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MFON > SEC Filings for MFON > Form 10-Q on 14-Aug-2014All Recent SEC Filings

Show all filings for MOBIVITY HOLDINGS CORP.

Form 10-Q for MOBIVITY HOLDINGS CORP.


14-Aug-2014

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 2013 annual report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on March 31, 2014 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 and mobile device applications, using our Web-hosted software solution available to both phones and tablet PCs. Through our SmartReceipt solution, we enable retailers to market their products and services from their point of sale systems. Through our Web-based software application that dynamically controls what is printed on receipts such as coupons, announcements, or other calls-to-action. 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 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.

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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.

Our SmartReceipt solution enables our customers with the ability to control the content on receipts printed from their Point of Sale (POS) system. SmartReceipt is a software application that is installed on the POS which dynamically controls what is printed on receipts such as coupons, announcements, or other calls-to-action such as invitations to participate in a survey. SmartReceipt includes a Web-based interface where users can design receipt content and implement business rules to dictate what receipt content is printed in particular situations. All receipt content is also transmitted to SmartReceipt's server back-end for storage and analysis. Our C4 solution integrates with SmartReceipt by support SMS marketing or Stampt mobile application calls-to-actions which can be printed on receipt content by SmartReceipt.

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

Acquisitions

In March 2014, we acquired the assets of SmartReceipt, Inc ("SmartReceipt") related to an application that allows our customers to control content printed on receipts generated by their Point-Of-Sale (POS) system. The assets and liabilities acquired from SmartReceipt consisted of accounts receivable, other assets, all rights under all contracts other than excluded contracts, all technology and intellectual property rights, deferred revenue obligations, and obligations under a commercial lease.

The purchase price consisted of (1) $2,368,019 of cash, (2) the Company's issuance of 504,884 shares of its $0.001 par value common stock; and (3) the Company's earn-out payment of 200% of the "eligible revenue" of the Company over the 12 month period following the close of the transaction ("earn-out period"). The "eligible revenue" will consist of: 100% of Company revenue derived during the earn out period from the sale of SmartReceipt products and services to certain SmartReceipt clients as of the close (the "designated SmartReceipt clients"); plus 50% of Company revenue derived during the earn out period from the sale of Company products and services to the designated SmartReceipt clients, plus 50% of the Company revenue derived during the earn out period from the sale of SmartReceipt products and services to Company clients who are not designated SmartReceipt clients. The earn-out payment will be payable in common shares of the Company at the rate of $1.85 per share, which is based on the volume weighted average trading price of the Company's common stock for the 90 trading days preceding the initial close of the transactions under the Asset Purchase Agreement.

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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 March 2014, the Company conducted a private placement of units of its securities, at $1.00 per unit, with each consisting of one share of the Company's common stock and a common stock purchase warrant to purchase one-quarter share of the Company's common stock, over a five year period, at an exercise price of $1.20 per share. In the private placement, the Company sold 5,413,000 units for the gross proceeds of $5,413,000. Emerging Growth Equities, Ltd. ("EGE") acted as placement agent for the private placement and received $370,635 in commissions and $78,000 in other fees from the Company. In addition, for its services as placement agent, the Company issued to EGE warrants to purchase an aggregate of 345,835 units, as defined above, exercisable for a period of five years from the closing date, at an exercise price of $1.00 per unit.

During June through August of 2013, the Company conducted a private placement of 6,250,000 shares of its common stock at $1.20 per share. In that private placement, the Company sold 7,500,000 shares of common stock for the gross proceeds of $7,500,000. EGE acted as placement agent and received $439,300 in commissions from and warrants to purchase an aggregate of 605,910 shares of the Company's 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 that placement, 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 $1.20 per share. We no longer have any Bridge Notes outstanding.

In August 2013, we completed the full amount authorized in the private placement of $7,500,000 by selling the remaining 120,000 shares of our common stock at $1.20 per share and received net proceeds of $107,492.

Results of Operations

Revenues

Revenues for the three months ended June 30, 2014 were $1,109,891, an increase of $24,281, or 2%, compared to the same period in 2013. The net increase is primarily attributable to revenues attributed to Smart Receipt, which we acquired on March 12, 2014. We realized $277,939 of revenue from the acquired SmartReceipt operations during the three months ended June 30, 2014, whereas we had no revenues from the Smart Receipt operations during the prior year period. This increase was offset by a decrease in revenues in the amount of $242,869 from large enterprise accounts and non-recurring or one-time events. Revenues from subscriber based licensing have continued to be affected by the new regulation put in place under the Telephone Consumer Protection Act in October, 2013, with the current quarter experiencing a decrease of $14,642, or 1% as compared to the same period in 2013.

Revenues for the six months ended June 30, 2014 were $2,013,106, a decrease of $100,497, or 5%, compared to the same period in 2013. The net decrease is primarily attributable to a decrease in revenues from large enterprise accounts and non-recurring or one-time events in the amount of $415,491. Revenues from subscriber based licensing have continued to be affected by the new regulation put in place under the Telephone Consumer Protection Act in October, 2013, with the current quarter experiencing a decrease of $25,423, or 1% as compared to the same period in 2013. This decrease was offset by our realization of $336,359 of revenue from our Smart Receipt operations from the date of acquisition (March 12, 2014) to June 30, 2014.

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Cost of Revenues

Cost of revenues for the three months ended June 30, 2014 was $258,340, a decrease of $53,050, or 17%, compared to the same period in 2013. This decrease is primarily attributable to lower SMS fees, IVR Fees, sales commissions, and credit card merchant fees. SMS fees decreased 8% to $75,845 as compared to same period in 2013 due to further reduction in negotiated volume discount and reduced overall SMS volume. IVR Costs declined 4% to $17,788 due to reduced IVR projects within our Enterprise /non-recurring and one-time events. Sales commissions decreased 9% to $37,043 due to reduced large enterprise and non-recurring revenues, a smaller outside sales team, and other minor factors. Merchant fees declined 0.5% to $6,497 due to reduced merchant fee rates and a larger percentage of customer revenue paid by check.

Cost of revenues for the six months ended June 30, 2014 was $519,234, a decrease of $76,778, or 13%, compared to the same period in 2013. This decrease is primarily attributable to lower SMS fees, sales commissions, and credit card merchant fees. SMS fees decreased 9% to $150,486 as compared to same period in 2013 due to further reduction in negotiated volume discount and reduced overall SMS volume. Sales commissions decreased 8% to $82,005 due to reduced large enterprise and non-recurring revenues, a smaller outside sales team. Merchant fees declined 1.3% to $14,564 due to reduced merchant fee rates and a larger percentage of customer revenue paid by check.

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 $66,741, or 8%, during the three months ended June 30, 2014 compared to the same period in 2013. The increase in general and administrative expense was primarily due to increased personnel expenses, share based compensation, and facilities expenses related to acquisition of SmartReciept. Personnel related expenses increased $25,498, and share based compensation increased $10,373, due to increased management and support headcount as compared to the same period in 2013. Facilities expenses related to the acquisition of Smart Receipt offices were $23,865.

General and administrative expenses increased $664,065, or 50%, during the six months ended June 30, 2014 compared to the same period in 2013. The increase in general and administrative expense was primarily due to increased personnel expenses, share based compensation, and one-time non-capitalizable expenses related to acquisition of SmartReciept. Personnel related expenses increased $198,580, and share based compensation increased $185,595, 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 were $185,000.

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 decreased $480,883, or 34%, during the three months ended June 30, 2014 compared to the same period in 2013. The decrease was primarily due to lower share based compensation expenses, offset by higher payroll and travel expenses resulting from increase in sales personnel as compared to the same period in 2013. During the three months ended June 30, 2014, share based compensation decreased $944,526, personnel costs increased $358,274, and sales related travel & entertainment expenses increased $83,442 over the prior year period.

Sales and marketing expenses increased $97,305, or 5%, during the six months ended June 30, 2014 compared to the same period in 2013. The increase was primarily due to higher payroll and travel expenses resulting from increase in sales personnel, partially offset by lower share based compensation expenses. During the six months ended June 30, 2014, share based compensation decreased $885,811, personnel costs increased $623,934, and sales related travel & entertainment expenses increased $204,150 compared to the prior year period.

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Depreciation and Amortization

Depreciation and amortization expense consists of depreciation on our equipment and amortization of our intangible assets. Depreciation and amortization expense increased $57,566, or 99%, during the three months ended June 30, 2014 compared to the same period in 2013. Depreciation and amortization expense increased $91,835, or 100%, during the six months ended June 30, 2014 compared to the same period in 2013. The amortizable base of our intangible assets was higher in the 2014 periods than the 2013 periods because of the acquisitions we recorded in May 2013 and March 2014.

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 $4,898,340, or 100%, during the three months ended June 30, 2014 compared to the same period in 2013. Interest expense decreased $6,344,873, or 100%, during the six months ended June 30, 2014 compared to the same period in 2013. We converted substantially all of our debt into equity in June 2013.

Change in Fair Value of Derivative Liabilities

The change in fair value of derivative liabilities for the three months ended June 30, 2014 and 2013 was a loss of $27,713 and a gain of $2,812,048, respectively.

The change in fair value of derivative liabilities for the six months ended June 30, 2014 and 2013 was a loss of $57,792 and a gain of $3,813,598, 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. 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 adjustments.

Liquidity and Capital Resources

As of June 30, 2014, we had current assets of $3,258,851, including $2,628,437 in cash, and current liabilities of $3,520,102, resulting in working capital of $(261,251). Current liabilities as of June 30, 2014 included an estimated earn-out in the amount of $2,273,000 and derivative liabilities in the amount of $48,384, 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 June 30, 2014 in the amount of $2,060,133.

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 6 months. However, there can be no assurance that we will not require additional capital within the next 6 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

                                     Period ended June 30,
                                      2014            2013
Net cash provided by (used in):
Operating activities              $ (2,534,208 )   $  (479,419 )
Investing activities                (2,387,170 )      (402,799 )
Financing activities                 4,977,130       5,880,003
Net change in cash                $     55,752     $ 4,997,785

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Investing Activities

Investing activities during the six months ended June 30, 2014 include $2,368,019 in cash consideration used in our acquisitions during the period.

Financing Activities

Financing activities for the six months ended June 30, 2014 include net proceeds from the sale of common stock units of $4,977,130.

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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