on our proprietary platform, where our platform records and stores the consumer’s relevant information for access by our client stores. Once the consumer has subscribed to our customer’s mobile marketing campaign, our C4 solution serves as a tool by which our customers can initiate messages and other communications back to their subscribed consumers, as well as configure and administer their mobile marketing campaigns. |
· |
· | Customer Relationship Management |
· | Stampt Smartphone Loyalty |
· | Smart |
· |
In the future, we intend to develop additional platform features that with the goal of driving additional value to the evolving mobile marketing industry.
Marketing and Sales
We market and sell the services offered over our proprietary C4 platform directly through our own sales force, via resellers, and in some cases through agents.
· | Direct |
· |
· |
· | In addition to our direct and indirect sales channels, we also market our services online through our Website, Facebook, Twitter, LinkedIn, and other online channels. We also participate in various trade and industry events to build awareness and promote exposure to our services and brand. |
Our services are predominantly marketed and sold in the form of a recurring software licensing fee that is determined by desired features and the number of physical locations our customers would like to deploy the services in. For example, a customer who exclusively utilizes our SMS text messaging feature for one location will pay a much lower recurring licensing fee that a marketer who desires our full breadth of product features and needs to drive localized marketing campaigns across 50 locations in various cities or locales.
In addition to license fees, we also arrange for a transaction fee in special cases where our customers require greater bandwidth or throughput to process large volumes of mobile messaging transactions. For example, a customer may want to utilize our services for a major sporting event when there may be tens of thousands of fans who are expecting a “score alert” sent to their mobile phone via a SMS text message. In this case, the required resources to facilitate a large number of SMS messages in a short period of time is much higher and therefore we may charge an additional per-SMS text message fee to our customer.
Research and Development
We have developed an internal and external software development team with many years of experience in the mobile advertising and marketing industries. As of the date of this prospectus,report, we have twofour full time employees engaged in engineering and software developments and twoone full-time employeesemployee engaged in quality assurance and testing in our development centers located at our facilities in San Diego, CA. We have one full time employee engaged in engineering and software development at our corporate headquarters in Chandler, Arizona.AZ. Additionally, we have four full time software development and engineering contractors located in California, Sri Lanka and Spain.Spain that are used on an as needed basis. We also contract with various outsourced development and engineering partners in the United States. Our research and development activities are focused on enhancements to our platform, including extending our technology into payment processing, location based services, application analytics, and other technical opportunities in the evolving mobile industry.
Our total engineering, research and development expenditures in 2014 and 2013 were $1,346,198 and 2012 were $824,653, and $562,459, respectively. We expect our total research and development expenditures in calendar year 2014 to be approximately $1,000,000.
Competition
Although the market for mobile marketing software and solutions is relatively new, it is very competitive. We compete with companies of all sizes in select geographies that offer solutions that compete with various elements of our platform and offering, such as SMS text messaging service providers or providers of mobile smartphone applications. We also compete at times with interactive and traditional advertising agencies that perform mobile marketing as part of their services to their customers. Many of these entities have significantly greater resources than we do. In addition, we compete with traditional offline coupon and discount services, as well as television, radio, newspapers, magazines and other traditional media companies that provide coupon and discount products and services to their retail enterprise customers.
Many of the leading providers of online services have begun to develop or acquire mobile marketing platforms with features similar to ours. For example, in May 2010, Google, Inc. acquired Admob, Inc. and in January 2010 Apple, Inc. acquired Quattro Wireless. Each of the acquired companies was engaged in mobile marketing. In addition, we believe that Facebook, AOL, Microsoft and Yahoo! have each begun to develop mobile marketing platforms.
We believe that the key competitive factors that differentiate us from our competitors include:
· | Demonstrable experience and competence. We have been providing mobile marketing services since 2006. In 2009, Sybase, an international enterprise software and services company, awarded us their Innovator of the Year. Major brands such as Sonic Drive-In, Subway, Jamba Juice, |
· | Competitive pricing. We believe we are one of the few mobile marketing providers in the industry that can provide SMS text messaging services at a flat licensing fee structure rather than charging for every SMS text message transaction processed. We also believe that we have a “least cost” operating advantage that competitors may find challenging to compete with. |
· | Scalability. We believe that our platform is more scalable than most if not all of our competitors. Many of our customers require large volumes of mobile marketing messages to be transacted and a high quantity of end users operating our Web-based product features. We have grown our monthly messaging volume from less than 1 million SMS text messages per month in 2010 to more than |
-32-
Seasonality
Our business, as is typical of companies in our industry, is highly seasonal. This is primarily due to traditional marketing and advertising spending being heaviest during the holiday season while brands, advertising agencies, mobile operators and media companies often close out annual budgets towards the end of the calendar year. Seasonal trends have historically contributed to, and we anticipate will continue to contribute to fluctuations in our quarterly results, including fluctuations in sequential revenue growth rates.
Intellectual Property
We regard the protection of our developed technologies and intellectual property rights as an important element of our business operations and crucial to our success. We rely primarily on a combination of patent laws, trademark laws, copyright laws, trade secrets, confidentiality procedures and contractual provisions to protect our proprietary technology. We generally require our employees, consultants and advisors to enter into confidentiality agreements. These agreements provide that all confidential information developed or made known to the individual during the course of the individual’sindividual's relationship with us is to be kept confidential and not disclosed to third parties except under specific circumstances. In the case of our employees, the agreements provide that all of the technology which is conceived by the individual during the course of employment is our exclusive property. The development of our technology and many of our processes are dependent upon the knowledge, experience and skills of key scientific and technical personnel.
As of the date of this prospectusreport we own fourfive patents. U.S. Patent numbers 7991388 B1 and 8,244,216 B1 were issued on August 2, 2011 and August 14, 2012, respectively. These patents cover a geo-bio-metric personal identification number, a service that authenticates a user from a feature phone or smart phone using a number of mobile attainable attributes: geolocation, facial image, accelerometer (which measures the physical orientation or movement of the device itself), and text messaging. The purpose of the geo-bio-metric PIN service is to authenticate a user while verifying the following: the user is currently using his or her other phone; the user is at the location that their phone is at; the user is not at another location and using their phone through a proxy; and an impostor is not using the phone.
In March 2011, we acquired US Patent number 6788769 B1 which covers a method and system for using telephone numbers as a key to address email and online content without the use of a look-up database. Using this system, a phone number is used to access a website or an email address in exactly the same way it is used to dial a telephone.
U.S. Patent numbers 8,463,306 and On8,818,434 were issued on June 11, 2013 we were issued US Patent number 8,463,306 which coversand August 26, 2014, respectively. These patents cover a method and system for testing a SMS text messaging network. The method and system allows for real-time testing of the initiation and completion of SMS text messages and any delivery delays across the major American mobile phone carriers, and accurately measures the progress on SMS broadcasts and records when a broadcast has been completed.
Our issued and any future patents that may issue may not survive a legal challenge to their scope, validity or enforceability, or provide significant protection for us. The failure of our patents, or the failure of our copyright and trade secret laws to adequately protect our technology, might make it easier for our competitors to offer similar products or technologies. In addition, patents may not issue from any of our current or any future applications.
Government Regulation
The growth and development of the mobile messaging market and the market for electronic storage of personal information has resulted has resulted in a variety of stringent consumer protection laws, many of which impose significant burdens on companies that store personal information. Depending on the products and services that they offer, mobile data service providers may be subject to regulations and laws applicable to providers of mobile, Internet and VOIP services, including domestic and international laws and regulations relating to user privacy and data protection, defamation, pricing, advertising, taxation, gambling, sweepstakes, promotions, billing, real estate, consumer protection, accessibility, content regulation, quality of services, telecommunications, mobile, television and intellectual property ownership and infringement. We expect that the regulation of our industry generally will continue to increase and that we will be required to devote increasing amounts of legal and other resources to address this regulation. In addition, the application of existing domestic and international laws and regulations relating to issues such as user privacy and data protection, marketing, advertising, consumer protection and mobile disclosures in many instances is unclear or unsettled.
In addition to its regulation of wireless telecommunications providers generally, the U.S. Federal Communications Commission, or FCC, has examined, or is currently examining, how and when consumers enroll in mobile services, what types of disclosures consumers receive, what services consumers are purchasing and how much consumers are charged. In addition, the Federal Trade Commission, or FTC, has been asked to regulate how mobile marketers can use consumers’consumers' personal information. Consumer advocates claim that many consumers do not know when their information is being collected from cell phones and how such information is retained, used and shared with other companies. Consumer groups have asked the FTC to: identify practices that may compromise privacy and consumer welfare; examine opt-in procedures to ensure consumers are aware of what data is at issue and how it will be used; investigate marketing tactics that target children; and create policies to halt abusive practices. The FTC has expressed interest, in particular, in the mobile environment and services that collect sensitive data, such as location-based information.
The principal laws and regulations that pertain to us and our customers in connection with their utilization of our platform, include:
· | Deceptive Trade Practice Law in the |
· | Behavioral |
· | Behavioral Advertising-Privacy |
· | Marketing-Privacy |
· | SMS and Location-Based Marketing Best Practices and |
· |
· |
· | Communications Privacy |
· | Security Breach Notification |
· |
Employees
As of the date of this prospectus,March 15, 2015, we had 5344 employees, consisting of seven full-time employees, 3and two part-time employee and 3 contract employees. Our sales, marketing, and business development functions are provided by 24 full-time employees.. Our engineering andin research and development, functions are provided by 727 full-time employees, 2 part time employees and 2 independent contractors. Our client service functions are provided by 16 full time employeesone part-time in sales and 1 independent contractor. Ourmarketing, five full-time in general administration, finance, and executive management consist of 6administrative and two full-time employees and 1part-time employee.in operations.
Property
We currently lease 6,730 square feet of office space located at 58 W. Buffalo St., Chandler, Arizona. Monthly rental payments, excluding common area maintenance charges, are $11,557 in 2013, $11,958 in 2014 and $12,357 in 2015. The 63 month lease term expires December 31, 2015. We believe the property is sufficient for our needs at this time.
We also have a month to month lease for approximately 1000 square feet of office space in Solana Beach, California at a monthly expense of $2,500; a month to month lease for approximately 700 square feet of office space in North Huron, Michigan at a monthly expense of $600; and a lease through September 2014 of approximately 2,864 square feet of office space in Santa Barbara, California at a monthly expense of $6,800.
Litigation
There are no pending legal proceedings, other than routine litigation incidental to our business, to which we or our properties are subject.
Set forth below are our directors and officers:
Name | ||||
| Age | Position | |||
Dennis Becker | Chief Executive Officer and | |||
Christopher Meinerz | ||||
Chief Financial Officer | ||||
Alex Shah | ||||
Donna Mitchell | 51 | Senior Vice President Sales and Business Development | ||
William Van Epps | 66 | Executive Chairman and Director | ||
John Harris | 66 | Lead Director and Chairman of Compensation Committee | ||
David Jaques | Chairman of Audit Committee and Director | |||
Phillip Guarascio | ||||
Chairman of Governance and Nominating Committee and Director | ||||
Doug Schneider | ||||
Director |
Dennis Becker was appointed our Chief Executive Officer and a Director effective as of our acquisition of Mobivity, Inc. in November 2010. Mr. Becker has also served as President and Chief Executive Officer of Mobivity, Inc. since September, 2007. He was a founder of Frontieric Corporation, a pioneer in providing complex call routing and merchant processing applications, where he was Chief Executive Officer from 2002 to 2005. Mr. Becker was also Chief Executive Officer of Bexel Technologies, which served solutions to large enterprise, from 1999 to 2001. Mr. Becker studied Computer Science at the University of Oregon and served in the United States Air Force.
Mr. Bynum wasBecker has extensive knowledge of the mobile message marketing industry. As a result of these and other professional qualifications, we have concluded that Mr. Becker is qualified to serve as a director.
Christopher Meinerz - Chief Financial Officer
On February 16, 2015, the board of directors of the Company appointed Christopher Meinerz to serve as our President and a Director on May 20, 2013.Chief Financial Officer of the Company. Prior to joining the Company, Mr. BynumMeinerz served as chief executive officerDirector, Chief Financial Officer, Chief Compliance Officer, Secretary and presidentTreasurer of Phone Directories Corp,Spindle, Inc., a Utah-based publisher of yellow page phone books,mobile marketing and payment processing company based in Scottsdale, Arizona, from July 2007 through June 2010.April 2014 to February 2015. Mr. Bynum was also an investor and a director. From June 2006 until June 2010,Meinerz will maintain his Director position with Spindle, Inc. going forward. Prior to his role with Spindle, Inc., Mr. Bynum was an investor and director of Canpages, the largest independent telephone directory publisher in Canada. In May 1993, Mr. Bynum and seven partners founded TransWestern Publishing, an independent publisher of telephone directories. Mr. BynumMeinerz served as executive vice-president of sales until May 2003.Chief Financial Officer and Chief Compliance Officer at Next Generation Insurance Group (“NGI”), a national specialty insurance marketing firm located in Phoenix, Arizona, from October 2011 to April 2014. Before his tenure at NGI, Mr. Bynum also serves as a director of the Oklahoma Wildlife Management Association, which he co-founded in 2006. Since 2010 Mr. Bynum has managed his private investments.
Alex Shah – Chief Technology Officer
Mr. Schatz graduated with a Bachelor of Science in Accountancy from San Diego State University.
Donna Mitchell – Senior Vice President Sales and Business Development
Ms. Mitchell has served as our Senior Vice President Sale and Business Development since January 5, 2015. Prior to joining the Company, Ms. Mitchell was most recently an Adjunct Instructor of Management Information Systems at Daymar College in Louisville, Kentucky beginning in March 2014. Prior to that experience, Ms. Mitchell was Chief Development Officer of Northwestern Mutual Financial Network from November 2011 to March 2014. Ms. Mitchell also spent twelve years at Papa John's International Inc. and Papa John's Food Service, Inc. ("Papa John's") from February 1998 to May 2010, ultimately serving on the Executive Management Team as Senior Vice President, Global Research, Development and Quality Assurance, where she led the global research and development, quality assurance and equipment technology teams supporting over 3,500 franchise locations. Ms. Mitchell also led Papa John's Franchise Product Advisory Committee for new product development, limited time offers, and product enhancements influencing buy-in at the store level. Ms. Mitchell served in the United States Marine Corps for nine years and holds a Bachelor of Science in Business Management from McKendree University.
Deena McKinley – Senior Vice President Client Services and Marketing
Ms. McKinley has served as our Senior Vice President Client Services and Marketing since February 2, 2015. Ms. Mckinley has spent over fourteen years in marketing and advertising, ultimately serving as Executive Vice President, Managing Director and Chief Client Officer since July 22, 2013.at Zimmerman Advertising from August 2014 to February 2015, where she worked with major QSR, fast casual, casual dining and general retail brands with nearly 10,000 individual locations, various franchisees and co-op groups, and managed key client relationships at the executive level. Ms. McKinley also led the Papa John's International business relationship from January 2005 to January 2014 as Executive Vice President and Managing Director of ZGroup Advertising, serving as the key client contact and providing strategic direction, brand positioning, and leading agency integration efforts for all omnichannel advertising campaigns. Earlier in her career, Ms. McKinley was a Regional Marketing Director at Papa John's International from January 2004 to January 2005, working with over twenty markets, 100 operators and seven agencies to align national strategies at the local market level. Ms. McKinley holds a Bachelor of Arts in English and a Master of English Education from the University of Florida.
William Van Epps – Executive Chairman and Director
On January 21, 2015, the board of directors of the Company appointed William Van Epps to serve as Executive Chairman of the Company. Mr. Hasen previouslyVan Epps was initially appointed to the Company’s board of directors on October 2, 2014. Prior to joining the Company, Mr. Van Epps served as chief marketingexecutive officer of Hipcricket,Agile Pursuits Franchising, Inc., a wholly ownedwholly-owned subsidiary of Augme Technologies,The Procter and Gamble Company, from December 2009 to October 2011, where he established Tide Dry Cleaners and Mr. Clean Car Wash operations. Prior to his experience at Agile Pursuits Franchising, Inc., Mr. Van Epps served as president at Papa John's International Inc. from May 2007 untilApril 2006 to April 2009, and as chief operating officer and senior vice president of Papa John's International Inc. from January 2004 to April 2006, where he was responsible for domestic corporate and franchised restaurant operations and international operations. Mr. Van Epps also served as managing director of International at Papa John's International from September 2001 to January 2004. Prior to joining Papa John's, he served as president of the International Division of Yorkshire Global Restaurants from August 1999 to August 2001, where he was responsible for the international development of Long John Silvers and A&W restaurants. From August 1993 to August 1999, Mr. Van Epps served as president of the International Division at AFC Enterprises where he developed international brand deployments for Popeye's, Church's Chicken, Cinnabon, Seattle Coffee Co., and Chesapeake Bakery Cafe. Mr. Van Epps began his career working alongside Pizza Hut founder, Frank Carney, where, from March 2013. 1974 through February 1981, he helped expand Pizza Hut into Hong Kong, Thailand and Singapore while also overseeing stores in Australia, New Zealand, as well as a joint venture in Japan.
Mr. HasenVan Epps has extensive knowledge of business development, retail and restaurant operations, and corporate management. As a Bachelor’sresult of Arts degree (1980) in TV/Radio from Brooklyn College.these and other professional qualifications, we have concluded that Mr. Van Epps is qualified to serve as a director.
John Harris – Lead Director and Chairman of Compensation Committee
Mr. Harris has been a director since January 2011. Mr. Harris has served as an operating partner with GlendonTodd Capital, a Dallas based private equity firm since February 2011. From 2010 to 2012, Mr. Harris was CEO and investor with Chemical Information Services, a leading provider of database services to the chemical and pharmaceutical industries. From 2006 to 2009, Mr. Harris was President and CEO of eTelecare Global Solutions; a business process outsourcing (“BPO”) company delivering technical support, sales, and customer care services to the Fortune 1000 market. In that capacity, he successfully led the company’s IPO, privatization and ultimate merger in 2009. Previously, Mr. Harris served in various executive level positions with Electronic Data Systems over a 25 year period, including President of the Communications Industry Group. Mr. Harris graduated from the University of West Georgia with a BBA and MBA and is on the Board of Advisors to the Richardson School of Business. He has held board positions with a number of public and private telecommunications and technology services companies, and he currently sits on the boards of Premier Global Services, The Hackett Group and Sizmek Corporation. Mr. Harris is a non-executive Chairman of Sizmek, Lead Director and Chairman of the Compensation Committee at Premier Global Services and serves on the Audit, Compensation and Governance Committees at The Hackett Group.
Mr. Harris has extensive knowledge of corporate management. As a result of these and other professional qualifications, we have concluded that Mr. Harris is qualified to serve as a director.
David Jaques –Chairman of Audit Committee and Director
David Jaques has served as a director since December 2011. Mr. Jaques has held senior financial positions in banking, corporate and venture capital. In his early career, he held various positions with Barclays Bank in London and provided advisory services in currency and interest rate risk management to the bank’s corporate clients. He held a similar role at Barclays Bank, New York from 1988 to 1993. He was Senior Vice President and Treasurer of Silicon Valley Bank between 1994 and 1999; founding CFO for PayPal from 1999 to 2001 and CFO of BlueRun Ventures from 2001 to 2008. Since 2008 he has provided CFO consulting services with Greenough Consulting Group and holds a board position at UBL Interactive, Inc. (UBLI.PK).
Mr. Jaques has extensive knowledge of finance and accounting. As a result of these and other professional qualifications, we have concluded that Mr. Jaques is qualified to serve as a director.
Phillip Guarascio - Chairman of Governance and Nominating Committee and Director
Mr. Guarascio has served as a director since FebruaryMarch 2014. Mr. Guarascio has been the Chairman and Chief Executive Officer of PG Ventures LLC since May 2000 where he serves as a marketing and advertising business consultant. He was Lead Executive, Marketing and Sales at the National Football League from 2003-2007 and has been a consultant for the William Morris Agency since October 2001. For 16 years, Mr. Guarascio was with General Motors where he served as Vice President of Corporate Advertising and Marketing primarily responsible for worldwide advertising resource management, managing consolidated media placement and before that as General Manager of Marketing and Advertising for General Motors’Motors' North American Operations. Mr. Guarascio introduced the GM Card and managed the General Motors corporate brand to a 20 percent increase in customer purchase consideration. He joined General Motors in 1985 after 21 years with the New York advertising agency, D’Arcy,D'Arcy, Masius, Benton & Bowles.
Mr. Guarascio has extensive experience in the marketing and advertising industry. Based on this and other professional qualifications, we have concluded that Mr. Guarascio is qualified to serve as a director.
Doug Schneider - Director
Mr. Schneider has been a director since December 2010. Mr. Schneider has a twenty year track record of leadership and success in launching, building, and managing high-tech service oriented companies. He has served as Executive Vice President of the SMB Solutions for the Melbourne IT Group since July 2012 and oversees a $75MM per year hosting and domain registration business across North American and Asia Pacific. From 2011 to 2012, Mr. Schneider served as CEO for Transaction Wireless, a venture backed technology company where he still resides on the board. From 2007 to 2010, Mr. Schneider was the CEO of Genea Energy, a clean tech company that provides an innovative and comprehensive SaaS based energy services platform for commercial office building portfolios. Mr. Schneider received a Bachelor’sBachelor's degree in Mechanical Engineering from University of California, Davis and an M.B.A. from the Kellogg School of Management at Northwestern University. He also serves as an industry advisor to Pelion Venture Partners, a venture capital firm focused on the information technology sector.
Mr. BrodskySchneider has servedextensive knowledge of corporate management. As a result of these and other professional qualifications, we have concluded that Mr. Schneider is qualified to serve as a director since July 1, 2013. Since 2011 director.
Thomas Akin - Director
Mr. Brodsky has been a partner at HBC Investments, a private equity firm located in Dallas, Texas, that specializes in investments of middle-market companies. Prior to joining HBC Investments, from 1995 to December 2010, Mr. Brodsky was employed by Hicks, Muse, Tate & Furst (renamed HM Capital Partners in 2006), a nationally prominent private equity firm in the United States that specialized in leveraged acquisitions, and served as a partner beginning in 2001. While at Hicks Muse/HM Capital, Mr. Brodsky was active in sourcing, executing, overseeing and/or executing numerous transactions, valued in excess of $2.5 billion. Beginning in 2004, Mr. Brodsky was responsible for Hicks Muse/HM Capital’s investments in the media and communications industries and served on the firm’s Investment Committee, which was responsible for all investment decisions of the firm. Mr. Brodsky currently serves on the board of directors of LIN Media Corporation (NYSE: TVL), a local multimedia company that owns, operates or services 32 network-affiliated broadcast television stations in 17 U.S. markets, an interactive television station and niche web sites, mobile platforms, performance-based local and national advertising solutions, and other digital services. Mr. Brodsky also serves on several non-profit Boards, including: KIPP: Dallas-Fort Worth, a high-performing charter school group, where he serves as Chairman; AT&T Performing Arts Center, the owner and operator of Dallas’ premier arts performance venues; and Greenhill School, an co-educational independent school serving children in pre-kindergarten through 12th grade. Mr. Brodsky previously served on the boards of: Unitek Global Services (NASDAQ: UNTK), a provider of engineering, construction management and installation fulfillment services to companies specializing in the telecommunications, broadband cable, wireless, two-way radio, transportation, public safety and satellite industries; and MaineToday Media, Maine’s largest media company. Mr. Brodsky received a Bachelor of Arts degree from Yale University in 1992.
Because Mr. Akin has extensive experience as a BBAprofessional investor and MBA andpublic company director, we have concluded that Mr. Akin is on the Board of Advisorsqualified to the Richardson School of Business. He has held board positions withserve as a number of public and private telecommunications and technology services companies, and he currently sits on the boards of Premier Global Services, The Hackett Group, DG FastChannel and BancTec Corporation. He is a member of the compensation committee of the board of each of these companies and sits on the audit committee of the board of DG FastChannel.director.
The following table summarizes the total compensation earned by our chief executive officer and our other two most highly paid executive officers for the years ended December 31, 20132014 and 2012.2013.
Summary Compensation TableTable*
| Name and Principal Position | Year | Salary | Bonus | Option Awards | Total | Year | Salary | Bonus | Option Awards | Total | ||||||||||||||||||||||||
Dennis Becker, CEO (1) | 2013 | $ | 240,580 | $ | 37,010 | $ | 464,636 | $ | 742,226 | 2014 | $ | 214,915 | $ | - | $ | - | $ | 214,915 | ||||||||||||||||
Dennis Becker, CEO (1) | 2012 | $ | 228,906 | $ | 60,000 | $ | 191,342 | $ | 480,248 | |||||||||||||||||||||||||
Tom Tolbert, CSO (2) | 2013 | $ | 100,869 | $ | 15,250 | $ | 432,489 | $ | 548,608 | |||||||||||||||||||||||||
Michael Bynum, President (3) | 2013 | $ | 115,972 | $ | 5,249 | $ | 432,489 | $ | 553,710 | |||||||||||||||||||||||||
2013 | $ | 240,580 | $ | 37,010 | $ | 464,636 | $ | 742,226 | ||||||||||||||||||||||||||
Alex Shah (2) | 2014 | $ | 167,725 | $ | - | $ | 46,903 | $ | 214,628 | |||||||||||||||||||||||||
Tom Tolbert, Former CSO (3) | 2014 | $ | 197,525 | $ | 43,112 | $ | 868,888 | $ | 1,109,525 | |||||||||||||||||||||||||
2013 | $ | 100,869 | $ | 15,250 | $ | 432,489 | $ | 548,608 | ||||||||||||||||||||||||||
*In accordance with the rules and regulations promulgated by the Securities and Exchange Commission, the table omits columns that are not applicable.
(1) | The Option Award expense for our executive officers refers to options granted by our board of directors pursuant to our stock-based compensation plans approved by the board of directors. |
| (2) | Alex Shah was appointed Chief Technology officer effective February 10, 2014. Amounts in the table above reflect his compensation after his appointment and through December 31, 2014. |
| (3) | Tom Tolbert was appointed Chief Sales Officer effective May 20, 2013. This appointment was amended November 14, 2014 to Senior Vice President Business Development. Amounts in the table above reflect his compensation after his |
The amounts reported in Option Awards column of the table above reflect the aggregate compensation costs for financial statement reporting purposes for fiscal 20132014 and 20122013 under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Compensation – Stock Compensation (formerly referenced as Statement of Financial Accounting Standards No. 123(R)). These amounts do not reflect amounts paid to or realized by the executive officers for fiscal 20132014 or 2012.2013. Actual amounts earned for fiscal 20132014 and 20122013 are included in the Summary Compensation Table above. For information on the method and assumptions used to calculate the compensation costs, see Note 7 to our audited consolidated financial statements contained herein.
Narrative Disclosure to Executive Compensation Table; Employment Agreements
Dennis Becker
On January 11, 2011, we entered into an employment agreement with Dennis Becker. Under the terms of the agreement, Mr. Becker will serve as our President and Chief Executive Officer for an initial term of three years from December 24, 2010 (the “Effective Date”). Unless terminated no less than 90 days prior to the expiration date by either party, the agreement is renewed automatically for successive one year periods. Under the agreement, Mr. Becker is paid a base annual salary of $120,000. The base salary is subject to an annual increase at the sole discretion our board of directors. In addition to regular annual increases, the base salary will be increased by $30,000 (up to a cumulative maximum of $60,000) for each acquisition of the stock or all or substantially all of the assets of a third party entity, or the formation of joint ventures resulting in operating cash flows minus capital expenditures and dividends of no less than $25,000 during a three month period ending six months after the completion of each such acquisition or formation of such joint venture. In addition, his salary will be increased to $225,000 in the event we complete a financing transaction of no less than $3,000,000 and we complete one acquisition. The board may further award him, at its sole discretion, an annual bonus of up to 50% of his base salary and grant him stock options.
Effective March 30, 2015, based on the successful results of the March 2015 capital raise, the board increased Mr. Becker’s annual base salary by $50,000 to $275,000, awarded him a bonus payment of $30,000, and also granted him options to purchase 100,000 shares of our common stock at an exercise price of $1.28 with 25% vesting after 1 year from date of grant and 1/36 per month afterwards.
If the agreement is terminated by us without cause (as defined in the agreement) or the we notify Mr. Becker that we will not renew the agreement, we will be required to pay him a severance payment equal to six months of his base salary payable in regular intervals following such termination or expiration of the agreement.
The agreement includes non-compete, non-solicitation, intellectual property assignment and confidentiality provisions that are customary in our industry.
Tom Tolbert
In connection with our acquisition of FDI, on May 20, 2013, our board of directors appointed Tom Tolbert to serve as our chief sales officer. Our board also approved the employment agreement betweenOn November 14, 2014, the Company and Mr. Tolbert described below.
entered into an amendment to Mr. Tolbert’s Employment Agreement dated May 20, 2013. Pursuant to his employmentthe amendment, Mr. Tolbert will from the date of the amendment forward serve as the Company’s Senior Vice President Business Development, with responsibility for large account lead generation and sales and the executive management of certain national accounts. Pursuant to the amendment, Mr. Tolbert’s base salary will be $120,000 per year. Mr. Tolbert’s quarterly bonus going forward will be (i) fifteen percent (15%) of collected revenues on all new accounts acquired primarily through the efforts of Mr. Tolbert, provided that this bonus shall only be paid on collected revenue during the initial term of the customer agreement with us, Tomthe Company, and (ii) five percent (5%) of all collected revenue on all customer accounts that are renewed by the customer primarily through the efforts of Mr. Tolbert, has agreed to serve as our executive vice president and chief sales officer for a three year term expiringprovided that this bonus shall only be paid on May 19, 2016, subject to automaticcollected revenue during periods of renewal for additional one year periods unless either party elects not to renew priorsubsequent to the endcurrent term of such account as of the then current term.date of the amendment. Except as provided above, all other terms of Mr. Tolbert’s dutiesEmployment Agreement remain in effect and authorities include those typically associated with the office of executive vice president and chief sales officer and Mr. Tolbert has agreed to devote all of his business time to our affairs.
Name | Fees Earned | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | Deferred Compensation Earnings | All Other Compensation | Total | |||||||||||||||||||||
Ronald Linares | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||
David Jaques | - | - | 44,225 | (1) | - | - | - | 44,225 | ||||||||||||||||||||
Randall Smith | - | - | - | - | - | - | - | |||||||||||||||||||||
Fraser Clarke | - | - | 20,050 | (2) | - | - | - | 20,050 | ||||||||||||||||||||
David Souaid | - | - | 20,050 | (2) | - | - | - | 20,050 | ||||||||||||||||||||
Doug Schneider | - | - | 20,050 | (2) | - | - | - | 20,050 | ||||||||||||||||||||
John Harris | - | - | 26,733 | (3) | - | - | - | 26,733 | ||||||||||||||||||||
Non-Employee Director Compensation
2014 Director Compensation Table
| Name | Fees Earned | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | Deferred Compensation Earnings | All Other Compensation | Total | ||||||||||||||||
David Jaques | - | 65,868 | (1) | - | - | - | 65,868 | ||||||||||||||||
David Jaques | - | 54,054 | (2) | - | - | - | 54,054 | ||||||||||||||||
Doug Schneider | - | 65,868 | (1) | - | - | - | 65,868 | ||||||||||||||||
Doug Schneider | - | 50,676 | (2) | - | - | - | 50,676 | ||||||||||||||||
John Harris | - | 79,998 | (1) | - | - | - | 79,998 | ||||||||||||||||
John Harris | - | 54,054 | (2) | - | - | - | 54,054 | ||||||||||||||||
Phil Guarascio | - | 51,997 | (1) | - | - | - | 51,997 | ||||||||||||||||
Phil Guarascio | - | 54,054 | (2) | - | - | - | 54,054 | ||||||||||||||||
William Van Epps | - | 33,355 | (1) | - | - | - | 33,355 | ||||||||||||||||
William Van Epps | - | 81,512 | (2) | - | - | - | 81,512 | ||||||||||||||||
| (1) | Compensation related to a restricted stock unit granted for services in 2014 of 297,086 shares. 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) settlement date of three years from date of grant, (B) a Change in Control of the Company, and (C) the termination of the holder’s employment with the Company. All 297,086 units are vested at December 31, 2014. |
| (2) | Compensation related to a restricted stock unit granted for services in 2015 of 294,350 shares. The shares of Common Stock associated with the restricted stock unit evidenced by this Agreement will, to the extent the holder’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) settlement date of three years from date of grant, (B) a Change in Control of the Company, and (C) the termination of the Participant’s employment with the Company. As of December 31, 2014, no units have vested. All units will equally vest monthly starting January 31, 2015 through to December 31, 2015. |
Narrative Disclosure to Director Compensation Table
Our non-employee directors were granted stock options as set forth in the director compensation table and notes thereto above as compensation for their service as directors. No other compensation was paid to the non-employee directors for their services. All of our directors will receive reimbursement for out-of-pocket expenses for attending board of directors meetings. In the future, our outside directors may receive an attendance fee for each meeting of the board of directors or other forms of compensation. From time to time, we may also engage certain future outside members of the board of directors to perform services on our behalf and we will compensate such persons for the services which they perform.
Outstanding Equity Awards at December 31, 20132014
The following table presents the outstanding option awards held by each of our named executive officers as of December 31, 2013,2014, including the value of the options awards.
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Equity Incentive Plan Awards; Number of Securities Underlying Unexercised Unearned Options (#) Unexercisable | Option Exercise Price | Option Expiration Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Equity Incentive Plan Awards; Number of Securities Underlying Unexercised Unearned Options (#) Unexercisable | Option Exercise Price | Option Expiration Date | |||||||||||||||||
Dennis Becker, CEO | 78,125 | 26,042 | $ | 1.92 | 12/24/2015 | 104,167 | - | $ | 1.92 | 12/24/2015 | |||||||||||||||
Dennis Becker, CEO | 156,497 | 1,095,482 | $ | 1.80 | 6/17/2023 | 469,492 | 782,487 | $ | 1.80 | 6/17/2023 | |||||||||||||||
Tom Tolbert, CSO | 278,217 | 1,112,870 | $ | 1.80 | 6/17/2023 | ||||||||||||||||||||
Alex Shah, CTO | - | 180,000 | $ | 1.40 | 02/27/2024 | ||||||||||||||||||||
Mike Bynum, President | 278,217 | 1,112,870 | $ | 1.80 | 6/17/2023 | ||||||||||||||||||||
Tom Tolbert, Former CSO | 657,292 | 342,708 | $ | 1.31 | 6/17/2023 | ||||||||||||||||||||
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 2013,2014, our compensation committee was comprised of Randall SmithJohn Harris and John Harris.Peter Brodsky until Mr. Brodsky’s resignation from the board on June 17, 2014. David Jaques was then appointed to the committee until he was replaced by William Van Epps on October 10, 2014. Mr. Harris currently serves as compensation committee chair. None of our executive officers serve on the board of directors of another entity, whose executive officers serves on our board of directors.
Limitation of Liability of Directors and Indemnification of Directors and Officers
We have entered into indemnity agreements with certain directors, officers and other key employees of ours under which we agreed to indemnify those individuals under the circumstances and to the extent provided for in the agreements, for expenses, damages, judgments, fines, settlements and any other amounts they may be required to pay in actions, suits or proceedings which they are or may be made a party or threatened to be made a party by reason of their position as a director, officer or other agent of ours, and otherwise to the fullest extent permitted under Nevada law and our bylaws. We also have an insurance policy covering our directors and executive officers with respect to certain liabilities, including liabilities arising under the Securities Act of 1933, as amended, or otherwise. We believe that these provisions and insurance coverage are necessary to attract and retain qualified directors, officers and other key employees.
Related Party Transactions, Promoters and Director Independence
We had no transactions or series of transactions since January 1, 2012, and we have no currently proposed transactions, to which we have been or are proposed to be a party, in which the amount involved in the transaction or series of transactions exceeds the lesser of $120,000 or one percent of the average of our total assets as of December 31, 20132014 and December 31, 2012,2013, and in which any of our directors, executive officers or persons who we know held more than five percent of any class of our capital stock, including their immediate family members, had or will have a direct or indirect material interest, other than as described below or compensation arrangements that are described under “Employment Agreements” above.
The board conducts an appropriate review of and oversees all related party transactions on a continuing basis and reviews potential conflict of interest situations where appropriate. The board has not adopted formal standards to apply when it reviews, approves or ratifies any related party transaction. However, the board has followed the following standards: (i) all related party transactions must be fair and reasonable to us and on terms comparable to those reasonably expected to be agreed to with independent third parties for the same goods and/or services at the time they are authorized by the board and (ii) all related party transactions should be authorized, approved or ratified by the affirmative vote of a majority of the directors who have no interest, either directly or indirectly, in any such related party transaction.
We consider David Jaques, Doug Schneider, Peter BrodskyJohn Harris and John HarrisPhillip Guarascio to be independent directors as such term is defined by the listing rules of the NasdaqNASDAQ Stock Market.
The table below sets forth the beneficial ownership of our common stock as of the date of this prospectus by:
| ● | All of our directors and executive officers, individually; |
● | All of our directors and executive officers, as a group; and |
● | All persons who beneficially owned more than 5% of our outstanding common stock. |
The beneficial ownership of each person was calculated based on 22,237,76227,864,078 shares of our common stock outstanding as of the date of this prospectus. The SEC has defined “beneficial ownership” to mean more than ownership in the usual sense. For example, a person has beneficial ownership of a share not only if he owns it in the usual sense, but also if he has the power (solely or shared) to vote, sell or otherwise dispose of the share. Beneficial ownership also includes the number of shares that a person has the right to acquire within 60 days of the date of this prospectus, pursuant to the exercise of options or warrants or the conversion of notes, debentures or other indebtedness, but excludes stock appreciation rights. Two or more persons might count as beneficial owners of the same share. Unless otherwise indicated, the address of each person or entity below is c/o the Company, 58 West Buffalo Road, Suite 200, Chandler, AZ 85225.
Name of Director or Executive Officer | Number of Shares | Percentage | ||||||
Dennis Becker (1) | 553,010 | 2.4% | ||||||
Timothy Schatz(2) | 185,160 | * | ||||||
Michael K. Bynum(3) | 559,027 | 2.5% | ||||||
David Jaques(4) | 57,098 | * | ||||||
Peter Brodsky(5) | 162,189 | * | ||||||
Doug Schneider(6) | 116,875 | * | ||||||
John Harris(7) | 83,210 | * | ||||||
| Phillip Guarascio | 31,250 | * | ||||||
| Tom Tolbert(8) | 726,510 | 3.2% | ||||||
*Jeff Hasen | 14,491 | * | ||||||
All Executive Officers and Directors as a Group (ten persons) | 2,488,820 | 10.4% | ||||||
| * Denotes less than 1% | ||||||||
Name and Address of 5% | Number of Shares | Percentage | ||||||
Jeffrey Porter(9) | 2,696,826 | 12.1% | ||||||
| 300 Drakes Landing Road, Suite 175 | ||||||||
Greenbrae, CA 94941 | ||||||||
| ACT Capital Management, LLLP) | 1,958,679 | 8.8% | ||||||
2 Radnor Corporate Center, Suite 111 | ||||||||
| Radnor, PA 19087 | ||||||||
| (1) Includes 425,097 shares underlying presently exercisable options and warrants. | ||||||||
| (2) Includes 149,377 shares underlying presently exercisable options and warrants. | ||||||||
| (3) Includes 446,760 shares underlying presently exercisable options and warrants. | ||||||||
| (4) Includes 32,098 shares underlying presently exercisable options and warrants. | ||||||||
| (5) Includes 125,000 shares owned by Brodsky Family Trust of which Mr. Brodsky may be deemed to be the beneficial owner in his capacity as trustee of that entity. Includes 5,813 shares underlying presently exercisable options. | ||||||||
| Name of Beneficial Owner | Number of Shares | Percentage | ||||||
Dennis Becker | 735,615 | 2.6% | ||||||
Christopher Meinerz | -- | -- | ||||||
Donna Mitchell | 125,000 | -- | ||||||
Deena McKinley | -- | -- | ||||||
Alex Shah | 93,750 | * | ||||||
| Tom Tolbert | 671,875 | 2.4% | ||||||
David Jaques | 76,179 | * | ||||||
| Doug Schneider | 17,792 | * | ||||||
John Harris | 142,654 | * | ||||||
| Phil Guarascio | 87,308 | * | ||||||
William Van Epps | 133,540 | * | ||||||
| Thomas Akin | 2,508,500 | 9.0 | % | |||||
Porter Partners LP | 2,332,723 | 8.4 | % | |||||
Executive Officers and Directors as a Group (12 persons) | 4,592,213 | 16.4 | % | |||||
* Denotes less than 1%
Common Stock
We are authorized to issue 50,000,000 shares of common stock. As of the date of this prospectus, there are 22,237,76227,864,078 shares of our common stock issued and outstanding. Except as described below, there are no other agreements or outstanding options, warrants or similar rights that entitle their holder to acquire from us any of our equity securities.
Holders of shares of common stock are entitled to one vote per share on all matters to be voted upon by the shareholders generally. Shareholders are entitled to receive such dividends as may be declared from time to time by the board of directors out of funds legally available therefore, and in the event of liquidation, dissolution or winding up of the company to share ratably in all assets remaining after payment of liabilities. The holders of shares of common stock have no preemptive, conversion, subscription rights or cumulative voting rights.
Dividends
We do not anticipate the payment of cash dividends on our common stock in the foreseeable future.
Stock Incentive Plans
We have adopted the 2010 Incentive Stock Plan providing for the grant of non-qualified stock options and incentive stock options to purchase shares of our common stock and for the grant of restricted share grants. We have reserved 520,667 shares of our common stock under the plan. The purpose of the plan is to provide eligible participants with an opportunity to acquire an ownership interest in our company. All officers, directors, employees and consultants to our company are eligible to participate under the plan. The plan provides that options may not be granted at an exercise price less than the fair market value of our common shares on the date of grant. As of the date of this prospectus, there are outstanding options which entitle their holders to purchase 476,667190,697 shares of our common stock at a weighted-average exercise price of $3.78$2.84 per share. All of the options are subject to vesting based on the holders’ continued service to the Company.
We have also adopted the Mobivity Holdings Corp. 2013 Stock Incentive Plan providing for the grant of non-qualified stock options and incentive stock options to purchase shares of our common stock and for the grant of restricted share grants. We have reserved 5,564,348 shares of our common stock under the plan. The purpose of the plan is to provide eligible participants with an opportunity to acquire an ownership interest in our company. All officers, directors, employees and consultants to our company are eligible to participate under the plan. The plan provides that options may not be granted at an exercise price less than the fair market value of our common shares on the date of grant. As of the date of this prospectus, there are outstanding options which entitle their holders to purchase 6,075,9645,170,961 shares of our common stock at a weighted-average exercise price of $2.02$1.29 per share. All of the options are subject to vesting based on the holders’ continued service to the Company.
Warrants
We entered into various private placements pursuant to which we have issued to investors and related placement agents warrants to purchase an aggregate of 8,258,043 shares of our common stock at an exercise price of $1.20 per share.
Transfer Agent
The transfer agent for our common stock is VStock Transfer, LLC, 77 Spruce Street, Suite 201, Cedarhurst,18 Lafayette Place, Woodmere, New York 11516.11598.
Certain legal matters with respect to the shares of common stock offered hereby will be passed upon for us by Greenberg Traurig, LLP, Irvine, California.
M&K CPAS, PLLC has audited, as set forth in their report appearing elsewhere in this prospectus, our financial statements as of and for the fiscal years ended December 31, 20132014 and 2012.2013. We have included our financial statements in the prospectus in reliance on M&K CPAS, PLLC’s report, given on their authority as experts in accounting and auditing.
Upon the effectiveness of our registration statement on Form S-1, of which this prospectus is made part, we will be subject to the informational requirements of the Securities Exchange Act of 1934 and, in accordance therewith, will file reports, proxy statements and other information with the SEC. Our reports, proxy statements and other information filed pursuant to the Securities Exchange Act of 1934 may be inspected and copied, at prescribed rates, at the Public Reference Room maintained by the SEC at 100 F. Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the SEC’s Web site is http://www.sec.gov.
We have filed with the SEC a registration statement on Form S-1 under the Securities Act of 1933 with respect to the common stock offered hereby. As permitted by the rules and regulations of the SEC, this prospectus, which is part of the registration statement, omits certain information, exhibits, schedules and undertakings set forth in the registration statement. Copies of the registration statement and the exhibits are on file with the SEC and may be obtained from the SEC’s Web site or upon payment of the fee prescribed by the SEC, or may be examined, without charge, at the offices of the SEC set forth above. For further information, reference is made to the registration statement and its exhibits.
Mobivity Holdings Corp.
MOBIVITY HOLDINGS CORP. | Page(s) | |
| 50 | ||
| Consolidated Balance Sheets at December 31, 2014 and 2013 | 51 | |
Consolidated Statements of Operations for the Years Ended December 31, 2014 and 2013 | 52 | |
Consolidated Statement of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2014 and 2013 | 53 | |
| 54 | ||
Notes to the Consolidated Financial Statements | 55 | |
| Report of Independent Registered Public Accounting Firm | 82 | |
| Balance Sheets at December 31, 2013 and 2012 | 83 | |
| 84 | ||
| 85 | ||
| 86 | ||
| 87 | ||
Unaudited Pro Forma Condensed Consolidated Financial Statements | ||
| 104 | ||
| Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements | 107 |
To the Board of Directors
Mobivity Holdings Corp.
Chandler, AZ 85225
We have audited the accompanying consolidated balance sheets of Mobivity Holdings Corp. (the “Company”) as of December 31, 20132014 and 20122013 and the related statements of operations, stockholders' equity (deficit) and cash flows for the twelve month periods then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial positions of the Company as of December 31, 20132014 and 20122013 and the results of its operations and cash flows for the periods described above in conformity with accounting principles generally accepted in the United States of America.
/s/ M&K CPAS, PLLC
www.mkacpas.com
Houston, Texas
March 31, 20142015
Mobivity Holdings Corp.
Consolidated Balance Sheets
| December 31, 2013 | December 31, 2012 | December 31, 2014 | December 31, 2013 | |||||||||||||
| ASSETS | ||||||||||||||||
| Current assets | ||||||||||||||||
| Cash | $ | 2,572,685 | $ | 363 | $ | 848,230 | $ | 2,572,685 | ||||||||
| Accounts receivable, net of allowance for doubtful accounts of $65,975 and $44,700, respectively | 280,667 | 414,671 | ||||||||||||||
Accounts receivable, net of allowance for doubtful accounts of $90,869 and $65,975, respectively | 378,934 | 280,667 | ||||||||||||||
| Other current assets | 140,114 | 30,009 | 109,846 | 140,114 | ||||||||||||
| Total current assets | 2,993,466 | 445,043 | 1,337,010 | 2,993,466 | ||||||||||||
| Goodwill | 3,108,964 | 2,259,624 | 1,921,072 | 3,108,964 | ||||||||||||
| Intangible assets, net | 935,316 | 444,112 | 2,010,952 | 935,316 | ||||||||||||
| Other assets | 63,944 | 201,228 | 99,476 | 63,944 | ||||||||||||
| TOTAL ASSETS | $ | 7,101,690 | $ | 3,350,007 | $ | 5,368,510 | $ | 7,101,690 | ||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||||||||||
| Current liabilities | ||||||||||||||||
| Accounts payable | $ | 543,647 | $ | 514,949 | $ | 412,551 | $ | 543,648 | ||||||||
| Accrued interest | 16,943 | 321,368 | - | 16,943 | ||||||||||||
| Accrued and deferred personnel compensation | 191,041 | 299,534 | 185,214 | 191,041 | ||||||||||||
| Deferred revenue - related party | - | 35,262 | ||||||||||||||
| Deferred revenue and customer deposits | 136,523 | 181,731 | 180,941 | 136,523 | ||||||||||||
| Convertible notes payable, net of discount | - | 2,857,669 | ||||||||||||||
| Notes payable | 20,000 | 171,984 | - | 20,000 | ||||||||||||
| Derivative liabilities | 106,176 | 3,074,504 | 42,659 | 106,176 | ||||||||||||
| Other current liabilities | 36,372 | 250,144 | 43,525 | 36,372 | ||||||||||||
| Earn-out payable | 34,755 | 2,032,881 | 840,000 | 34,755 | ||||||||||||
| Total current liabilities | 1,085,458 | 9,740,026 | 1,704,890 | 1,085,458 | ||||||||||||
| Non-current liabilities | ||||||||||||||||
| Earn-out payable | 24,245 | - | - | 24,245 | ||||||||||||
| Total non-current liabilities | 24,245 | - | - | 24,245 | ||||||||||||
| Total liabilities | 1,109,703 | 9,740,026 | 1,704,890 | 1,109,703 | ||||||||||||
| Commitments and Contingencies (See Note 9) | ||||||||||||||||
Commitments and Contingencies (See Note 11) | ||||||||||||||||
| Stockholders' equity (deficit) | ||||||||||||||||
| Common stock, $0.001 par value; 50,000,000 shares authorized;16,319,878 and 3,869,688 shares issued and outstanding | 16,320 | 3,870 | ||||||||||||||
Common stock, $0.001 par value; 50,000,000 shares authorized; 22,748,193 and 16,319,878 shares issued and outstanding | 22,748 | 16,320 | ||||||||||||||
| Equity payable | 108,170 | - | 100,862 | 108,170 | ||||||||||||
| Additional paid-in capital | 54,452,697 | 25,432,280 | 62,565,974 | 54,452,697 | ||||||||||||
| Accumulated deficit | (48,585,200 | ) | (31,826,169 | ) | (59,025,964 | ) | (48,585,200 | ) | ||||||||
| Total stockholders' equity (deficit) | 5,991,987 | (6,390,019 | ) | 3,663,620 | 5,991,987 | |||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $ | 7,101,690 | $ | 3,350,007 | $ | 5,368,510 | $ | 7,101,690 | ||||||||
See accompanying notes to consolidated financial statements.
Mobivity Holdings Corp.
Consolidated Statements of Operations
| Years ended December 31, | ||||||||
| 2014 | 2013 | |||||||
| Revenues | ||||||||
Revenues | $ | 4,000,202 | $ | 4,093,667 | ||||
Cost of revenues | 1,066,917 | 1,122,037 | ||||||
Gross margin | 2,933,285 | 2,971,630 | ||||||
Operating expenses | ||||||||
General and administrative | 4,270,844 | 3,416,850 | ||||||
Sales and marketing | 3,895,033 | 3,469,383 | ||||||
Engineering, research, and development | 1,346,198 | 824,653 | ||||||
Depreciation and amortization | 416,436 | 270,579 | ||||||
Goodwill impairment | 4,078,693 | 1,066,068 | ||||||
Intangible asset impairment | 961,436 | 644,170 | ||||||
Total operating expenses | 14,968,640 | 9,691,703 | ||||||
Loss from operations | (12,035,355 | ) | (6,720,073 | ) | ||||
Other income/(expense) | ||||||||
Interest income | 2,131 | 747 | ||||||
Interest expense | - | (6,348,186 | ) | |||||
Change in fair value of derivative liabilities | 63,517 | (3,766,231 | ) | |||||
Gain on debt extinguishment | 36,943 | 103,177 | ||||||
Gain (loss) on adjustment in contingent consideration | 1,492,000 | (28,465 | ) | |||||
Total other income/(expense) | 1,594,591 | (10,038,958 | ) | |||||
Loss before income taxes | (10,440,764 | ) | (16,759,031 | ) | ||||
Income tax expense | - | - | ||||||
Net loss | $ | (10,440,764 | ) | $ | (16,759,031 | ) | ||
Net loss per share - basic and diluted | $ | (0.49 | ) | $ | (1.58 | ) | ||
Weighted average number of shares during the period - basic and diluted | 21,203,563 | 10,612,007 | ||||||
See accompanying notes to consolidated financial statements.
Mobivity Holdings Corp.
Consolidated Statement of Stockholders' Equity (Deficit)
| Common Stock | Equity | Additional | Accumulated | Total Stockholders' | ||||||||||||||||||||
| Shares | Dollars | Payable | Paid-in Capital | Deficit | Equity (Deficit) | |||||||||||||||||||
Balance, December 31, 2012 | 3,869,6888 | $ | 3,870 | $ | - | $ | 25,432,280 | $ | (31,826,169 | ) | $ | (6,390,019 | ) | |||||||||||
Shares issued for Boomtext earn-out payment | 247,279 | 247 | - | 2,210,420 | - | 2,210,667 | ||||||||||||||||||
Issuance of common stock for acquisitions | 1,291,667 | 1,292 | - | 1,294,768 | - | 1,296,060 | ||||||||||||||||||
Issuance of common stock for cash, net of transaction costs of $602,823 | 6,250,000 | 6,250 | - | 6,890,927 | - | 6,897,177 | ||||||||||||||||||
Issuance of common stock for conversion of note principal and interest | 4,462,089 | 4,462 | - | 5,350,044 | - | 5,354,506 | ||||||||||||||||||
Issuance of common stock and warrants for services | 31,292 | 31 | 7,308 | 98,799 | - | 106,138 | ||||||||||||||||||
Issuance of common stock for allonge | 87,947 | 88 | - | 131,160 | - | 131,248 | ||||||||||||||||||
Adjustment of derivative liability for note conversion | - | - | 218,446 | 10,726,967 | - | 10,945,413 | ||||||||||||||||||
Adjustment of derivative liability for note repayment | - | - | - | 40,511 | - | 40,511 | ||||||||||||||||||
Adjustment of derivative liability for non-employee warrant conversion | - | - | - | 176,555 | - | 176,555 | ||||||||||||||||||
Issuance of common stock and warrants for equity payable | 39,382 | 40 | (117,584 | ) | 117,544 | - | - | |||||||||||||||||
Issuance of common stock for accrued bonuses | 19,271 | 19 | - | 36,981 | - | 37,000 | ||||||||||||||||||
Issuance of common stock for cashless exercise of warrants | 21,171 | 21 | - | 55,525 | - | 55,546 | ||||||||||||||||||
Stock based compensation | - | - | - | 1,890,216 | - | 1,890,216 | ||||||||||||||||||
Share rounding in reverse split | 92 | - | - | - | - | - | ||||||||||||||||||
Net loss | - | - | - | - | (16,759,031 | ) | (16,759,031 | ) | ||||||||||||||||
Balance, December 31, 2013 | 16,319,878 | $ | 16,320 | $ | 108,170 | $ | 54,452,697 | $ | (48,585,200 | ) | $ | 5,991,987 | ||||||||||||
Issuance of common stock for financing, net of transaction costs of $448,635 | 5,413,000 | 5,413 | - | 4,971,717 | - | 4,977,130 | ||||||||||||||||||
Issuance of common stock for acquisitions | 504,884 | 505 | - | 672,000 | - | 672,505 | ||||||||||||||||||
Issuance of common stock and warrants for services | 510,431 | 510 | (7,308 | ) | 536,225 | - | 529,427 | |||||||||||||||||
Stock based compensation | - | - | - | 1,933,335 | - | 1,933,335 | ||||||||||||||||||
Net loss | (10,440,764 | ) | (10,440,764 | ) | ||||||||||||||||||||
Balance, December 31, 2014 | 22,748,193 | $ | 22,748 | $ | 100,862 | $ | 62,565,974 | $ | (59,025,964 | ) | $ | 3,663,620 | ||||||||||||
See accompanying notes to consolidated financial statements.
Mobivity Holdings Corp.
Consolidated Statements of Cash Flows
| Years ended December 31, | ||||||||
| 2014 | 2013 | |||||||
| OPERATING ACTIVITIES | ||||||||
Net loss | $ | (10,440,764 | ) | $ | (16,759,031 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
Bad debt expense | 4,514 | 32,858 | ||||||
Common stock and warrants issued for services | 529,427 | 106,138 | ||||||
Stock-based compensation | 1,933,335 | 1,890,216 | ||||||
Depreciation and amortization expense | 416,435 | 270,579 | ||||||
Loss (Gain) on adjustment in contingent consideration | (1,492,000 | ) | 28,465 | |||||
Loss on disposal of assets | 680 | - | ||||||
Gain on debt extinguishment | (36,943 | ) | - | |||||
Change in fair value of derivative liabilities | (63,517 | ) | 3,766,231 | |||||
Amortization of note discounts | - | 6,134,367 | ||||||
Goodwill impairment | 4,078,693 | 1,066,068 | ||||||
Intangible asset impairment | 961,436 | 644,170 | ||||||
Increase (decrease) in cash resulting from changes in: | ||||||||
Accounts receivable | 58,883 | 128,613 | ||||||
Other current assets | 30,268 | (104,605 | ) | |||||
Other assets | (1,835 | ) | 27,300 | |||||
Accounts payable | (131,098 | ) | (17,521 | ) | ||||
Accrued interest | - | 65,361 | ||||||
Accrued and deferred personnel compensation | (5,827 | ) | (71,493 | ) | ||||
Deferred revenue - related party | - | (35,262 | ) | |||||
Deferred revenue and customer deposits | (147,142 | ) | (45,208 | ) | ||||
Other liabilities | 7,153 | (76,134 | ) | |||||
Net cash used in operating activities | (4,298,302 | ) | (2,948,888 | ) | ||||
INVESTING ACTIVITIES | ||||||||
Purchases of equipment | (35,264 | ) | (51,285 | ) | ||||
Acquisition of intangible assets | - | (15,000 | ) | |||||
Acquisitions | (2,368,019 | ) | (400,000 | ) | ||||
Net cash used in investing activities | (2,403,283 | ) | (466,285 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Proceeds from issuance of notes payable, net of finance offering costs | - | 700,000 | ||||||
Payments on notes payable | - | (1,609,682 | ) | |||||
Proceeds from issuance of common stock, net of issuance costs | 4,977,130 | 6,897,177 | ||||||
Net cash provided by financing activities | 4,977,130 | 5,987,495 | ||||||
Net change in cash | (1,724,455 | ) | 2,572,322 | |||||
Cash at beginning of period | 2,572,685 | 363 | ||||||
Cash at end of period | $ | 848,230 | $ | 2,572,685 | ||||
Supplemental disclosures: | ||||||||
Cash paid during period for : | ||||||||
Interest | $ | - | $ | 146,973 | ||||
Non-cash investing and financing activities: | ||||||||
Debt discount from derivatives | $ | - | $ | 4,614,714 | ||||
Adjustment to derivative liability due to note repayment | $ | - | $ | 40,511 | ||||
Adjustment to derivative liability due to note conversion | $ | - | $ | 10,726,967 | ||||
Adjustment to derivative liability due to Allonge / ASID conversion | $ | - | $ | 349,694 | ||||
Adjustment to derivative liability due to non-employee warrant conversion | $ | - | $ | 176,555 | ||||
Issuance of common stock for Boomtext earn-out | $ | - | $ | 2,210,667 | ||||
Issuance of common stock for acquisitions | $ | 672,505 | $ | 1,296,060 | ||||
Issuance of common stock for accrued bonuses | $ | - | $ | 37,000 | ||||
Issuance of common stock for cashless exercise of warrants | $ | - | $ | 55,546 | ||||
Issuance of note payable for acquisition | $ | - | $ | 1,365,096 | ||||
Earn-out payable recorded for acquisition | $ | 2,273,000 | $ | 224,000 | ||||
Conversion of notes payable into common stock | $ | - | $ | 4,984,720 | ||||
Conversion of accrued interest into common stock | $ | - | $ | 369,786 | ||||
Settlement of working capital asset related to the Boomtext acquisition | $ | - | $ | 153,317 | ||||
See accompanying notes to consolidated financial statements.
Mobivity HoldingsHoldings Corp.
| Years ended December 31, | ||||||||
| 2013 | 2012 | |||||||
| Revenues | ||||||||
| Revenues | $ | 4,093,667 | $ | 4,079,745 | ||||
| Cost of revenues | 1,122,037 | 1,300,325 | ||||||
| Gross margin | 2,971,630 | 2,779,420 | ||||||
| Operating expenses | ||||||||
| General and administrative | 3,416,850 | 2,984,118 | ||||||
| Sales and marketing | 3,469,383 | 1,562,933 | ||||||
| Engineering, research, and development | 824,653 | 562,459 | ||||||
| Depreciation and amortization | 270,579 | 549,151 | ||||||
| Goodwill impairment | 1,066,068 | 742,446 | ||||||
| Intangible asset impairment | 644,170 | 145,396 | ||||||
| Total operating expenses | 9,691,703 | 6,546,503 | ||||||
| Loss from operations | (6,720,073 | ) | (3,767,083 | ) | ||||
| Other income/(expense) | ||||||||
| Interest income | 747 | 2,833 | ||||||
| Interest expense | (6,348,186 | ) | (4,559,564 | ) | ||||
| Change in fair value of derivative liabilities | (3,766,231 | ) | 359,530 | |||||
| Gain on debt extinguishment | 103,177 | - | ||||||
| Gain (loss) on adjustment in contingent consideration | (28,465 | ) | 625,357 | |||||
| Total other income/(expense) | (10,038,958 | ) | (3,571,844 | ) | ||||
| Loss before income taxes | (16,759,031 | ) | (7,338,927 | ) | ||||
| Income tax expense | - | - | ||||||
| Net loss | $ | (16,759,031 | ) | $ | (7,338,927 | ) | ||
| Net loss per share - basic and diluted | $ | (1.58 | ) | $ | (1.90 | ) | ||
Weighted average number of shares during the period - basic and diluted | 10,612,007 | 3,869,247 | ||||||
| Common Stock | Equity | Additional | Accumulated | Total Stockholders' | ||||||||||||||||||||
| Shares | Dollars | Payable | Paid-in Capital | Deficit | Equity (Deficit) | |||||||||||||||||||
| Balance, December 31, 2011 | 3,792,385 | $ | 3,792 | $ | - | $ | 21,118,251 | $ | (24,487,242 | ) | $ | (3,365,199 | ) | |||||||||||
| Issuance of common stock for services | 37,500 | 38 | - | 269,962 | - | 270,000 | ||||||||||||||||||
| Issuance of common stock for late payment penalty | 39,241 | 39 | - | 160,429 | - | 160,468 | ||||||||||||||||||
| Adjustment to derivative liability due to note repayment | 562 | 1 | - | 1,373 | - | 1,374 | ||||||||||||||||||
| Adjustment of derivative liability due to note repayment | - | - | - | 67,958 | - | 67,958 | ||||||||||||||||||
| Adjustment to derivative liability due to note conversion | - | - | - | 3,421,579 | - | 3,421,579 | ||||||||||||||||||
| Adjustment to derivative liability due to warrant cancellation | - | - | - | 1,318 | - | 1,318 | ||||||||||||||||||
| Stock based compensation | - | - | - | 391,410 | - | 391,410 | ||||||||||||||||||
| Net loss | - | - | - | (7,338,927 | ) | (7,338,927 | ) | |||||||||||||||||
| Balance, December 31, 2012 | 3,869,688 | 3,870 | - | 25,432,280 | (31,826,169 | ) | (6,390,019 | ) | ||||||||||||||||
| Shares issued for Boomtext earn-out payment | 247,279 | 247 | - | 2,210,420 | - | 2,210,667 | ||||||||||||||||||
| Issuance of common stock for acquisitions | 1,291,667 | 1,292 | - | 1,294,768 | - | 1,296,060 | ||||||||||||||||||
| Issuance of common stock for cash, net of transaction costs of $602,823 | 6,250,000 | 6,250 | - | 6,890,927 | - | 6,897,177 | ||||||||||||||||||
| Issuance of common stock for conversion of note principal and interest | 4,462,089 | 4,462 | - | 5,350,044 | - | 5,354,506 | ||||||||||||||||||
| Issuance of common stock and warrants for services | 31,292 | 31 | 7,308 | 98,799 | - | 106,138 | ||||||||||||||||||
| Issuance of common stock for allonge | 87,947 | 88 | - | 131,160 | - | 131,248 | ||||||||||||||||||
| Adjustment of derivative liability for note conversion | - | - | 218,446 | 10,726,967 | - | 10,945,413 | ||||||||||||||||||
| Adjustment of derivative liability for note repayment | - | - | - | 40,511 | - | 40,511 | ||||||||||||||||||
| Adjustment of derivative liability for non-employee warrant conversion | - | - | - | 176,555 | - | 176,555 | ||||||||||||||||||
| Issuance of common stock and warrants for equity payable | 39,382 | 40 | (117,584 | ) | 117,544 | - | - | |||||||||||||||||
| Issuance of common stock for accrued bonuses | 19,271 | 19 | - | 36,981 | - | 37,000 | ||||||||||||||||||
| Issuance of common stock for cashless exercise of warrants | 21,171 | 21 | - | 55,525 | - | 55,546 | ||||||||||||||||||
| Stock based compensation | - | - | - | 1,890,216 | - | 1,890,216 | ||||||||||||||||||
| Share rounding in reverse split | 92 | - | - | - | - | - | ||||||||||||||||||
| Net loss | - | - | - | - | (16,759,031 | ) | (16,759,031 | ) | ||||||||||||||||
| Balance, December 31, 2013 | 16,319,878 | $ | 16,320 | $ | 108,170 | $ | 54,452,697 | $ | (48,585,200 | ) | $ | 5,991,987 | ||||||||||||
| Years ended December 31, | ||||||||
| 2013 | 2012 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (16,759,031 | ) | $ | (7,338,927 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Bad debt expense | 32,858 | 115,059 | ||||||
| Common stock and warrants issued for services | 106,138 | 270,000 | ||||||
| Common stock issued for late payment | - | 160,468 | ||||||
| Stock-based compensation | 1,890,216 | 391,410 | ||||||
| Depreciation and amortization expense | 270,579 | 549,151 | ||||||
| Gain (Loss) on adjustment in contingent consideration | 28,465 | (625,357 | ) | |||||
| Change in fair value of derivative liabilities | 3,766,231 | (359,530 | ) | |||||
| Amortization of deferred financing costs | - | 263,255 | ||||||
| Amortization of note discounts | 6,134,367 | 3,935,108 | ||||||
| Goodwill impairment | 1,066,068 | 742,446 | ||||||
| Intangible asset impairment | 644,170 | 145,396 | ||||||
| Loss on sale of assets | - | 164 | ||||||
| Increase (decrease) in cash resulting from changes in: | ||||||||
| Accounts receivable | 128,613 | (285,884 | ) | |||||
| Other current assets | (104,605 | ) | (29,460 | ) | ||||
| Other assets | 27,300 | 9,929 | ||||||
| Accounts payable | (17,521 | ) | (327,828 | ) | ||||
| Accrued interest | 65,361 | 335,035 | ||||||
| Accrued and deferred personnel compensation | (71,493 | ) | 61,843 | |||||
| Deferred revenue - related party | (35,262 | ) | (164,738 | ) | ||||
| Deferred revenue and customer deposits | (45,208 | ) | 55,206 | |||||
| Other liabilities | (76,134 | ) | (120,929 | ) | ||||
| Net cash used in operating activities | (2,948,888 | ) | (2,218,183 | ) | ||||
| INVESTING ACTIVITIES | ||||||||
| Purchases of equipment | (51,285 | ) | (11,112 | ) | ||||
| Acquisition of intangible assets | (15,000 | ) | - | |||||
| Acquisitions | (400,000 | ) | - | |||||
| Net cash used in investing activities | (466,285 | ) | (11,112 | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Proceeds from issuance of notes payable, net of finance offering costs | 700,000 | 3,148,470 | ||||||
| Payments on notes payable | (1,609,682 | ) | (831,708 | ) | ||||
| Payments on cash payment obligation | - | (87,500 | ) | |||||
| Proceeds from issuance of common stock, net of issuance costs | 6,897,177 | - | ||||||
| Net cash provided by financing activities | 5,987,495 | 2,229,262 | ||||||
| Net change in cash | 2,572,322 | (33 | ) | |||||
| Cash at beginning of period | 363 | 396 | ||||||
| Cash at end of period | $ | 2,572,685 | $ | 363 | ||||
| Supplemental disclosures: | ||||||||
| Cash paid during period for : | ||||||||
| Interest | $ | 146,973 | $ | 33,385 | ||||
| Non-cash investing and financing activities: | ||||||||
| Debt discount from derivatives | $ | 4,614,714 | $ | 5,352,404 | ||||
| Adjustment to derivative liability due to note repayment | $ | 40,511 | $ | 1,374 | ||||
| Adjustment to derivative liability due to note conversion | $ | 10,726,967 | $ | 3,421,579 | ||||
| Adjustment to derivative liability due to Allonge / ASID conversion | $ | 349,694 | $ | - | ||||
| Adjustment to derivative liability due to non-employee warrant conversion | $ | 176,555 | $ | - | ||||
| Adjustment to derivative liability due to warrant cancellation | $ | - | $ | 1,318 | ||||
| Issuance of common stock for Boomtext earn-out | $ | 2,210,667 | $ | - | ||||
| Issuance of common stock for acquisitions | $ | 1,296,060 | $ | - | ||||
| Issuance of common stock for accrued bonuses | $ | 37,000 | $ | - | ||||
| Issuance of common stock for cashless exercise of warrants | $ | 55,546 | $ | - | ||||
| Issuance of note payable for acquisition | $ | 1,365,096 | $ | - | ||||
| Earn-out payable recorded for acquisition | $ | 224,000 | $ | - | ||||
| Conversion of accrued interest into notes payable | $ | - | $ | 137,649 | ||||
| Conversion of notes payable into common stock | $ | 4,984,720 | $ | - | ||||
| Conversion of accrued interest into common stock | $ | 369,786 | $ | - | ||||
| Settlement of working capital asset related to the Boomtext acquisition | $ | 153,317 | $ | - | ||||
Notes to Consolidated FinancialFinancial 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 the Los Angeles Clippers, Dallas Cowboys, Chick-Fil-A,Sonic Drive-In, Subway, Jamba Juice, Chick-Fil-A, and others.
Our “C4” Mobile Marketing and Customer Relationship Management (CRM)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, (SMS), Multi-Media Messaging (MMS),or SMS, multi-media messaging, smartphone application development and Interactive Voice Response (IVR)interactive voice response interactions, all of which are facilitated via a set of Graphical User Interfaces (GUIs)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.
Liquidity
We have $2.6$0.8 million of cash as of December 31, 2013.2014. We had a net loss of $16.8$10.4 million for the year then ended, and we used $2.9$4.3 million of cash in our operating activities during 2013. On2014. In March 12, 2014, the Company2015, we conducted the first closingprivate placement of the transactions contemplated by the Securities Purchase Agreement described. As of March 28, 2014, the Company has sold 5,413,000 unitsour securities for the gross proceeds of $5,413,000. After cash paid in conjunction with acquisition of Smart Receipt and associated fees, we retained net proceeds of approximately $2,800,000.$4,805,000. Based on our projected 20142015 results and, if necessary, our ability to reduce certain variable operating expenses, we believe that our existing capital, together with anticipated cash flows from operations, will be sufficient to finance our operations through at least March 31, 2015.the first quarter of 2016.
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.
Reverse Stock Split
We effected a 1 for 6 reverse stock split of our authorizedoutstanding shares of common stock on November 12, 2013. As a result, the number of shares of common stock outstanding has been adjusted retrospectively to reflect the reverse stock split in all periods presented. Also, the exerciseAll historical share and share price and the number of common shares issuable under our share-based compensation plans and warrantsinformation have been adjusted retrospectively to reflectgive effect to the reverse stock split.
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, 20132014 and 2012,2013, we recorded an allowance for doubtful accounts of $65,975$90,869 and $44,700,$65,975, 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, 2013,2014, we had one customer whose balance represented 23% of total accounts receivable. As of December 31, 2012,2013, we had one customer whose balance represented 43%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, 20132014 and 2012.2013. As a result of these tests, we recorded impairment charges to our goodwill during the years ended December 31, 2014 and 2013 of $4,078,693 and 2012 of $1,066,068, and $742,446, 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 two to twenty years. No significant residual value is estimated for intangible assets.
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.
The Company’s evaluation of its long-lived assets completed during the years ended December 31, 20132014 and 20122013 resulted in impairment charges of $961,436 and $644,170, and $145,396, respectively.
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 “C4”SmartReceipt and C4 Mobile Marketing and Customer Relationship Management (CRM) and Txtstation Control Center platformscustomer relationship management are hosted solutions. We generate revenue from licensing our software to clients in our software as a service (SaaS) 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 years ended December 31, 20132014 and 2012,2013, one customer accounted for 31%29% and 14%31% of our revenues.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 20132014 and 20122013 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 $19,959$20,677 and $70,193$19,959 for years ended December 31, 20132014 and 2012,2013, 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, 20132014 and 20122013 which were excluded from the calculation because their effect was anti-dilutive.
| December 31, | December 31, | |||||||||||||||
| 2013 | 2012 | 2014 | 2013 | |||||||||||||
| Outstanding employee options | 5,672,464 | 325,846 | 5,399,320 | 5,672,464 | ||||||||||||
Outstanding restricted stock units | 591,436 | - | ||||||||||||||
| Outstanding non-employee warrants | 150,835 | 150,835 | 150,001 | 150,556 | ||||||||||||
| Outstanding warrants | 5,187,587 | 140,372 | 7,019,840 | 5,187,587 | ||||||||||||
| 11,010,886 | 617,053 | 13,160,597 | 11,010,607 | |||||||||||||
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 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.
In July 2013, the FASB issued ASU No. 2013-11: Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The new guidance requires that unrecognized tax benefits be presented on a net basis with the deferred tax assets for such carryforwards. This new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2013. We do not expect the adoption of the new provisions to have a material impact on our financial condition or results of operations.
In February 2013, FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to:
| - | Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period; and |
| - | Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense. |
The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 did not have a material impact on our financial position or results of operations.
In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 did not have a material impact on our financial position or results of operations.
2. Acquisitions during Fiscal Year Ended December 31, 2013
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.
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 upon the value of the tangible and intangible assets acquired as determined by an independent valuation firm.
| (a) | Represents stock based compensation in conjunction with the transaction. |
The following information presents unaudited pro forma consolidated results of operations for the year ended December 31, 2013 as if the SmartReceipt acquisition described above had occurred on January 1, 2013. The following unaudited pro forma financial information gives effect to certain adjustments, including the increase in stock based compensation expense that had not been valued prior to acquisition. The pro forma financial information is not necessarily indicative of the operating results that would have occurred if the acquisition been consummated as of the date indicated, nor are they necessarily indicative of future operating results.
Mobivity Holdings Corp.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the year ended December 31, 2013
| Mobivity | SR | Pro forma adjustments | Pro forma combined | |||||||||||||
| Revenues | ||||||||||||||||
Revenues | $ | 4,093,667 | $ | 834,250 | $ | - | $ | 4,927,917 | ||||||||
Cost of revenues | 1,122,037 | 243,209 | - | 1,365,246 | ||||||||||||
Gross margin | 2,971,630 | 591,041 | - | 3,562,671 | ||||||||||||
Operating expenses | ||||||||||||||||
General and administrative | 3,416,850 | 211,271 | 446,094 | (a) | 4,074,215 | |||||||||||
Sales and marketing | 3,469,383 | 339,615 | - | 3,808,998 | ||||||||||||
Engineering, research, and development | 824,653 | 644,330 | - | 1,468,983 | ||||||||||||
Depreciation and amortization | 270,579 | 3,970 | - | 274,549 | ||||||||||||
Goodwill impairment | 1,066,068 | - | - | 1,066,068 | ||||||||||||
Intangible asset impairment | 644,170 | - | - | 644,170 | ||||||||||||
Total operating expenses | 9,691,703 | 1,199,186 | 446,094 | 11,336,983 | ||||||||||||
Loss from operations | (6,720,073 | ) | (608,145 | ) | (446,094 | ) | (7,774,312 | ) | ||||||||
Other income/(expense) | �� | |||||||||||||||
Interest income | 747 | - | - | 747 | ||||||||||||
Interest expense | (6,348,186 | ) | (117,944 | ) | - | (6,466,130 | ) | |||||||||
Change in fair value of derivative liabilities | (3,766,231 | ) | - | - | (3,766,231 | ) | ||||||||||
Gain on Debt Extinguishment | 103,177 | - | - | 103,177 | ||||||||||||
Loss on adjustment in contingent consideration | (28,465 | ) | - | - | (28,465 | ) | ||||||||||
Total other income/(expense) | (10,038,958 | ) | (117,944 | ) | - | (10,156,902 | ) | |||||||||
Loss before income taxes | (16,759,031 | ) | (726,089 | ) | (446,094 | ) | (17,931,214 | ) | ||||||||
Income tax expense | - | - | - | - | ||||||||||||
Net loss | $ | (16,759,031 | ) | $ | (726,089 | ) | $ | (446,094 | ) | $ | (17,931,214 | ) | ||||
Net loss per share - basic and diluted | $ | (1.58 | ) | $ | (1.61 | ) | ||||||||||
Weighted average number of shares during the period - basic and diluted | 10,612,007 | 11,116,891 | ||||||||||||||
Pro Forma Adjustments
The following pro forma adjustments are based upon the value of the tangible and intangible assets acquired as determined by an independent valuation firm.
| (a) | Represents stock based compensation in conjunction with the transaction. |
Front Door Insights
We acquired certain assets and liabilities of Front Door Insights, LLC (“FDI”) in May 2013 pursuant to an asset purchase agreement. The assets acquired and liabilities assumed from FDI consisted of cash on hand, accounts receivable, all rights under all contracts other than excluded contracts, prepaid expenses, all technology and intellectual property rights, accounts payable, and obligations under a commercial lease.
The asset purchase agreement included a working capital adjustment pursuant to which the number of shares issuable to FDI would be increased, or decreased, in the event the working capital of FDI exceeded, or was less than, $10,000, respectively, as of the closing. The working capital adjustment was immaterial and was settled in cash.
The asset purchase agreement contained customary representations, warranties and covenants by the parties, including each party’s agreement to indemnify the other against any claims or losses arising from their breach of the asset purchase agreement. FDI and its members have also agreed that for a period of three years following the closing not to engage in the business of providing interactive mobile marketing platforms or services or to solicit the pre-closing clients, vendors or employees of FDI, except in each case on our behalf.
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 consideration to assets acquired and liabilities assumed was as follows:
Cash | $ | 5,500 | ||
Accounts receivable | 27,467 | |||
Contracts | 813,000 | |||
Customer relationships | 22,000 | |||
Developed technology | 96,000 | |||
Non-compete agreement | 124,000 | |||
Goodwill | 1,535,658 | |||
Total assets acquired | 2,623,625 | |||
Liabilities assumed | (46,219 | ) | ||
Net assets acquired | $ | 2,577,406 |
The following information presents unaudited pro forma consolidated results of operations for the twelve months ended December 31, 2013 as if the FDI acquisition described above had occurred on January 1, 2013, and the results of operations for the year ended December 31, 2012 as if the FDI acquisition described above had occurred on January 1, 2012.2013. The following unaudited pro forma financial information gives effect to certain adjustments, including the increase in compensation expense related to additional head-count and amortization of acquired intangible assets. 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. The unaudited pro forma financial information is as follows:
| (Unaudited) | (Unaudited) | |||||||||||
| Year ended December 31, | Year ended December 31, | |||||||||||
| 2013 | 2012 | 2013 | ||||||||||
| Total revenues | $ | 4,255,947 | $ | 4,427,542 | $ | 4,255,947 | ||||||
| Net loss | $ | (17,120,236 | ) | $ | (9,533,541 | ) | $ | (17,120,236 | ) | |||
| Basic and diluted loss per share | $ | (1.55 | ) | $ | (0.32 | ) | $ | (1.55 | ) | |||
Sequence (Stampt)
We acquired certain assets of Sequence, LLC (“Sequence”) in May 2013 pursuant to an asset purchase agreement. The assets acquired consisted of all application software, URL’s, websites, trademarks, brands, customers and customer lists. We assumed no liabilities in the transaction.
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 consideration to the assets acquired was as follows:
Merchant relationships | $ | 181,000 | ||
Trade name | 76,000 | |||
Developed technology | 71,000 | |||
Goodwill | 379,750 | |||
Total assets acquired | $ | 707,750 |
Pro forma results of operations are not presented due to the investment test not reaching the level of a significant acquisition.
3. Goodwill and Intangible Assets
Goodwill
The following table presents goodwill and impairment for the years ended December 31, 20132014 and 2012:2013:
| Goodwill | Goodwill | |||||||
| December 31, 2011 | $ | 3,002,070 | ||||||
| Acquired | - | |||||||
| Impairment | (742,446 | ) | ||||||
| December 31, 2012 | 2,259,624 | $ | 2,259,624 | |||||
| Acquired | 1,915,408 | 1,915,408 | ||||||
| Impairment | (1,066,068 | ) | (1,066,068 | ) | ||||
| December 31, 2013 | $ | 3,108,964 | 3,108,964 | |||||
Acquired | 2,890,801 | |||||||
Impairment | (4,078,693 | ) | ||||||
December 31, 2014 | $ | 1,921,072 | ||||||
We conducted our annual impairment test of goodwill as of December 31, 20132014 and 2012,2013, which resulted in impairment charges of $1,066,068$4,078,693 and $742,446,$1,066,068, respectively.
Intangible assets
The following table presents components of identifiable intangible assets for the years ended December 31, 20132014 and 2012:2013:
| December 31, 2013 | December 31, 2012 | December 31, 2014 | December 31, 2013 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization and Impairment | Net Carrying Amount | Weighted Average Useful Life (Years) | Gross Carrying Amount | Accumulated Amortization and Impairment | Net Carrying Amount | Weighted Average Useful Life (Years) | 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 | $ | 142,000 | $ | (23,902 | ) | $ | 118,098 | 20.00 | $ | 127,000 | $ | (15,381 | ) | $ | 111,619 | 20.00 | $ | 142,000 | $ | (33,048 | ) | $ | 108,952 | 20 | $ | 142,000 | $ | (23,902 | ) | $ | 118,098 | 20.00 | ||||||||||||||||||||||||||||||||
| Customer contracts | 1,069,900 | (528,372 | ) | 541,528 | 5.88 | 256,900 | (178,135 | ) | 78,765 | 5.00 | 628,502 | (628,502 | ) | - | - | 1,069,900 | (528,372 | ) | 541,528 | 5.88 | ||||||||||||||||||||||||||||||||||||||||||||
| Customer and merchant relationships | 1,128,583 | (1,128,583 | ) | - | 4.78 | 925,583 | (896,527 | ) | 29,056 | 3.74 | 2,830,139 | (1,290,139 | ) | 1,540,000 | 10 | 1,128,583 | (1,128,583 | ) | - | 4.78 | ||||||||||||||||||||||||||||||||||||||||||||
| Trade name | 199,750 | (177,359 | ) | 22,391 | 5.00 | 123,750 | (93,162 | ) | 30,588 | 5.00 | 353,192 | (201,192 | ) | 152,000 | 10 | 199,750 | (177,359 | ) | 22,391 | 5.00 | ||||||||||||||||||||||||||||||||||||||||||||
| Acquired technology | 573,550 | (391,252 | ) | 182,298 | 4.72 | 406,550 | (213,091 | ) | 193,459 | 4.61 | 686,135 | (476,135 | ) | 210,000 | 10 | 573,550 | (391,252 | ) | 182,298 | 4.72 | ||||||||||||||||||||||||||||||||||||||||||||
| Non-compete agreement | 132,083 | (61,082 | ) | 71,001 | 2.90 | 8,083 | (7,458 | ) | 625 | 2.16 | 90,462 | (90,462 | ) | - | - | 132,083 | (61,082 | ) | 71,001 | 2.90 | ||||||||||||||||||||||||||||||||||||||||||||
| $ | 3,245,866 | $ | (2,310,550 | ) | $ | 935,316 | $ | 1,720,866 | $ | (1,403,754 | ) | $ | 444,112 | $ | 4,730,430 | $ | (2,719,478 | ) | $ | 2,010,952 | $ | 3,245,866 | $ | (2,310,550 | ) | $ | 935,316 | |||||||||||||||||||||||||||||||||||||
During the years ended December 31, 20132014 and 2012,2013, we recorded amortization expense related to our intangible assets of $262,626$408,928 and $526,998,$262,626, respectively, which is included in depreciation and amortization in the consolidated statement of operations.
During the years ended December 31, 20132014 and 2012,2013, we recorded impairment charges related to our intangible assets of $961,436 and $644,170, and $145,396 respectively.
Expected future intangible asset amortization as of December 31, 20132014 is as follows:
| Year ending December 31, | Amount | Amount | ||||||
| 2014 | $ | 211,574 | ||||||
| 2015 | 217,624 | $ | 214,769 | |||||
| 2016 | 139,692 | 214,769 | ||||||
| 2017 | 94,319 | 214,769 | ||||||
| 2018 | 88,470 | 214,769 | ||||||
2019 | 214,769 | |||||||
| Thereafter | 183,636 | 937,107 | ||||||
| Total | $ | 935,316 | $ | 2,010,952 | ||||
4. Derivative Liabilities
Related to convertible notes payable and underlying warrants
As discussed in Note 5 under Bridge Financing, we previously issued convertible notes payable that provided for the issuance of warrants to purchase our common stock at a future date. The conversion term for the convertible notes was variable based on certain factors. The number of warrants to be issued was based on the future price of our common stock.
As of December 31, 2012 and through June 17, 2013, the number of warrants to be issued was indeterminate. Due to the fact that the number of warrants issuable was indeterminate, the equity environment was tainted. Because the equity environment was tainted, we accounted for the variable maturity conversion feature (“VMCO”) and the additional share issuance feature (“ASID”) contained in the convertible notes payable as derivative liabilities on the issuance date of the convertible notes payable.
On June 17, 2013, we converted all of the outstanding convertible notes payable into shares of our common stock, and issued the warrants underlying the convertible notes payable. At that time, the taint on the equity environment was removed, and the derivative liabilities related to the VMCO and ASID totaling $7,792,657 were reclassified to equity.
Related to private placement shares and warrants
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 on August 15,in 2012 resulting in a gain of $236,369 during 2012. The derivative liability was reduced to zero and the gain was recorded as a change in the fair market value of the derivative liability. The down round protection for the warrant terminates when the warrant expires or is exercised.
Our derivative liabilities at December 31, 20132014 relate to these warrants.
Related to allonges
As discussed in Note 5 under Bridge Financing, all note holders with convertible notes payable maturing in February 2012 extended the maturity date through May 2012. As consideration to the note holders for the extension of the maturity date, we provided allonges which consisted of the accrued interest on each convertible note payable as of January 31, 2012. The allonges were convertible into shares of common stock at the latest financing price. The value of the allonges was recorded as a derivative liability at the issuance date.
In June 2013, the number of common shares issuable under the allonges was determined to be 87,947 and these shares were issued in July 2013.
Related to non-employee warrants
As discussed in Note 8, we previously accounted for warrants issued to non-employees as derivative liabilities. On June 17, 2013, the equity environment was no longer tainted and the value of the derivative liabilities related to the non-employee warrants totaling $176,555 was reclassified to equity.
Summary
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, 20132014 and 2012,2013, we recorded current derivative liabilities of $106,176$42,659 and $3,074,504,$106,176, respectively, which are detailed by instrument type in the table below.
The net change in fair value of the derivative liabilities for the years ended December 31, 20132014 and 20122013 was a loss of $3,766,231$63,517 and a gain of $359,530,$3,766,231, respectively.
The following table presents the derivative liabilities by instrument type as of December 31, 20132014 and 2012:2013:
| December 31, | ||||||||
| Derivative Value by Instrument Type | 2013 | 2012 | ||||||
| Convertible Bridge Notes | $ | - | $ | 2,850,085 | ||||
| Common Stock and Warrants | 106,176 | 129,378 | ||||||
| Non-employee Warrants | - | 95,041 | ||||||
| $ | 106,176 | $ | 3,074,504 | |||||
| December 31, | ||||||||
| Derivative Value by Instrument Type | 2014 | 2013 | ||||||
Convertible Bridge Notes | $ | - | $ | - | ||||
Common Stock and Warrants | 42,659 | 106,176 | ||||||
Non-employee Warrants | - | - | ||||||
$ | 42,659 | $ | 106,176 | |||||
The following table presents details of the Company’s derivative liabilities from December 31, 20112012 to December 31, 2013:2014:
| Balance December 31, 2011 | $ | 1,573,859 | ||
| Issuances in derivative value due to new security issuances of notes | 5,352,404 | |||
| Issuances in derivative value due to vesting of non-employee warrants | 485,700 | |||
| Issuances in derivative value due to allonges | 118,633 | |||
| Adjustment to derivative liability due to debt repayment | (129,139 | ) | ||
| Adjustment to derivative liability due to debt conversion | (3,361,772 | ) | ||
| Adjustment to derivative liability due to warrant cancellation | (1,318 | ) | ||
| Change in fair market value of derivative liabilities | (963,863 | ) | ||
| Balance December 31, 2012 | $ | 3,074,504 |
Balance December 31, 2012 | $ | 3,074,504 | ||||||
| Issuances in derivative value due to new security issuances of notes | 4,614,714 | 4,614,714 | ||||||
| Issuances in derivative value due to vesting of non-employee warrants | 26,969 | 26,969 | ||||||
| Adjustment to derivative liability due to note repayment | (40,511 | ) | (40,511 | ) | ||||
| Adjustment to derivative liability due to note conversion into new notes | (3,152,786 | ) | (3,152,786 | ) | ||||
| Adjustment to derivative liability due to note conversion into equity | (7,923,875 | ) | (7,923,875 | ) | ||||
| Adjustment to derivative liability due to non-employee warrant conversion | (176,555 | ) | (176,555 | ) | ||||
| Adjustment to derivative liability due to warrant exercises | (55,546 | ) | (55,546 | ) | ||||
| Change in fair value of derivative liabilities | 3,739,262 | 3,739,262 | ||||||
| Balance December 31, 2013 | $ | 106,176 | 106,176 | |||||
Change in fair value of derivative liabilities | (63,517 | ) | ||||||
Balance December 31, 2014 | $ | 42,659 | ||||||
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.
Key inputs and assumptions used in valuing our derivative liabilities are as follows:
For issuances of notes, common stock and warrants:
| Stock prices on all measurement dates were based on the fair market |
| Down round protection for dates prior to April 15, 2013 is based on the subsequent issuance of common stock at prices less than $3.00 per share and warrants with exercise prices less than $3.00 per share. Down round protection for dates between April 15, 2013 and June 17, 2013 is based on the subsequent issuance of common stock at prices less than $1.50 per share and warrants with exercise prices less than $1.50 per share. From June 17, 2013 thru March 12, 2014, the exercise price was $1.20 for issuances of common stock and warrants. Thereafter, down round protection is based on the subsequent issuance of common stock and warrants at prices less than $1.00 per |
| The probability of a future equity financing event triggering the down round protection was estimated at 100% during 2013 and 0% during 2014 after the financing event that occurred during the first quarter of 2014. |
| Computed volatility ranging from 86.1% to |
| Risk free rates ranging from 0.05% to1.41%. |
For issuances of non-employee warrants through June 17, 2013:
| Computed volatility of 128.9% |
| Risk free rates ranging from 0.30% to 0.66% |
| Expected life (years) ranging from 2.48 to 3.27 |
See Note 10 for a discussion of fair value measurements.
5. Bridge Notes, Notes Payable, Accrued Interest and Cash Payment Obligation
Bridge Financing
Summary
Prior to June 2013, we issued 10% Senior Secured Convertible Bridge Notes Payable (“Bridge Notes” or “new Bridge Notes”) to various accredited investors, and then extended the due dates on the majority of the Bridge Notes several times. In June 2013, the outstanding principal of the Bridge Notes totaling $4,984,720 was converted into 4,153,934 shares of our common stock at $1.20 per share within the terms of the agreement; therefore, we did not recognize a gain or loss on this transaction. We no longer have any outstanding Bridge Notes.
The Bridge Notes contained variable maturity dates and additional share issuance obligations and we recorded discounts to the Bridge Notes for the VMCO and ASID. The discounts were amortized to interest expense over the term of the Bridge Notes using the effective interest method. We determined that the VMCO and the ASID represented embedded derivative features, and these were recorded as derivative liabilities. See Note 4.
We capitalized costs associated with the issuance of the Bridge Notes, and amortized these costs to interest expense over the term of the related Bridge Notes using the effective interest method.
The following table summarizes information relative to the outstanding Bridge Notes at December 31, 20132014 and 2012:
| December 31, | ||||||||
| 2013 | 2012 | |||||||
| Bridge notes payable | $ | - | $ | 4,342,418 | ||||
| Less unamortized discounts: | ||||||||
| VMCO | - | (481,390 | ) | |||||
| ASID | - | (1,003,359 | ) | |||||
| Bridge notes payable, net of discounts | $ | - | $ | 2,857,669 | ||||
| �� | VMCO | ASID | Total | |||||||||
December 31, 2011 | $ | (12,031 | ) | $ | (47,739 | ) | $ | (59,770 | ) | |||
Additions | (1,409,797 | ) | (3,942,607 | ) | (5,352,404 | ) | ||||||
Amortization | 940,438 | 2,986,987 | 3,927,425 | |||||||||
December 31, 2012 | (481,390 | ) | (1,003,359 | ) | (1,484,749 | ) | ||||||
Additions | (1,936,191 | ) | (2,678,523 | ) | (4,614,714 | ) | ||||||
Amortization | 2,417,581 | 3,681,882 | 6,099,463 | |||||||||
December 31, 2013 | $ | - | $ | - | $ | - | ||||||
| December 31, | ||||||||
| 2014 | 2013 | |||||||
Bridge notes payable | $ | - | $ | - | ||||
Less unamortized discounts: | - | - | ||||||
VMCO | - | - | ||||||
ASID | - | - | ||||||
Bridge notes payable, net of discounts | $ | - | $ | - | ||||
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. Accrued interest was $16,943$0 and $13,775$16,943 as of December 31, 2014 and 2013, respectively. Although this note is currently past due, the Company is legally prohibited from paying it due to a court order dated December 7, 2007 related to a summary judgment in favor of the Company stemming from litigation between the Company and 2012, respectively. Currently past due.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.
Digimark, LLC Notes
As partial consideration for the acquisition of Boomtext in 2011, we issued an unsecured subordinated promissory note in the principal amount of $194,658. The promissory note did not bear interest, was payable in installments (varying in amount) from August 2011 through October 2012, and was subordinated to our obligations under the Bridge Notes discussed above.
We recorded the promissory note at the present value of the payments over the subsequent periods which amounted to $182,460. We amortized the discount using the effective interest method.
As of December 31, 2012, the outstanding balance on the note payable was $100,000, which was paid in June 2013.
Summary of Notes Payable and Accrued Interest
The following table summarizes our notes payable and accrued interest as of December 31, 20132014 and 2012:2013:
| Notes Payable | Accrued Interest | |||||||||||||||
| December 31, 2013 | December 31, 2012 | December 31, 2013 | December 31, 2012 | |||||||||||||
| Bridge notes, net, as discussed above | $ | - | $ | 2,857,669 | $ | - | $ | 261,213 | ||||||||
| Convertible notes payable, net of discounts | - | 2,857,669 | - | 261,213 | ||||||||||||
| Unsecured (as amended) note payable due to our Company’s former Chief Executive Officer, interest accrues at the rate of 9% compounded annually, all amounts due and payable December 31, 2008. Currently past due. | 20,000 | 20,000 | 16,943 | 13,775 | ||||||||||||
| Note payable due to a trust, interest accrues at the rate of 10% per annum, all amounts due and payable December 31, 2006. | - | 51,984 | - | 24,297 | ||||||||||||
| Digimark, LLC subordinated promissory note, net, as discussed above. | - | 100,000 | - | 22,083 | ||||||||||||
| Notes payable | 20,000 | 171,984 | 16,943 | 60,155 | ||||||||||||
| Totals | $ | 20,000 | $ | 3,029,653 | $ | 16,943 | $ | 321,368 | ||||||||
| Notes Payable | Accrued Interest | |||||||||||||||
| December 31, 2014 | December 31, 2013 | December 31, 2014 | December 31, 2013 | |||||||||||||
Unsecured (as amended) note payable due to our Company’s former Chief Executive Officer, interest accrues at the rate of 9% compounded annually, all amounts due and payable December 31, 2008. | $ | - | $ | 20,000 | $ | - | $ | 16,943 | ||||||||
Note payable due to a trust, interest accrues at the rate of 10% per annum, all amounts due and payable December 31, 2006. | - | - | - | 51,984 | ||||||||||||
Notes payable | - | 20,000 | - | 16,943 | ||||||||||||
Totals | $ | - | $ | 20,000 | $ | - | $ | 16,943 | ||||||||
Interest Expense
The following table summarizes interest expense for the years ended December 31, 20132014 and 2012:2013:
| December 31, | December 31, | |||||||||||||||
| 2013 | 2012 | 2014 | 2013 | |||||||||||||
| Amortization of note discounts | $ | 6,134,367 | $ | 3,935,108 | $ | - | $ | 6,134,367 | ||||||||
| Amortization of deferred financing costs | - | 263,255 | ||||||||||||||
| Other interest expense | 213,819 | 361,201 | - | 213,819 | ||||||||||||
| $ | 6,348,186 | $ | 4,559,564 | $ | - | $ | 6,348,186 | |||||||||