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MFON > SEC Filings for MFON > Form 10-Q on 14-Nov-2013All Recent SEC Filings

Show all filings for MOBIVITY HOLDINGS CORP.

Form 10-Q for MOBIVITY HOLDINGS CORP.


14-Nov-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains "forward-looking statements" as defined in Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, in connection with the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially and adversely from those expressed or implied by such forward-looking statements Such forward-looking statements include statements about our expectations, beliefs or intentions regarding our potential product offerings, business, financial condition, results of operations, strategies or prospects. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made and are often identified by the use of words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," or "will," and similar expressions or variations. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those risks disclosed in this report, under the caption "Risk Factors" included in our 2012 annual report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on March 21, 2013 and in our subsequent filings with the SEC. Furthermore, such forward-looking statements speak only as of the date of this report. We undertake no obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.

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, 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, 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 (IDC) , by 2015, more U.S. Internet users will access the Internet through mobile devices than through PCs or other wireline devices (Worldwide New Media Market Model 1H-2012 Highlights: Internet Becomes Ever More Mobile, Ever Less PC-Based (IDC #237459)). The IDC study further reports that the number of people accessing the Internet, in 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.. We 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 "C4" Mobile Marketing and Customer Relationship Management (CRM) 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), and Interactive Voice Response (IVR) interactions, all of which are facilitated via a set of Graphical User Interfaces (GUIs) 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 paperbased loyalty punch cards. Stampt makes it easy to receive all of the rewards consumers want from their favorite businesses. Consumer's can use Stampt throughout the United States to earn free sandwiches, coffee, pizza, frozen yogurt, donuts, bagels and more.

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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.

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 to reach consumers since it is the only media platform that has access to the consumer virtually anytime and 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 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. Our objective is to become the industry leader in connecting brands and enterprises to consumers' mobile phones.

Recent Events

Reverse Stock Split

In October 2013, our shareholders approved a reverse stock split of our outstanding common stock at a specific range from 1-for-5 to 1-for-10 as determined by the board of directors, and approved a decrease in the number of authorized shares of common stock from 150,000,000 to 50,000,000. The 1-for-6 reverse stock split and decrease in authorized shares of common stock became effective November 12, 2013.

Acquisitions

In May 2013, we acquired the assets of Sequence, LLC ("Sequence") related to a mobile customer loyalty application. 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) 750,000 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) 7,000,000 shares of our common stock which were valued at $1,112,310 based on the closing market price on the acquisition date.

Private Placement and Conversion of Bridge Notes

In June 2013, we sold 36,780,000 shares of our common stock at $0.20 per share and received net proceeds of $6,789,685. We also converted all of our outstanding Bridge Notes and substantially all of our interest payable on the Bridge Notes into 26,772,532 shares of our common stock at $0.20 per share. We no longer have any Bridge Notes outstanding.

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In August 2013, we completed the full amount authorized in the private placement of $7,500,000 by selling the remaining 720,000 shares of our common stock at $0.20 per share and received net proceeds of $107,492.

Results of Operations

Revenues

Revenues for the three months ended September 30, 2013 were $1,035,952, an increase of $29,690, or 3.0%, compared to the same period in 2012. The small net increase is primarily attributable to an increase of 79% in revenues from subscriber-based licensing and approximately $69,000 in revenues from recent acquisitions. This increase was offset by the loss of several large-enterprise accounts that were not replaced with new accounts in 2013, primarily due to increased focus on small businesses, and other minor factors.

Revenues for the nine months ended September 30, 2013 were $3,149,555, an increase of $120,689, or 4.0%, compared to the same period in 2012. The small net increase is primarily attributable to an increase of 260% in subscriber-based licensing and approximately $98,000 in revenues from recent acquisitions. This increase was offset by the loss of several large-enterprise accounts that were not replaced with new accounts in 2013, primarily due to increased focus on small businesses, and other minor factors.

Cost of Revenues

Cost of revenues for the three months ended September 30, 2013 was $268,507, a decrease of $38,544, or 12.6% compared to the same period in 2012. This decrease is primarily attributable to lower outsourced project consulting costs, IT related expenses, and sales commission expenses. IT related expenses decreased 10.7% as compared to the same period in 2012, due to consolidation of providers and reduced co-location expenses. Sales commission expense decreased 76.4% as compared to the same period in 2012, due primarily to fewer closed sales of corporate accounts, turnover of outside sales staff, and a smaller inside sales staff.

Cost of revenues for the nine months ended September 30, 2013 was $864,519, a decrease of $142,769, or 14.2% compared to the same period in 2012. This decrease is primarily attributable to lower costs for outsourced project consulting costs and sales commission expenses. Sales commission expense decreased 45.8% as compared to the same period in 2012, due primarily to fewer closed sales of corporate accounts, turnover of outside sales staff, and a smaller inside sales staff.

General and Administrative

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

General and administrative expenses increased $688,033, or 108.1%, during the three months ended September 30, 2013 compared to the same period in 2012. The increase in general and administrative expense was primarily due to higher stock-based compensation expense related to options granted to our new officers and employees and higher legal costs associated with our business activities during the period.

General and administrative expenses increased $293,827, or 12.5%, during the nine months ended September 30, 2013 compared to the same period in 2012. The increase in general and administrative expense was primarily due to higher stock-based compensation expense related to options granted to our new officers and employees and higher legal costs associated with our business activities during the period, which were offset by lower bad debt expense.

Sales and Marketing

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

Sales and marketing expenses increased $1,084,748, or 266.6%, during the three months ended September 30, 2013 compared to the same period in 2012.

Sales and marketing expenses increased $2,153,970, or 189.6%, during the nine months ended September 30, 2013 compared to the same period in 2012.

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The increase in sales and marketing expense for both periods was primarily related to higher employee related expenses and higher stock-based compensation expense of our new officers and employees.

Depreciation and Amortization

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

Depreciation and amortization expense decreased $41,446, or 31.7%, during the three months ended September 30, 2013 compared to the same period in 2012.

Depreciation and amortization expense decreased $250,700, or 58.0%, during the nine months ended September 30, 2013 compared to the same period in 2012.

The amortizable base of our intangible assets was lower in the 2013 periods than the 2012 periods because of the write-offs we recorded in December 2012.

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 $1,780,318, or 100%, during the three months ended September 30, 2013 compared to the same period in 2012. We converted substantially all of our debt into equity in June 2013.

Interest expense increased $3,327,735 or 110.2%, during the nine months ended September 30, 2013 compared to the same period in 2012. The increase in interest expense was primarily attributable to our increased debt balance during the period and the amortization of note discounts upon conversion of the debt in June 2013.

Change in Fair Value of Derivative Liabilities

The change in fair value of derivative liabilities for the nine months ended September 30, 2013 and 2012 was a loss of $3,865,511 and a gain of $407,079, respectively. The value of the derivative liabilities at any given date is based primarily on the value 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. During the period ended September 30, 2013, the volatility assumptions input into the Monte Carlo models were updated with our own stock (as two years of comparable data was now available), as compared to the use of guideline companies during previous periods, which increases the reliability of the underlying data in the models, but which also increased the value of the derivatives which in turn caused the increased losses in the current period. In addition, during the nine months ending September 30, 2013, the conversion of the convertible notes payable into common shares significantly reduced our ongoing exposure to share price movements as the tainted equity environment was relieved on June 17, 2013; thereby reducing the number of warrants subject to derivative liability treatment. See Note 5 for further information.

Liquidity and Capital Resources

As of September 30, 2013, we had current assets of $4,126,265, including $3,500,245 in cash, and current liabilities of $1,369,718, resulting in working capital of $2,756,547.

As of the date of this report, we believe we have working capital on hand to fund our current level of operations through, 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.

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Cash Flows

                                    Nine Months Ended September 30,
                                        2013                 2012
Net cash provided by (used in):
Operating activities              $     (2,084,814 )     $  (2,065,943 )
Investing activities                      (402,799 )            (9,732 )
Financing activities                     5,987,495           2,241,670
Net change in cash                $      3,499,882       $     165,995

Investing Activities

Investing activities during the nine months ended September 30, 2013 include $400,000 in cash consideration used in our acquisitions during the period.

Financing Activities

Financing activities for the nine months ended September 30, 2013 include net proceeds from the sale of common stock of $6,897,177, proceeds from the issuance of notes payable of $700,000 and payment on notes payable of $1,609,682. Financing activities for the nine months ended September 30, 2012 include proceeds from the issuance of notes payable of $3,148,470 and payments on our notes payable and other obligations of $906,800.

Critical Accounting Policies and Estimates

Refer to Note 2, "Summary of Significant Accounting Polices," in the accompanying notes to the condensed consolidated financial statements for a discussion of recent accounting pronouncements.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

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